Week in Review

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Week in Review

03/19/2011

For the week 3/14-3/18

Crisis in Japan

It was a week we were all reminded of various radiation levels, including the fact that flying at 40,000 feet exposes the passenger to far more radiation than seen in Tokyo thus far. Or how a whole body CT scan gives you about 4 to 10 times that of an airline flight. There are reasons why it’s not recommended you have too many body scans, or dental X-rays, but the issue is confused when everyone is tossing around millisieverts, microsieverts and rems. 

What we do know without question is that the danger from the nuclear plant at Fukushima Dai-Ichi, as was the case at Chernobyl, is real and I for one do not believe the media was blowing things out of proportion. All you needed to know was there was a reason why Tokyo Electric Power Co. only allowed 50 heroic workers to try and put out the fires and stop the radiation leaks there until reinforcements were called in. I saw some absolutely ridiculous commentary this week, including from wacko Anne Coulter (I apologize for even bringing up her name but I know some of you saw her as well) claiming that there is no danger whatsoever from radiation itself.

The problem is as I go to post there are still many unknowns, though hopefully the coming week clears some of them up and the situation stabilizes. A New York Times story, for example, noted:

“A 1997 study by the Brookhaven National Laboratory on Long Island described a worst-case disaster from uncovered spent fuel in a reactor cooling pool.  It estimated 100 quick deaths would occur within a range of 500 miles and 138,000 eventual deaths.

“The study also found that land over 2,170 miles would be contaminated and damages would hit $546 billion.”

It’s the contamination that most gets me. For the disbelievers, why the heck do you think the likes of al-Qaeda are vigorously pursuing the ability to make a dirty bomb?! It goes back to those first post-9/11 days and all the studies showing the impact of a relatively small bomb going off in, say, midtown Manhattan and how vast parts of the area would become uninhabitable for decades.

So I hope we’ve put to bed the issue of the nuclear danger. It exists. It’s scary as hell, as much for its devastating potential economic impact as the physical one.

Regarding the former, blackouts leading to plant shutdowns, port closures, supply and part shortages, all present a multiplier effect. The massive amounts of debt in Japan, even if it is owned largely by the people themselves as opposed to the situation in the U.S. where we have to go outside our borders to hawk much of our paper, is another big issue as well.

“In the face of calamity, a decent people has proved extremely resilient; no looting; very little complaining among the tsunami survivors. In Tokyo people queued patiently to meet their tax deadlines. Everywhere there was a calm determination to conjure a little order out of chaos. Volunteers have rushed to help. The country’s Self-Defense Forces, which dithered in response to the Kobe earthquake in 1995, have poured into the stricken area. Naoto Kan, the prime minister, who started the crisis with very low public support, has so far managed to keep a semblance of order in the country, despite a series of calamities that would challenge even the strongest of leaders. The government’s inept handling of the Kobe disaster did much to undermine Japan’s confidence in itself.”

But as The Economist also points out, “(Japan’s) nuclear industry has a long history of cover-ups and incompetence.”

“Japan’s all too frequent experience of calamity suggests that such events are often followed by great change. After the earthquake of 1923 [that destroyed Tokyo], it turned to militarism. After its defeat in the second world war, and the dropping of the atom bombs, it espoused peaceful growth. The Kobe earthquake reinforced Japan’s recent turning in on itself.

“This new catastrophe seems likely to have a similarly huge impact on the nation’s psyche. It may be that the Japanese people’s impressive response to disaster, and the rest of the world’s awe in the face of their stoicism, restores the self-confidence the country so badly needs. It may be that the failings of its secretive system of governance, exemplified by the shoddy management of its nuclear plants, lead to more demands for political reform….

“The stakes are high. Japan – a despondent country with a dysfunctional political system – badly needs change. It seems just possible that, looking back from a safe distance, Japan’s people will regard this dreadful moment not just as a time of death, grief and mourning, but also as a time of rebirth.”

I am nowhere near as optimistic for the future of Japan as much of the above editorial, which was in The Economist’s March 19 issue. I see a nation having to deal with unimaginable problems. A nation grossly unprepared for the scope of the disaster.

It needs food, water and medical supplies, immediately, for hundreds of thousands. Permanent shelter, eventually, for a like amount.

Its commercial supply chains are severely disrupted, and in terms of its critical export business (let alone the ability to accept imports in a crisis), six major ports are now out of action for 2-3 years, using Kobe as an experience. The power grid is severely impacted.  You can’t run a business if you’re subject to rolling blackouts.

The global costs are huge as well. Japan is 8.7% of global GDP, $5.4 trillion in 2010, and had been forecast to grow 1.5% in 2011. Japan churns out 1/5th of the world’s semiconductors, to cite but one critical fact, let alone millions of cars. Granted, some of the ensuing shortfalls will be made up elsewhere, but this doesn’t help Japan.

And for all the “resilience” of the Japanese people, the fact is its government has been a shambles for decades, save for one or two prime ministers. For all the good that the people represent, Japan’s leaders have been hopelessly corrupt. It’s had four prime ministers in the last four years for good reason.

There are also good reasons why the likes of the U.K. and France have advised their people to leave the country, ditto the United States given certain parameters. The task at hand is so great, and the dangers so many (including another serious quake), that the odds of a good outcome simply aren’t there.

This wasn’t just a huge earthquake, where for all the sorrow and death you’re dealing with rubble and moving it out of the way so you can rebuild.

The tsunami contaminated vast stretches of land, mile after mile after mile, leaving it totally uninhabitable. 

I was down in Orange Beach, Alabama last summer, writing of how the beaches were fouled by the BP oil spill, but multiply what I saw by a factor of 10,000 or greater. Imagine what the 30-foot high wall of water was displacing; the oil, gasoline from cars and service stations, chemicals, waste and debris that will never be effectively cleaned up in our remaining lifetime.

It’s about the anxiety generated by the damaged nuclear plants, and the knowledge now that 54 other plants in Japan contain essentially the same dangers. These facilities account for 30% of Japan’s electricity. You can’t just shut them all down, yet the entire nation is essentially living on a fault line of one kind or another.

And so I am not in the least bit optimistic that Japan will emerge from this experience stronger, as many are suggesting. Thus far the people are displaying a will that says otherwise, but time already is running short for tens of thousands of the nearly 500,000 displaced. To save this nation and to maintain its spirit without descending into the muck of its northeast coast is a herculean task without parallel in the post-war era. God be with them.

Japan makes 40% of global electronic components, and 20% of all technology products, according to CLSA Asia-Pacific Markets. 13% of China’s imports come from Japan, including parts for assembly, particularly in technology. The U.S. imported $124 billion of merchandise from Japan last year.

Peter Hartcher, international editor of the Sydney Morning Herald, had some of the following thoughts on relations in the Pacific post-disaster.

“In December, a Chinese official proposed a grand global division of labor. China and India should ‘work together as a world factory and a world office,’ China’s ambassador to Delhi, Yan Zhang, said in a speech.

“It didn’t take long for the first part of his vision to become confirmed reality. Yesterday, new figures showed that China is now the world’s biggest manufacturer….

“Zhang didn’t spell out which functions Beijing wanted to designate for the other countries of the Pacific Rim. But from China’s behavior we can surmise that Australia is to be the world quarry. America is to be the world customer, running up ever-greater debts to buy endless supplies of Chinese products. And China’s great traditional rival and neighbor, Japan, a sometime technology repository, is just supposed to gradually fade away, its economy in a 20-year stagnation, bowed under a vast debt load, its population already shrinking.

“Wartime Japan saw itself as the mighty ruler of a Greater East Asia Co-Prosperity Sphere, with a subservient China, and free of Western intrusions. Postwar Japan offered itself to Washington as an ‘unsinkable aircraft carrier in the Pacific’ for the U.S. alliance, in the words of Yasuhiro Nakasone, prime minister in the mid-1980s, building a vibrant economy under the shelter of an American nuclear umbrella.

“But now Japan’s fate seems to be decrepitude, a nation-state increasingly resembling a comfortable retirement home, with no influence in world affairs. That would suit Beijing nicely.

“The dreadful earthquake and shocking tsunami of last Friday is like a flash of light across a darkened landscape….

“Japan’s disaster abruptly exposed the faltering of American stature. In the moment of panic on Friday evening, investment funds rushed immediately into all the traditional safe-haven assets, bar one. The price of gold rose, Swiss francs were up. But the U.S. dollar actually lost value, by 0.65 percent, against a basket of the world’s six major currencies.

“This confirms the evidence of the foreign exchanges during the Arab uprisings and oil scares of the past two months – the greenback, the world’s reserve currency of the postwar era, has lost its status as a safe haven.

“And China? The weekend produced two highly instructive announcements from Beijing. First, the National People’s Congress, China’s token legislature, drew towards the close of its annual session with an unequivocal statement on the future of democratization in China.

“There won’t be any, is the conclusion to be drawn from the statement by Wu Bangguo, chairman of the congress but also a top member of the country’s cabinet….

“What does this mean?....The Conservatives have triumphed.”

The second announcement was that “China will not change its determination and plans for developing nuclear power,” as stated by the Vice-Minister for the Environment on Sunday.

“Until Friday (March 11), Japan was already laboring under the triple burdens of debt, deflation and demography.”

Now add to these three two other Ds…death and devastation.

International economist Ken Courtis says, “None of these five Ds will do anything for Japan’s confidence.” Japan’s slow decrepitude will continue.

The Middle East

“The protests in Bahrain are really about a Shia majority having had enough of a Sunni government.   Sunni-led Saudi Arabia is Bahrain’s main sponsor and the Saudis are deathly afraid of Shia Iran leading an overthrow of Bahrain’s monarchy. The two are connected by a 16-mile causeway, but, more importantly, Saudi Arabia’s Shia minority largely inhabits the oil-producing eastern part of the country. No way the Saudis let an uprising on its soil get out of hand and you can be sure they are doing everything they can to help Bahrain’s leadership.

“In Libya, ruled by Col. Gaddafi since 1969, the regime should succeed in beating down the protesters, but at a high cost.”

The situation has now gone from bad to worse, even as our president tries to convince us otherwise. Bahrain, host to the U.S. Fifth Fleet, has been forced to call on Saudi and other Gulf Cooperation Council forces to help its own police and troops combat the hundreds of thousands of Shia protesters demanding a change in government. There was a window for dialogue, which the United States had pressed, but it was too late. The likes of Bahrain and the Saudis saw how Washington abandoned Hosni Mubarak, while letting Moammar Gaddafi run roughshod on his own people for weeks so the Obama administration’s credibility is zero.

What has followed has been outright brutality on the part of Bahrain’s security forces, with doctors and other medical personnel falling victim themselves because authorities don’t want the casualty counts to get out. In essence, Iran has been handed a tremendous propaganda coup. It doesn’t matter how hypocritical the cries from Tehran are, they are radicalizing more and more youth as Bahrain has arrested opposition leaders, thus precluding hopes of dialogue essentially forever.

Here is some of what President Ahmadinejad said the other day on the situation in the Persian Gulf, courtesy of the Tehran Times.

“In the past, there were countries in the region that sent troops to a neighboring country (Iraq) and (they) should learn a lesson from Saddam’s fate.

“The U.S. is not a loyal friend to you” (certain regional leaders) and it betrayed all its friends like Saddam,” Ahmadinejad told reporters on Wednesday.

“The United States and certain other countries provided Saddam with various weapons, but they themselves fought against Saddam in order to maintain their interests,” he added.

Iran’s leaders are accusing the United States, you see, of complicity in the “massacre” of Bahrainis.

So spoke the Iranian leader. The hypocrisy of it all doesn’t matter; a guy calling for the rights of protesters even as he continues to quash dissent in his own country. Iran’s efforts are working and Ahmadinejad  is helping to divide the U.S. and the West from its former allies.

“The Saudis have told Washington they have their own way of dealing with democracy protests: harsher repression. The world’s most important oil producer will take no lessons from the West. As far as Bahrain is concerned, Riyadh has two red lines: the Sunni al-Khalifa dynasty must survive and the Shia Iranians must be kept out.

“On the other side of the Gulf, the Iranian leaders who so brutally crushed their country’s Green Revolution have had the breathtaking cynicism to demand that their Shia cousins in Bahrain are allowed the freedom to protest.”

When it comes to Libya, I can understand how the Obama administration wants the likes of the Arab League to do more for their own security and rely less on the United States and the West. But you have to deal with the immediate facts as they are and we allowed Gaddafi weeks in the killing fields. We had a window, right at the start, for some covert action and blew it out of an overabundance of caution for our own citizenry. [One day I’ll give you my fuller views on the obligations, and expectations, of U.S. citizens who like to travel.]

But late on Thursday, the UN Security Council finally authorized direct military strikes on Libyan targets in a 10-0 vote with five abstentions. Hours before, Gaddafi warned the people of the remaining rebel stronghold Benghazi. “We are coming tonight. There won’t be any mercy.”

British and French forces have been mobilized. The U.S. has ships in the area. As of Saturday morning, Gaddafi was ignoring the ceasefire he had himself declared and bombing Benghazi. The coalition was meeting in Paris to coordinate the military response.

Ironically, it was Lebanon, the current Arab representative on the Security Council, who led the efforts for the no-fly zone. Why?

“Lebanon’s now-dominant Shiite community carries a long-held grudge against Gaddafi, too. Back in 1979, the erratic colonel kidnapped and murdered Imam Moussa Sadr, a revered religious leader of southern Lebanon.”

But as Avni continued, when the no-fly resolution was passed, “it was France that claimed leadership of the new military coalition….As French Foreign Minister Alain Juppe told UN reporters, ‘We are working hand in hand with our British friends. We are also in contact with the Arab countries, because it is very important that there are Arab countries involved in the intervention.’

“Then, almost as a postscript, Juppe added, oh yes, ‘Our friends the Americans’ are also part of the coalition.

“Obama long ago promised that as president he’d ‘repair’ America’s relations with the world. Now we know what he meant: We’ll follow Hizbullah’s diplomacy, and hide behind France’s back when military action is needed.

“And then deny it all here at home. Midweek, when Washington finally decided to ‘actively engage’ on the Libya resolution, UN Ambassador Susan Rice claimed she was ‘leading’ the council’s efforts. Leading? She almost sounded like a certain Hollywood actor who keeps repeating the phrase ‘winning’ like he thinks we’ll eventually believe him.”

“The UN Security Council voted last night to authorize a no-fly zone above Libya and approve ‘all necessary measures’ to aid rebels being crushed by Moammar Gaddafi’s forces. The question now: Will it come too late?

“Washington dithered for weeks as the Arab League, the Gulf Cooperation Council, the United Kingdom, France, Neptune and Pluto led the way. U.S. officials agreed to move only after a dozen rebel-held cities were shelled into submission.”

On Friday, President Obama assured the American people there would be no ground troops and that the sole goal was to protect the citizens of Libya. But there was no talk of Gaddafi’s actual removal, as both Obama and Clinton had discussed before.

So let’s look at the scorecard in terms of how many key allies we’ve ticked off the past two months.

Israel, Saudi Arabia, Bahrain, France and Britain, for starters. Additionally, we have major problems with Pakistan but that’s for reasons discussed further below.

In Egypt, the military is pushing for civilian rule faster than the West wants to see it. Parliamentary elections are slated for June with a presidential vote two months later.

And why would this be bad? Because the Muslim Brotherhood is the only well-organized network and stands to benefit the most. While they have claimed they have no intention of putting forth a candidate for the presidency itself, they are a virtual lock to gain the most seats in parliament, though whether they then obtain a majority is still too early to forecast.

In Yemen, the protests took a dark turn as snipers fired down on protesters, killing at least 46 on Friday in a brutal crackdown, while in Syria, there are stories at least five were killed in anti-government protests there, the worst in years.

And the Wall Street Journal ran this headline on March 17:

“The flow of information from Libya, Yemen and other governments in the region about the whereabouts and activities of the former Guantanamo detainees, along with other Islamists released from local prisons, has slowed or even stopped, the officials say. U.S. officials say they fear that former detainees will re-join al Qaeda and other Islamist groups.”

“Even if there are some positive outcomes in the likes of Tunisia and Egypt, the transitions are going to be long and drawn out, with internal security focused on maintaining order and securing a new government. And that means one thing. The extremists will have safe haven, at a minimum, knowing that the security forces are focused elsewhere….instead of having to dodge drones in Pakistan, Afghanistan, Somalia and Yemen, al-Qaeda-like groups will proliferate throughout the entire region. The West will be helpless, not having a strong relationship with the new leaders, whoever they might be. It will be a multi-year window where the Evil Doers can plot and export terror with little concern that they will be bothered inside their new homes.”

Wall Street

The Federal Reserve, in holding the line on interest rates yet again at its Open Market Committee confab, said the economy was on “firmer footing,” but housing was still depressed.   And while the Fed admitted it is watching rising commodity prices, it maintained inflation was subdued and longer-term expectations for it were stable.

First, speaking of housing, February housing starts came in at the lowest level since the Beaver Dam Bubble of 1884, while on the inflation front, February producer prices registered a most disconcerting gain of 1.6%, though still up only 0.2% on the core rate, ex-food and energy. Consumer prices for February were up 0.5%, but also just 0.2% on core. Year over year, ex-food and energy, the PPI is up 1.8% and CPI up 1.1%.

But back to commodities, if you doubted there was a ton of speculation in these markets today, all you needed to see was the price action in the CRB Index I’ve been writing a lot about the past few months. On Tuesday, in the big “de-risking trade” as concerns over the nuclear plant took center stage, the CRB collapsed 4%. On Thursday it rose 3% and finished the week down slightly.

By the way, I forgot to mention last time I have a piece on my “Hot Spots” link on the global food situation. If nothing else, read the last bit on how much food we all waste. It will remind you of what your mother used to tell you.

Street Bytes

--Stocks declined for a third week in four, though the damage could have been worse, what with the issues in Japan and the Middle East.   The Dow Jones dropped 1.5% to 11855, while the S&P lost 1.9% and Nasdaq declined 2.6%.   One contributing factor to Friday’s rally in equities was the long-anticipated move by the Federal Reserve to allow the major banks to increase their dividends. For example, JPMorgan Chase hiked theirs from 5 cents a share to 25 cents a quarter while authorizing a large stock buyback. Frankly, after what the banks did to all of us, I just couldn’t give a damn and my attitude is hardening with each passing week. 

Treasuries benefited from a continued flight to safety, even as the dollar struggled anew. I don’t have time to get into the yen currency action but will do so, if warranted, next time. Let’s just say at one point this week it was enough to make one’s head spin a la Linda Blair in “The Exorcist.” [O.K. The G-7 intervened for the first time in ten years to curb the soaring yen and calm markets, as the last thing the Japanese economy needs today is a strong currency that would kill exports.]

The Congressional Budget Office now says the White House underestimates future budget deficits by more than $2 trillion over the upcoming decade. The difference is mostly because the CBO is not as optimistic on tax revenues, though its estimate for the deficit in the current fiscal year is more optimistic than the $1.6 trillion forecast by the administration.

[Congress averted a government shutdown for another three weeks to April 8, though the Treasury is slated to hit its debt ceiling sometime between April 15 and May 31, which will spark an intense debate.]

--In terms of the future of nuclear power in the United States, it is totally dependent on success or failure at Fukushima. For now we know that the 104 nuclear plants in 31 states continue to provide 20% of the nation’s electricity. The Obama administration had committed to a new effort on this front to speed construction of the first facilities since Three Mile Island as part of a strategy to reduce greenhouse gases. As of this week the White House says it continues to support nuclear power but we need to wait on the investigation in Japan, as well as a new examination of facilities here, including a critical one at Indian Point, a mere 25 miles from New York City that has long had serious issues. Proposals for 20 new reactors over the next 15 to 20 years are in various stages of review, with Georgia and South Carolina facilities (4 in total) being first up as part of the “nuclear renaissance.”

China, on the other hand, while talking of suspending the approval process for any new plants, is nonetheless going to proceed with as many as 75 reactors, or about half the 155 on the drawing boards worldwide. Germany, however, is suspending plans to extend the life of 17 reactors there in response to Fukushima. Chancellor Merkel, in a controversial move last year, had approved extending the plants’ life 12 years. 70% of Germans oppose nuclear power.

[The existing 442 nuclear reactors worldwide produce 15% of global electricity.]

--A USA TODAY/Gallup poll shows that Americans’ support for nuclear power has fallen from 57% before the earthquake and tsunami to just 44% (47% opposed).   Of course the ability to stabilize the situation in Fukushima is the key going forward. Back in the 1970s, support for nuclear power was as high as 70% and then slid to around 40% after Three Mile Island in ’79. 

--This coming week is a critical one for the Euro-17 nations as Germany and France square off against the prime debtor nations. For its part, Ireland continues to refuse to raise its 12.5% corporate tax rate, which Angela Merkel is demanding before she cuts the Irish a break on their EU-bailout’s interest charge.   This week Portugal had its debt rating taken down two notches as it is next on the bailout list. The opposition party there is opposed to the Portuguese government’s austerity measures and is seeking to block them.

Merkel and French President Sarkozy are trying to impose new mandates on fiscal policies for the euro-17 that call for government budget deficit limits of 3% and a 60% overall limit on debt to GDP.

--Consumer confidence in the U.K. is plummeting over the job outlook and the austerity program.

--Apple pushed the delivery time for those ordering the iPad 2 online to 4 to 5 weeks, owing in no small part to five key components being in short supply because of factory shutdowns in Japan. 

--Honda Motor Co. said it would suspend auto and motorcycle assembly in Japan through next Wednesday, but it could easily be May before full production resumed due to damage suffered at some plants, uncertain power supply and issues with parts suppliers.

--Shoppers in China raced to hoard salt amid wild rumors that the iodine in salt was a defense against any radiation from Fukushima. When the salt disappeared (and this was basically a mad scramble across the nation on Thursday), “crazed consumers” started buying up soy sauce by the armful. As reported by the South China Morning Post, one woman cried in Beijing, “Earthquake, tsunami, nuclear plant blasted, salt can never be eaten anymore.” In Hong Kong, less prone to such panic, retailers nonetheless jacked up the price of salt by ten times, putting them in the StocksandNews Hall of Shame.

--Hawaii’s tourism industry faces a big hit. Japanese visitors were projected to spend $2 billion this year on the islands. Several thousand tour and hotel cancellations from the Japanese market have already gone through with the Japanese making up about 18% of Hawaii’s 7.1 million annual tourists. Golden Week, a holiday time in Japan encompassing four national holidays during late April and early May, will see another hit to Hawaii and normal arrivals.

--And New York City tourism faces a $1 billion shortfall due to cancellations by Japanese tourists, the fourth-largest group of foreign visitors to the Big Apple. Airlines and hotels expect cancellations of at least 50 percent.

--I had no idea that over 40% of Japan’s 34,406-km coastline is lined with concrete seawalls, breakwaters or other structures meant to protect against high waves, typhoons and tsunamis. In the case of Fukushima, aside from the seawalls being too low, Tokyo Electric stupidly put the diesel generators in a low spot on the assumption the walls would be enough to protect the plant.

--The Japanese consume 11% of the world’s luxury goods so upscale brands suffered this week on Wall Street as they tried to factor in a pullback. Tiffany, for example, has 55 stores in Japan and gets 19% of its revenue there.

--Warren Buffett, in a private interview to the Financial Crisis Inquiry Commission, addressed the issue of derivatives.

“If I look at JPMorgan, I see two trillion in receivables, two trillion in payables, a trillion and seven netted off on each side and $300 billion remaining, maybe $200 billion collateralized,” he said, walking through his thinking. “That’s all fine. But I don’t know what discontinuities are going to do to those numbers overnight if there’s a major nuclear, chemical or biological terrorist action that really is disruptive to the whole financial system.

“Who the hell knows what happens to those numbers? I think it’s virtually unmanageable.”

Alluding to his acquisition of General Re in 1998, a reinsurance company that had 23,000 derivative contracts:

“I could have hired 15 of the smartest people, you know, math majors, Ph.D.’s I could have given them carte blanche to devise any reporting system that would enable me to get my mind around what exposure that I had, and it wouldn’t have worked. Can you imagine 23,000 contracts with 900 institutions all over the world with probably 200 of them names I can’t pronounce?”

Berkshire Hathaway decided to unwind the derivative deals, incurring some $400 million in losses. [Andrew Ross Sorkin / New York Times]

[Buffett’s Berkshire made one of its largest acquisitions ever this week in acquiring U.S. specialty chemical company Lubrizol for $9.7 billion.]

--According to a study by IHS Global Insight, a U.S.-based consultancy, America’s 110-year run as the world’s largest goods producer has come to an end. China has surpassed the U.S. It is now estimated China accounted for 19.8% of world manufacturing output in 2010, ahead of 19.4% for the U.S. Economic historians say China was 30% of global output back in 1830, after which it fell to 6% in 1900. [Peter Marsh / Financial Times]

--China’s central government fiscal revenue rose 50.8% year-over-year in February to $57.16 billion. Not bad…not bad at all. [This includes taxes as well as administrative fees and other government income, including fines on state-owned assets.]

--This is interesting. “More than half of Chinese consumers’ impressions of foreign brands have worsened in the past year while over 90% believe the quality and services of these foreign brands do not live up to their reputations,” according to the Global Poll Center, conducted under the auspices of China’s Global Times.

--In a huge embarrassment, Renault CEO Carlos Ghosn was forced to apologize to three senior managers that had been wrongly accused of espionage, as per a story I ran in this space months ago. The three had been dismissed but a Paris prosecutor said the whole affair was a fraud. As reported by the Wall Street Journal, it was in August that several top managers received an anonymous letter accusing the head of the company’s development project of having negotiated a bribe. He was fired along with two of his deputies. All three denied the allegations. The state prosecutor’s investigation then showed that the three didn’t have Swiss bank accounts, as alleged, and that Renault instead was the victim of an organized attempt to defraud the automaker, though it’s still not known if any company secrets, also as first alleged, were indeed stolen. Ghosn said the three victims could have their jobs back, along with substantial compensation for pain and suffering. They are unlikely to return.

--In the trial of hedge fund king Raj Rajaratnam, one of the big victims is McKinsey, the giant global consultancy that is enmeshed in Rajaratnam’s Galleon Group through various partners who were feeding him tips. Why should McKinsey clients then trust the firm? How many confidences have been breached?

--Sign of the times: 213 of the 472 city employees in Costa Mesa, California, are being laid off due to austerity measures, impacting every department from firefighters to dogcatchers. Look for a spike in crime among bad dogs.

--My old employer, PIMCO, is about to become a one-company stimulus program. Or you could say one-man stimulus, thanks to the high-profile of Bill Gross and his success. PIMCO announced it is building a new headquarters in Newport Beach. It is slated to be about twice its current size and, more importantly for the region, will bring as many as 1,000 construction jobs to the area with the project slated to begin by late summer (and end by 2013). PIMCO employs 850 of its 1,500 employees worldwide in Newport Beach. There are a couple nice bars in the area too. [How did that get in here?!]

--Speaking of stimulus programs, who has been the biggest single generator of jobs in New York City since 2008? Why it’s Bloomberg LP, the financial giant founded by Hizzoner back in 1981. In about two years, Bloomberg has added 1,800 jobs in the city for a total of 6,500. It plans to add 1,600 more in Manhattan in 2011, mostly on the sales side as they pitch the Bloomberg Terminal, the data platform that accounts for 85% of the company’s revenue. [Mayor Bloomberg is not involved in the management of the company these days.]

--For the first time ever more people are getting their news from the Web than a physical newspaper, according to the Pew Research Center, though the Internet still trails television among U.S. adults. 2010 may also be the first year where online ad revenue surpassed print newspaper revenue. At least after two pathetic years, newspaper revenue is stabilizing, though it was still down a bit. The Pew study also said newspaper newsrooms are 30% smaller than in 2000. 

--The New York Times is going to start charging North American users for regular use of its online content. The first 20 articles each month will be free, but then it’s a minimum $15 a month for unlimited access to the paper and rises from there depending on whether you use the Times’ smartphone and iPad apps.

--For the first time ever, Americans bought more wine than the French in 2010, though the French are still way ahead in per capita consumption, 12.2 gallons per year to 2.6 gallons in the U.S.

--My portfolio: For those of you playing along at home with moi and my Fujian, China stock, I spoke directly to management last weekend on the board situation and am satisfied with the explanation I received. You also saw they gave very solid guidance for 2011. In the near term, beyond any public pronouncements by the company itself, and my disappointment over the recent share price, I will be radio silent on this one.

--So I’m reading the local crime blotter and I see that at The Mall at Short Hills, one of the ritzier malls in the nation, a Brooklyn man was arrested for credit card fraud as a result of a purchase of “Gucci sneakers valued at $450.” I had no idea there was such a thing; yet another sign of the apocalypse.

Foreign Affairs, Part II

Pakistan: CIA contractor Raymond Davis was suddenly released by a Pakistani court after it acquitted him of two counts of murder. Under Pakistani Sharia Law, relatives of a murder victim can pardon the killer and this was the case here because 18 relatives of the two victims came forward to say they wanted Davis pardoned after they had received “blood money,” compensation, which is legal here as well. Secretary of State Hillary Clinton denied the United States paid the relatives such funds, but what happened is the Pakistani government agrees to compensate the relatives, and then the United States pays the government to avoid technically paying the blood money.

But while this resolution comes as a relief to both governments, hardline religious parties are seething that Davis isn’t being punished, though the government had to release Davis or risk having some $3 billion in badly needed U.S. aid be cut off.

Meanwhile, Pakistan’s army chief, Gen. Kayani, said a U.S. drone attack on Friday that killed 40 (mostly civilians and the deadliest since 2006) was “in complete violation of human rights.” Kayani says such “acts of violence” make it harder to fight terrorism.

“It is highly regrettable that a jirga [meeting] of peaceful citizens including elders of the area was carelessly and callously targeted with complete disregard to human life. It has been highlighted clearly that such aggression against people of Pakistan is unjustified and intolerable under any circumstances.”

Separately, U.S. Gen. David Petraeus told a congressional committee this week that extremists operating in Pakistan are most likely interested in acquiring nuclear weapons, but Petraeus emphasized “there is quite considerable security for the Pakistani nuclear weapons.”

Israel: The Netanyahu government approved the construction of hundreds of new homes for Jewish settlers in the occupied West Bank, with the announcement coming a day after five members of a settler family were murdered by a Palestinian. The Israeli prime minister said, “They murder, we build.” Needless to say Palestinian officials condemned the move, as did the U.S. There are zero thoughts of peace talks these days.

Plus, on the Palestinian side, President Abbas announced he was ready to go to Gaza for talks with Hamas on ending their split and forming an interim government, a huge step. Hamas leader Ismail Haniyeh “welcomed” the initiative. Such a move, though, further dooms prospects of any serious discussions between Palestinians and Israelis.

Lebanon: Caretaker Prime Minister Saad Hariri said on Wednesday that his demand for Hizbullah to give up its arms is irrevocable.

“Our project is for the state to be responsible for the arms, the war and peace decision, and the stability and security of the Lebanese people.”

On Sunday, hundreds of thousands turned out in Beirut for a peaceful demonstration, with the slogan being “No to the supremacy of [Hizbullah’s} arms.”

Prime Minister-designate Najib Mikati denounced Hariri, saying the son of the late Rafik “invited strife (near his father’s) grave.”

Afghanistan: General Petraeus assures us all is going well, and I’m sure U.S. forces are performing admirably. The issue is can the Afghans fill the breach when we leave? In an ABC News/Washington Post survey only 31% now believe the war has been worth fighting, a new low. 64% say it has not been worth it.

Iraq: The following is an example of how things are going in Iraq these days. From AP:

“Seven Iraqi soldiers were fatally shot in an ambush on Saturday morning as they left their base near Mosul to head home on vacation….

“The soldiers, unarmed and wearing civilian clothes, were riding in a Kia minibus when two sedans pulled up and blocked their path. Four gunmen carrying automatic rifles jumped out of the cars, opened fire and then sped off.”

China: Premier Wen Jiabao stressed that “without political reform, economic reform cannot succeed,” in addressing China’s greatest danger, corruption and its elimination. Wen added, “The country’s future is determined by the people” and that “in order to reduce public complaints and realize its aspirations, the government should accept the criticism and supervision of the people.”

“Reform is the eternal theme of history,” Wen continued in a speech on Monday. But, “It is not easy to promote political reform in such a populous country. It should be carried out in a stable and harmonious social environment and under the leadership of the Chinese Communist Party.” [Global Times]

Wen is the main moderate at the top of Chinese leadership and others in the government are not enamored with his talk of institutional reform, as noted above in Peter Hartcher’s commentary.

On a different matter, on Friday, Malaysia revealed that it had seized two cargo containers filled with technology that could have been employed to build nuclear weapons that were bound for Iran, with the vessel originating in China. [Global Security Newswire]

North Korea: According to some in the South Korean government, Kim Jong-il is increasingly concerned about being able to turn over power to his son and has boosted security at his residences. The main issue is the son’s youth and inexperience and it brings up the age-old question I have asked innumerable times in this space, “Just who is behind Kim?” I have never seen a good answer to this because clearly our own intelligence doesn’t have a clue. Would a hardliner depose Kim, or a reformer, who would exchange the North’s nuclear program for huge gobs of aid that would then be used to modernize the economy? Since the leadership has existed in its current state by counterfeiting currency, running drugs, and selling missiles and missile technology, my stab at the question is that if there was to be a coup it would be at the hands of a hardliner, which wouldn’t necessarily mean there would be war but the status quo could prevail.

Russia: Both President Medvedev and Prime Minister Putin have said the right things in relation to Japan’s crisis, this after moves pre-earthquake that were designed to shake up the relationship. Russia has offered all manner of energy aid, for example, with Medvedev appointing Deputy Prime Minister Igor Sechin to act as point man, a significant move. Over 125 Russian rescue workers have been on the ground in Japan.

Meanwhile, in a regional election, United Russia (the party of Putin and Medvedev) scored an unimpressive victory with just 46% of the vote ahead of the key State Duma (parliament) vote in December, which precedes next year’s presidential election.

And if you’re thinking of hitching a ride to the International Space Station aboard a Russian rocket, it will cost you $63 million. At least that’s the new negotiated price between Russia and NASA. With the retirement of the space shuttles, NASA has to rely exclusively on Russia for space station crew transport and the going rate had been $51 million per person. The Obama administration is hoping commercial U.S. companies will develop the capability to fly to the station.

India: Prime Minister Manmohan Singh said his government had no involvement in a vote-buying scandal to win a confidence vote in 2008, defying calls to resign. A WikiLeaks cable from the U.S. said his ruling Congress party paid the bribes. The party has recently been hit by a series of allegations, including a $39 billion telecom scam where mobile phone licenses were sold at “rock bottom prices,” as reported by Reuters.

France: As I wrote recently, France’s Far Right (National Front party) leader Marine Le Pen is going to play the anti-immigration card big time as she prepares for next year’s presidential election. She showed up this week on the frontline Italian island of Lampedusa and said:

“Europe can’t welcome everyone….We would be pleased to take them all in our boat but it’s not big enough. We’ll all go to the bottom, us and them. We would be adding one misery to another….Send boats out to feed them. But they must not set foot on land.”

President Sarkozy called for camps to be set up in Egypt and Tunisia to hold people fleeing fighting in Libya, after which one of his own ministers said Sarkozy should stop “running after” Ms. Le Pen. “That’s not the way we can fight her.” Ah, but that’s just what your editor said Sarkozy would be forced to do in the coming campaign.

Italy: Prosecutors allege Prime Minister Berlusconi paid for sex with under-age Moroccan, “Ruby,” 13 times. This came up in a separate case involving three of Berlusconi’s aides, who have been accused of procuring sex for him.

By the way, the prime minister’s sex-fueled parties were highly organized, according to prosecutors: dinner, followed by erotic dancing and finally Berlusconi’s choice of a sex partner or partners. Personally, I’d be happy with veal parm and some cannolis.

Haiti: As a further sign of the powerlessness of the United States these days, South African President Jacob Zuma defied President Obama’s request to keep former Haitian president Jean-Bertrand Aristide in exile in South Africa until after Haiti’s presidential runoff election on Sunday. Zuma instead allowed Aristide to fly home to Haiti on Friday, where he received a heroes’ welcome.

Aristide was ousted in a 2004 rebellion amid corruption charges and claims he called for attacks on his foes. He now says he has no political ambitions but he can clearly sway the run-off.

“(Aristide’s) timing seems intended for maximum disruption, perhaps with a goal of discrediting the election result….

“Foreigners sometimes speak as if Haiti is cursed by the gods. But the curse of Aristide is man-made.”

But as if Aristide’s return isn’t bad enough, U.S. researchers believe Haiti’s cholera epidemic is going to get far worse and end up affecting as many as 800,000 people, or more than twice existing estimates. Thus far roughly 150,000 have contracted the disease resulting in 3,500 deaths. The U.S. now believes over 11,000 will die by November.

Mexico: From the AP, Acapulco: “Police early Thursday found the body of a 4-year-old girl who had been shot in the chest – the fifth child killed in drug-related violence in this Mexican resort city in less than a week. The child was in a car next to a woman who had been shot three times in the back.” Other child victims have included a 2- and 6-year-old.

Colombia: The armed forces claim to have killed a leading Farc rebel leader who was the main contact with Mexico’s drug cartels. President Santos said, “I want to tell them once again that if they keep doing what they are doing they will fall one by one, because we are not going to let down our guard and we have many others in our sights.”

Needless to say, Mr. Santos seems tougher than the leader we have in our White House more often than not. Santos also warned multinational companies that if they pay ransom money for the release of kidnapped employees, the firms will face expulsion.

Canadian oil company Talisman Energy had 23 employees kidnapped and then all but one were released. Talisman denied paying a ransom. In a debriefing of the freed hostages, the employees reported hearing of a deal between the rebels and the company. In the past, companies such as Chiquita have paid the rebels huge sums in protection money.

I was reading a story in The Atlantic on how Colombian women are increasingly turning to breast augmentation in an effort to become attractive to drug kingpins, which is rather sick. They are doing this, however, because there are few opportunities for women in Colombian society and one of Colombia’s leading models, who has had extensive body work, once had a high-profile affair with a drug lord and she’s viewed as a hero.

But then this week, Venezuela’s Hugo Chavez blasted the practice in his own country of women doing the same thing; getting breast augmentation surgery, as reported by the New York Times’ Simon Romero. Chavez appeared on state television saying the boom in surgeries rested with doctors who “convince some women that if they don’t have some big bosoms, they should feel bad.”

Simon Romero reports that “Billboards in Caracas advertise bank loans for the surgery.”

 “In an acerbic editorial on the subject on Monday, the opposition newspaper El Nacional compared Mr. Chavez to Col. Moammar el-Gaddafi…who regards Mr. Chavez as a friend. ‘Now comes this antiquated, militaristic, coarse, repressive attitude on the freedom of women to do what they want with their bodies,’ El Nacional said.”

Random Musings

--An ABC News/Washington Post survey revealed only 26% of Americans are optimistic about “our system of government and how well it works,” the fewest since the survey started in 1974. In the same poll, though, Barack Obama’s approval rating is 51%.

--The head of the Pentagon’s cyber command said the United States doesn’t have the people or resources to adequately defend the country against attack.

“We are very thin, and a crisis would quickly stress our cyber forces,” Gen. Keith Alexander told Congress.

Government systems are evidently attacked “millions of times a day,” as reported by the BBC.

Others say the threat is nowhere near as bad as painted and that Gen. Alexander’s warning is more about getting increased funding.

--After trashing Republican probable presidential candidate Mike Huckabee last week (as did George Will), in the ABC/Washington Post poll, Huckabee had the highest favorable rating among Republicans and Republican-leaning independents, 61%, compared to Mitt Romney’s 60% and Sarah Palin’s 58%. Palin had easily the highest unfavorable rating, again among Republicans, at 37%. For Ms. Sarah, however, understand that her favorability rating in this kind of survey has basically been sliding since John McCain first selected her.

And according to a story in New York Magazine, Fox News chief Roger Ailes is ticked at Palin for not shutting up after the Tucson shooting. Ailes had evidently urged her to keep quiet but she did her Facebook video where she accused the media of “blood libel” for linking her rhetoric to the massacre. “Lie low,” Ailes told her, as reported by Gabriel Sherman. “There’s no need to inject yourself into the story.” Ailes is paying Sarah $1 million a year to be a Fox News contributor.

Ailes and Fox have to decide what to do with her. They suspended the contracts of fellow Fox contributors, Newt Gingrich and Rick Santorum, as they explore presidential bids and Palin is going to have to make a decision soon one way or the other. [Ditto Huckabee. Fox is sponsoring a May 5 presidential debate in South Carolina.]

--Sec. of State Clinton said she will serve out four years but doesn’t want to serve in the cabinet after 2012 or seek elected office again. She’ll be there in the thick of things come 2016, I’m guessing.

--Note to Republican Rep. Michele Bachmann. Next time you’re in New England talking Revolutionary War history, make sure you have some basic sites right. [In case you didn’t hear, Ms. Bachman, in a meeting with New Hampshire Republicans, said, “You’re the state where the shot was heard around the world in Lexington and Concord.” Only problem was they were fired in Massachusetts. You know what Concord, New Hampshire should be known for? It was the home of teacher Christa McAuliffe.

--Peggy Noonan / Wall Street Journal…on Donald Rumsfeld’s book.

“ ‘Known and Unknown,’ his memoir of his tumultuous time in government, is so bad it’s news even a month after its debut. It takes a long time to read because there are a lot of words, most of them boring. At first I thought this an unfortunate flaw, but I came to see it as strategy. He’s going to overwhelm you with wordage, with dates and supposed data, he’s going to bore you into submission, and at the end you’re going to throw up your hands and shout, ‘I know Iraq and Afghanistan were not Don Rumsfeld’s fault! I know this because I’ve now read his memos, which explain at great length why nothing is his fault.’”

What upsets Ms. Noonan the most about the book is Rumsfeld’s treatment of the subject of Osama bin Laden.

“You’d think, nearly a decade after the events of Tora Bora, that Mr. Rumsfeld would understand the extent of the error and the breadth of its implications. He does not. Needless to say, Tora Bora was the fault of someone else – Gen. Franks of course, and CIA Director George Tenet. ‘Franks had to determine whether attempting to apprehend one man on the run’ was ‘worth the risks.’ Needless to say ‘there were numerous operational details.’ And of course, in a typical Rumsfeldian touch, he says he later learned CIA operatives on the ground had asked for help, but ‘I never received such a request from either Franks or Tenet and cannot imagine denying it if I had.’ I can.

“Osama bin Laden was not ‘one man on the run.’ He is the man who did 9/11. He had just killed almost 3,000 people at the World Trade Center, at the Pentagon, in a field in Pennsylvania. He’s the reason people held hands and jumped off the buildings. He’s the reason the towers groaned to the ground.

“It is the great scandal of the wars of the Bush era that the U.S. government failed to get him and bring him to justice. It is the shame of this book that Don Rumsfeld lacks the brains to see it, or the guts to admit it.”

--Chief State Department spokesman P.J. Crowley was forced to resign on Sunday after he called the military’s treatment of suspected WikiLeaks leaker Army Pfc. Bradley Manning “ridiculous” and “stupid.” A day later Obama was forced to defend the detention as appropriate and ironically he had just talked to the Pentagon about Manning’s treatment. “They assure me that they are,” the president said. Exit Crowley.

--New Yorkers have grown tired of Mayor Michael Bloomberg. Just 39% believe he is doing a good job, with 51% disapproving, according to a Quinnipiac University survey, his lowest rating in 8 years. His mishandling of the December blizzard is a big reason for the slump. President Obama’s approval rating has risen to 70% in the city. Good lord.

--Bronx, New York was the site of a horrific tour bus crash last weekend that claimed 15 lives (two dying after the initial accident). The driver of the discount operator wasn’t on drugs or drunk but clearly fatigued. He also had priors for manslaughter and grand larceny and had had his license suspended.

--So you know how the Drudge Report would trumpet how well Fox News is doing in the ratings game? Have you noticed there have been no such stories for weeks? Know why? I didn’t, until I read Crain’s New York Business. All the hard news stories this year, including the Middle East and now Japan, have been good for CNN and MSNBC. Glenn Beck’s audience, for one, plummeted 49% in January and 32% in February. Bill O’Reilly and Sean Hannity have seen their own double-digit hits.

The other thing is 48% of those aged 30 to 49 cite the Web as their primary news source, up 17 percentage points from 2007.

--Good news…the Centers for Disease Control and Prevention reported that deaths in the U.S. fell for a 10th straight year in 2009 (the most recent figures available) as the number of murder victims declined. Heart disease remained the No. 1 killer. Life expectancy at birth is now a record high 78.2 years.

For white males the life expectancy is 75.7 years, for white females, 80.6.

For black males the life expectancy is 70.9, for black females, 77.4.

--Warner Brothers took the Clint Eastwood movie “Hereafter” out of Japanese cinemas following the earthquake and tsunami. The film features scenes of the 2004 Indian Ocean tsunami, which the studio understood were “not appropriate” at this time.

But I have a proposal. There should be a 20-year moratorium on any natural disaster film (not that “Hereafter” is). With the videos of the tsunami, we have now seen it all. More gruesome than anything Hollywood could ever come up with.

On the other hand, let’s hope there is reason to do a film on how 50 brave men at the Fukushima nuclear facility helped pull Japan back from the brink of a total catastrophe.

--The Irish are “gobsmacked” that President Obama is going to visit their country in May, a huge boost for new Irish Prime Minister (Taoiseach) Enda Kenny. There is a chance the two will go golfing and I can tell you from experience how big this would be for the country. [Though the Bill Clinton statue in Ballybunion from a visit he made there is known today as a prime haunt for pigeons and what they tend to leave behind.]

--Prince William was a huge hit on a tour of quake-ravaged Christchurch, New Zealand. He is a class act and the locals were extremely appreciative he took time out of his admittedly jammed schedule ahead of the royal wedding next month. Make him king the same day.

“You may now kiss the bride…but first, we have a little surprise for you, William.”

--Californians are being reminded of the Big One yet to come. While modern office and apartment buildings are supposed to be built to more stringent codes, one thing I was reminded of in my reading was the fact that those looking for a place to live in California should avoid “killer buildings” that would sustain the most damage in a serious quake. These include older high rises and complexes featuring ground-floor parking, meaning everything above the garage is less stable.

[And boy was my recent California trip down the Pacific Coast Highway timely. On Thursday, a huge chunk of it near Big Sur collapsed into the ocean, shutting the roadway down. The entire southbound lane is gone and the northbound one unstable. Alternate routes easily add over an hour to the drive so the hotels and restaurants are going to suffer big time.]

--The earthquake and tsunami are further reminders to always have an emergency kit at the ready. Having ample amounts of cash doesn’t hurt. I know since 9/11, I also try not to let the gas tank get too low before refilling it.

--I saw in Army Times that Bob Barker is donating $2 million to the Semper Fi Fund to help injured service members and their families. Of course Mr. Barker retired in 2007 after hosting “The Price is Right” for 35 years. But I didn’t realize he also served in the Navy as a fighter pilot in World War II. What a great and rewarding life he’s had…and he’s finishing strong.

--In the first six days after the tsunami hit, charities in the U.S. raised $49 million for the Japanese cause. After an earthquake decimated Haiti, however, American donations totaled $296 million in the first seven days. I urged you then not to throw money down this rat-hole.

But how many of you saw the “60 Minutes” program last week on the kids of Seminole County, Florida whose parents are struggling financially? That was as touching as any story I’ve ever seen, and I hope to help one of them soon.

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

Gold closed at $1416
Oil, $101.07

Returns for the week 3/14-3/18

Dow Jones -1.5% [11858]
S&P 500 -1.9% [1279]
S&P MidCap -1.1%
Russell 2000 -1.0%
Nasdaq -2.6% [2643]

Returns for the period 1/1/11-3/18/11

Dow Jones +2.4%
S&P 500 +1.7%
S&P MidCap +3.9%
Russell 2000 +1.4%
Nasdaq -0.3%

Bulls 52.2 (unch.)
Bears 22.3 [Source: Chartcraft / Investors Intelligence]

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