[Posted 7:00 AM ET]
Iran / Iraq
Commentator Bill O’Reilly said on the “Today” show that
President George W. Bush’s “whole legacy is staked on Iraq.”
That’s the common perception across America, but as I’ve
pointed out it’s wrong. Yes, Iraq is critically important, but
Bush’s true legacy, as historians will define it, is as much about
Iran (and North Korea).
I was watching (Ret.) Gen. Barry McCaffrey on “Meet the Press”
and he spoke the most important words of the entire week.
Understand, if you’re not too familiar with him McCaffrey is
now an NBC News analyst and very plugged in to the military
and intelligence establishments. So when Tim Russert asked the
general about Iran, McCaffrey nonchalantly said the mullahs
would have “20-30” nuclear bombs in five years. [Later he said
five to ten years.] When a rather startled Russert asked him to
elaborate, McCaffrey said the key now is forming new strategic
alliances in the region to keep Iran from doing something stupid
with this power.
Well, as long-time readers know I’ve written quite a bit on this
topic and while I have consistently said Iran will plow ahead
with its nuclear program and obtain the bomb, there is no way
Iran will be allowed to ramp up to a level where it has 20 nukes.
For starters, Israel would never let this happen. Nor, eventually,
would the United States, or Saudi Arabia, or Turkey, or a host of
others in the region and outside it.
So how do we prevent this? The current negotiations with the
EU-3, the United States, Russia and China are supposed to be
able to pressure Iran to halt its uranium enrichment program,
while the International Atomic Energy Agency’s Mohamed
ElBaradei said “(The IAEA) has not made much progress in
resolving verification issues.”
Ayatollah Khamanei reiterated Iran will continue to enrich
uranium and then China maintained it would be opposed to
sanctions, while Russia continues to hint it would be as well.
In other words, nothing has changed from the position of all
parties months ago. For its part Iran continues to masterfully
manipulate Russia and China vs. the other four and its
pronouncements that it would be in favor of unconditional talks
line up nicely with my bit last week about a mahogany table with
fruit juices. All designed for stretching negotiations out as long
as possible while appearing compliant.
So this is the probable Bush legacy as of this moment, a nuclear-
armed Iran. Of course it wasn’t supposed to come to this. As I
myself believed, a rapid change of power in Iraq was to have had
a transformative effect on the Iranian citizenry, but this wasn’t to
be.
As for Iraq itself, President Bush deserves credit for his trip to
Baghdad and his face-to-face with Prime Minister al-Maliki. If
nothing else it bucked up the troops.
The president told Maliki and his cabinet, “The future of the
country is in your hands,” though it’s obvious Iraq doesn’t stand
a chance unless the U.S. military is taking the lead for at least
another year.
And that’s where American public opinion comes in because
even after killing Zarqawi, a majority of the American people
either aren’t confident the U.S. will “succeed” in Iraq or “win the
war.” [NBC News / Wall Street Journal; USA Today / Gallup
polls] President Bush is paying the price for his failure to lead in
2003 and 2004 and despite the recent successes most Americans
are too far gone. It was also typical that in this week of good
news, tragically the 2,500 death figure was reached to blunt some
of the positive developments.
Further opinion:
Editorial / Wall Street Journal
“President Bush’s surprise trip to Baghdad yesterday was long
overdue and, at five hours duration, too short. But it was still
worth making, if only to show both Americans and Iraqis that the
U.S. remains committed to seeing this war through to victory.
“Iraqis can be forgiven if they had begun to doubt American
resolve, amid all of the media devoted to falling U.S. public
support for the war and to such come-home-America advocates
as Senator John Kerry and Congressman Jack Murtha. ‘I’ve
come to not only look you in the eye,’ Mr. Bush told new Prime
Minister Nouri al-Maliki, ‘I’ve also come to tell you that when
America gives its word, it keeps its word.’
“This message reminds American GIs that they’re fighting in a
noble cause with support on the home front. It tells the terrorists
that they aren’t close to the political victory they seek of driving
the Coalition out of Iraq. It tells the Iraqi people that they can
afford to take a risk and join the police or assist the new
government with more confidence that the terrorists won’t be
able to exact revenge. And it gives the Maliki government more
political and military options as it considers how to restore order
to Baghdad, among other dangerous places….
“The insurgents have been operating dangerously close to the
Green Zone, the area in Baghdad in which Americans and most
Iraqi government officials live. And the perception of chaos in
the capital city has a demoralizing effect on both Iraqis and
Americans.
“The last week has been the best for Free Iraq in a long time,
with the killing of Abu Musab al-Zarqawi, the completion of the
new government, and now Mr. Bush’s visit. Let’s hope the
President returns soon, perhaps along with British Prime Minister
Tony Blair, and stays even longer the next time.”
Editorial / Washington Post
“President Bush delivered an important demonstration of
American support for Iraq’s new democratic government in his
visit to Baghdad yesterday. Prime Minister Nouri al-Maliki
represents the best and maybe last hope that a national
government can stem sectarian bloodshed, defeat Islamic
terrorist organizations and die-hard defenders of Saddam
Hussein, and make economic recovery possible….
“U.S. support, of course, cannot be unqualified, and it certainly
cannot ensure success: Mr. Bush rightly told Mr. Maliki that ‘the
future of your country is in your hands.’….
“But what Mr. Bush can do is give the government some
precious time by continuing to provide American troops and aid
to a regime that is nowhere near able to defend itself or rebuild
the country on its own….
“If Democratic leaders such as Sen. John F. Kerry (Mass.) had
their way, almost all U.S. troops would be out of Iraq by the end
of 2006 – a blow that Mr. Maliki’s government almost certainly
could not survive. Mr. Bush’s willingness – at least for now – to
resist such politically expedient demands may not rescue Iraq’s
fledgling political system; it may be that nothing can at this
point. But he is – correctly and courageously – using what
remains of his personal political capital to give Iraqi democracy a
chance.”
George Will / Washington Post
“The dust having settled – 500-pound bombs can raise, and even
manufacture, a lot of dust – it is time to give the devil his due.
To understand the diabolical genius of Abu Musab al-Zarqawi,
that pornographer of violence, begin with this:
“He was a primitive who understood the wired world and used an
emblem of modernity, the Internet, to luxuriate in gore. But
although he may have had an almost erotic enjoyment of the
gore, it was also in the service of an audacious plan. And he
executed it with such brutal efficiency that he became, arguably,
the most effective terrorist in history….
“It is sometimes charged that journalism, which considers the
phrase ‘good news’ an oxymoron (‘We don’t report the planes
that land safely’), is missing the good news from Iraq. But so
pervasive is the violence, and hence so dangerous has Iraq
become for journalists, that the Wall Street Journal, hardly a
hostile observer of the U.S. undertaking in Iraq, thinks the bad
news might be underreported.
“Even the good news often has a dark cast to it. At last – 25
weeks after the voting – the Iraqi parliament has produced a full
government. But its first task is to conquer itself: It must end the
sectarian violence being committed by people wearing
government uniforms, in the military and police.
“It is frequently said that protracted terrorism has an atomizing
effect on a polity, reducing civil society to so much human dust.
In Iraq it may be having the opposite effect: Rather than
disaggregating Iraqis, the force of the explosions – especially the
one on Feb. 22 that demolished the dome of the Askariya shrine
in Samarra – seems to have blown them together, ruinously, into
furious Sunni and Shiite blocs.”
Some final thoughts. President Bush told Prime Minister Maliki
to “use oil as a unifying force.” The right thought, but in the
long run I just don’t see the Kurds and Shia willingly sharing the
loot.
Maliki is prepared to offer limited amnesty to the insurgents,
ostensibly to those who ‘only’ targeted coalition forces, i.e., the
U.S. This won’t sit well with the average American, but
politically it may be the only option.
The current security sweep should have been augmented by more
U.S. forces. Why hold back at this crucial moment?
Finally, while I like Gen. McCaffrey for his insight, I’m sick of
his description of all generals as “brilliant.” They aren’t.
McCaffrey is teaching up at West Point these days; you’d think
he’d know better.
Wall Street
Just another volatile week for world markets. Early on we had
declines of 9% in one day in Russia and back-to-back losses of
10% and 9% in Colombia. [To put that in perspective, this
would be like consecutive 1,000 point losses on the Dow; which
would engender a headline or two on the nightly news, I
imagine.] But then on Thursday, Colombia was up a stupendous
16%! And as the markets rallied, India posted 5% and 6% gains.
As for the U.S., at its worst levels on Wednesday morning the
Nasdaq and Russell 2000 were off 14% and 13%, respectively,
from their multi-year highs of early May, while both the Dow
Jones and S&P 500 were off 8%. 10% being the benchmark for
a “correction,” we were back in that territory.
But then “Shazam!” After a dead cat bounce on Wednesday,
Federal Reserve Chairman Ben Bernanke somehow soothed
markets by saying little. For the life of me I don’t understand
Thursday’s rocket launch, when the major indices in the U.S.
rose 2% to 3% each.
You see, Bernanke said in a speech that as long as energy prices
don’t go much higher, overall inflation risks appear to be
“manageable,” though at the same time he offered that the Fed
needed to remain vigilant to inflation expectations.
In other words, he said nothing new. The Fed is still hiking end
of the month, a 17th consecutive time, and if the core consumer
price index for July is up another 0.3%, the Fed could hike again
come August.
The point being, they’ve already gone too far and with the June
29 increase they will have officially overshot. And,
coincidentally, when the economy rolls over, inflation will dry
up faster than you can say “Tiger Woods missed the cut at the
U.S. Open.”
The economy is already slowing, as the Fed’s own report of
regional activity (the Beige Book) noted this week. Retail sales
are on the weak side and a report on industrial production was
kind of punk.
Rising short-term rates are killing consumers with a lot of credit
card debt, adjustable rate mortgages and home equity loans, and
that will be increasingly reflected in the data. The housing sector
is rolling over and the third leg for the economy, capital
spending, is as I’ve said in the past the most squirrelly.
Corporate chieftains are the first ones to panic, given any kind of
bad news, especially on the geopolitical front, and I see cap-ex
falling short of expectations in the second half.
And just a word on energy. Bernanke is right when he says as
long as prices don’t spike higher, the costs to the economy of $70
oil are manageable. That level isn’t great, but it’s not the killer a
slumping housing market can be coupled with rising short-term
interest rates.
But the risks of a price spike are still there for two main reasons
these days; Iran and the hurricane season. It’s why prices have
remained as high as they have given near record levels of
inventories. Otherwise, yes, oil should be $50, or lower, and
gasoline back below $2 a gallon.
So I get one of those solicitations in the mail for a market
newsletter, as I’m sure you all have, and there is one of those
little books inside, touting the end of the world…or so these all
seem to do. [No, I’ve never written one myself….just this
column.] Anyway, the author rips off Matthew Simmons and the
‘peak oil’ adherents. These folks believe production from the
largest oil fields around the world have hit their max and the
situation is increasingly worrisome because we aren’t finding
new mammoth fields to replace them.
I believe this, too. But the author of this little book I was
perusing, while eating a box of peanut butter cookie crisp cereal,
says that we’ll wake up one day and oil will have shot up
overnight to $100 a barrel because the Saudis made an
announcement that they have squeezed the last out of their fields
and from here on they’ll be producing less.
For starters, trust me, this can’t happen overnight, or in a week,
or a month. There is no almighty oil god who will intone from
up high, or below, that production has peaked. Many experts,
though, already suspect this to be the case and on Friday the
Saudis did indeed announce that production for the month of
May was down. For example, when the International Energy
Agency or some other outfit projects 115 million barrels per day
of demand will be needed by 2020 and we’re currently at 85
million, well the peak oil folks would say we can never get to
115 in the first place.
But let me address this fellow’s claim of oil going to $100
overnight. It actually can…only it will occur when Iran tests its
first nuclear weapon. You can take that to the bank.
Finally, a word about China. As much as some of us like to bash
the place, the flood of Chinese imports has certainly helped keep
inflation at bay.
But for a while now the economy there has been too hot. That’s
not me, it’s Premier Wen Jiabao who this week, through the State
Council, warned that credit growth and overinvestment in fixed
assets were flashing major warning signs. As the Wall Street
Journal reported, “top Chinese bankers were called into China’s
central bank…and directed ‘to pay close attention to the risks’ of
over-rapid lending, the central bank said in a statement.”
Fixed asset investment (infrastructure) is up 30% for the first five
months of 2006. Much of this growth is warranted, of course,
but there’s a certain point where you don’t need a fourth six-lane
beltway. And someone, some bank, is financing all of these
projects.
Gary Schmitt & Jared Feiger, both at the American Enterprise
Institute, wrote a piece in the June 19 edition of The Weekly
Standard titled “Don’t Bank on China.” To wit:
“Early last month, the accounting firm of Ernst and Young
released a report concluding that the ‘nonperforming’ loans of
China’s banks totaled $911 billion (40 percent of China’s GDP)
– a figure that far exceeds the Chinese government’s own
estimate of $164 billion. Beijing’s response to the report was not
subtle: ‘The report not only seriously distorts the actual assets
quality of the Chinese banking sector,’ but ‘its conclusions are
absurd and incomprehensible.’”
Well, as Schmitt and Feiger write, Ernst and Young then
withdrew it, not because it was necessarily flawed but more
likely because it is auditor for the state-owned Industrial and
Commercial Bank of China, the country’s largest bank, and it
probably thought, ‘You know, this is a pretty good account.
Maybe we should try and keep it.’
Schmitt & Feiger:
“(Nonperforming loans) are expected to rise as a result of a flood
of new lending by Chinese banks….In the first four months of
this year, Chinese banks lent 60 percent of the amount of credit
they issued for the whole of 2005. This is bound to give rise to
future bad loans.”
In conclusion:
“Plenty of analysts have seen these problems and have predicted
China’s economic downfall for some years now – and it hasn’t
happened. At least, not yet. The laws of economics may be
complex, but they do, in the end, punish those who ignore their
most rudimentary precepts.
“However, that’s the point. Western financial experts keep
looking at China as though it simply wants to be another
Western-style, economic force. And while undoubtedly some in
China do, others don’t. The Communist party sees the banks as
too important, in allocating resources and ensuring political
support, to turn them over to independent actors. As Minxin Pei
notes in his fine new book ‘China’s Trapped Transition,’ ‘Few
authoritarian regimes can rely on coercion to maintain power.
Most autocracies mix coercion with patronage to secure support
from key constituencies, such as the bureaucracy, the military,
and business groups.’
“China is not different, and its banks remain a critical element in
the regime’s strategy for self-preservation.”
It’s going to get exciting, sports fans!
Street Bytes
–For the week, stocks were mixed, with the Dow Jones up 1.1%
to 11014, while the S&P 500 and Nasdaq were off fractionally.
Goldman Sachs and Bear Stearns reported monster earnings, and
Oracle’s were better than expected, but it was the global
meltdown early in the week that called the tune before most
everything rallied back later. But when it comes to future
earnings, like the second half of ’06, I just think they’ll fall short,
thus limiting any upside prospects.
–U.S. Treasury Yields
6-mo. 5.18% 2-yr. 5.16% 10-yr. 5.13% 30-yr. 5.17%
Interest rates soared anew after the 10-year had broken below its
trading range the previous week. Core producer and consumer
prices (ex-food and energy) were both up 0.3% in May, not real
good, and the 3-month trend on the core CPI is now running at a
3.8% annualized rate. As Fed Governor William Poole said on
Friday, this is too high. [In turn Poole killed the equity rally with
his comments.]
By the way, the 2-year yield of 5.16% is the highest since
January 2001.
–Bill Gates announced he was stepping down from his day-to-
day duties at Microsoft in two years, though he will remain
chairman. Chief Technical Officer Ray Ozzie will assume
Gates’s role of chief software architect while rumors swirl about
the fate of CEO Steve Ballmer. It’s not as if Microsoft’s stock
has been a great place for your investor dollars the past five
years.
I admire Bill Gates. It’s certainly hard not to, though when my
“great software” crashes I tend to invoke his name. But I was
disappointed the major press (with one exception) failed to quote
the key to his speech the other day in announcing his eventual
departure.
Gates said “with great wealth comes great responsibility to give
back to society.”
As Steve Ballmer added, Bill Gates will now become the
“greatest philanthropist of all time.” Here’s hoping he does.
–President Bush continues to receive little credit for the U.S.
economy. In the USA Today / Gallup survey, 39% approved of
his handling of it, 57% disapproved. [The other 4% didn’t
understand the question.]
–Commodities took it on the chin early, with gold experiencing
its single biggest decline in 15 years, down $44 on Tuesday,
while at one point silver was off 37% from its May high and
copper 25%.
–It was a rough week for European planemaker Airbus due to
production issues, including installation of the electrical systems,
that have forced big delays in the delivery schedule of its new
superjumbo A-380, the world’s largest passenger aircraft.
Already some airlines are canceling orders as they seek other
alternatives (Boeing) in a rush to meet surging demand,
particularly for overseas travel. [Of course these folks don’t
realize my coming global recession will send them all back in the
dumper…but I digress.]
Another key issue with the A-380, though, is the ‘wake.’ As
Roger Yu in USA Today describes it:
“Airbus is lobbying for changes in international regulations that
will reduce the number of miles between the A-380 and trailing
planes. Because the four-engine A-380 leaves such a turbulent
wake, trailing planes have to be at least 17 miles behind when
cruising, or 11 miles if the jumbo jet is landing or taking off.
The requirement for the current largest jet, the Boeing 747, is six
miles for both.”
–There has been a lot of talk about how the big foreign equity
exchanges, such as London’s and Hong Kong’s, have been
taking away initial public offering business from the New York
Stock Exchange and Nasdaq, but I noticed a little item in the
Daily Star (Lebanon) the other day that has to be just as
worrisome for New York’s financial elite.
Emirates Airlines sold $400 million in five- and 10-year bonds
on the Singapore bond market; the largest single debt issue by a
Middle Eastern company in the primary market. [Citigroup was,
however, part of the selling group.]
–Picture Fed Chairman Ben Bernanke having an investment in a
hedge fund where the lead manager, a national figure in his own
right, is accused of insider trading. This is the situation in Japan
these days as the head of the Bank of Japan, Toshihiko Fukui,
held an investment in the Murakami Fund. Last week I wrote of
how founder Yoshiaki Murakami was arrested on insider trading
charges.
The government is defending Fukui, saying his own investments
shouldn’t have an impact on how he conducts monetary policy,
while Fukui himself vows he won’t resign. Of course this all
comes at a most sensitive time as the Bank of Japan has been
taking away its easy money policy and is on the verge of raising
interest rates.
–The Government Accountability Office (GAO), Congress’s
non-partisan investigative agency, says if Venezuela’s Hugo
Chavez stopped selling oil to the United States as a result of a
political dispute, such an embargo would lead to an immediate
15% surge in world oil prices; due to the fact the U.S. is
unprepared for such an occurrence. Senator Richard Lugar (R-
Ind.) called for the study in urging Washington cooperate more
on energy issues globally. Venezuela supplies over 10% of U.S.
oil imports.
–Mary Anastasia O’Grady / Wall Street Journal
“Canada’s province of Alberta and the country of Mexico are
both renowned oil economies and in both places, the government
owns the oil reserves. But that’s where the similarities between
the two end.
“Alberta has an annual per-capita gross domestic product just shy
of $55,000; Mexico’s is roughly $6,000. To put it another way,
Albertans are swimming in their black gold while Mexicans are
swimming the Rio Grande for the right to wash dishes for Tom
Tancredo’s constituents, while the congressman hurls insults at
them on cable TV.
“Why, in the midst of this energy boom, is Mexico so poor,
while Alberta lives large? My guess is that it has to do with the
fact that the Canadian province welcomes private-sector
investment (otherwise known as money) in its energy sector
while Mexico has a government-owned oil monopoly (Pemex)
and forbids private-sector risk capital.
“Money in an economy has a way of making people wealthier.
Alberta estimates the long-term capital investment value of its
inventory of privately funded energy projects at almost $80
billion. Mexico has made such investment illegal, creating a lack
of funds. We call this poverty.”
–Yes, the upcoming G-8 summit in St. Petersburg is going to be
largely about energy security (as well as Iran and North Korea,
one would hope) and this week the Kremlin announced Russia
will be tightening its ownership requirements for all “strategic”
(read ‘large’) oil and gas fields. Foreign companies will not be
allowed to own more than 49%, thus enhancing the monopolies
for Gazprom and Rosneft. This means, though, that Russia is
impeding much-needed investment, a la Mexico.
–China uses more coal than the European Union, United States
and Japan combined.
–VeraSun Energy, the no. 2 ethanol producer behind Archer
Daniels Midland, came public at $23 and closed its first day at
$30. [It finished the week at $25.] But buyer beware when it
comes to this sector in general as there is a rush for a lot of
ethanol outfits to go public while competition booms. For
example, you can begin churning out the stuff just 14 months
after breaking ground on a plant.
–Hedge funds now hold about $1.3 trillion in assets, worldwide,
and make up 40% to 50% of the average daily volume by value
in global markets. Proponents argue that the industry has
changed greatly, though, and that hedge funds are both sources
of liquidity as well as diversification. I would argue that they
still operate for the most part with a herd mentality which we’ve
seen best exhibited by extensive exposures to the energy and
emerging markets sectors over the past two years.
–There were a few articles this week related to the amount of
power taken up by search engines and Internet services in
general. For example, “One large data center can consume
enough juice to power a small city of 30,000 to 40,000 people.”
[Wall Street Journal]
But then there’s Google’s new development on the Columbia
River. This secret complex, which will eventually comprise
three buildings (two football fields) with twin cooling plants, is
known locally as Project 02, and to give you an idea of the
company’s growth, consider these facts.
“In March 2001, when (Google) was serving about 70 million
Web pages daily, it had 8,000 computers….By 2003 the number
had grown to 100,000.
“Today…the best guess is that Google now has more than
450,000 servers spread over at least 25 locations around the
world.” [John Markoff and Saul Hansell / New York Times]
Microsoft’s Internet computing effort is expected to grow to
800,000 servers by 2011.
–IBM CEO Sam Palmisano wrote a piece for the Financial
Times on globalization and today’s multinational corporation.
Specifically, he’s concerned the public will turn the former into
an all-out assault on big business.
“Let me describe this new creature. In a multinational model,
companies built local production capacity within key markets,
while performing other tasks on a global basis. They did this in
response to the rise of protectionism and nationalism that began
with the first world war and carried on late into the twentieth
century. As an example, American multinationals such as
General Motors, Ford and IBM built plants and established local
workforce policies in Europe and Asia, but kept research and
development and product design principally in the ‘home
country.’
“The globally integrated enterprise, in contrast, fashions its
strategy, management and operations to integrate production –
and deliver value to clients – worldwide. That has been made
possible by shared technologies and shared business standards,
built on top of a global information technology and
communications infrastructure. Because new technology and
business models are allowing companies to treat their functions
and operations as component pieces, companies can pull those
pieces apart and put them back together in new combinations,
based on judgments about which operations the company wants
to excel at and which are best suited to its partners.”
–Meanwhile, Ford Motor, in what would be another severe blow
to the United Auto Workers Union, is expanding three plants in
Mexico (and possibly building another). Membership in the
UAW has fallen from 1.5 million in 1979 to 598,000 today.
–Over 40 companies have now been subpoenaed in the options
backdating scandal.
–A just-released June 2005 SEC deposition revealed that former
NYSE chairman Dick Grasso invoked the Fifth Amendment
against self-incrimination 168 times when questioned about
items such as possible share price manipulation in the case of
AIG. Former AIG chairman Hank Greenberg pressured Grasso
into getting AIG’s specialist to boost the stock’s value, or so the
story goes. The NYSE is a self-regulating entity and Grasso was
in charge of enforcing the specialists’ rules. Both the SEC and
the New York Attorney General’s office continue to probe the
role of the specialists and alleged trading abuses, including front-
running. Ten have already settled with the SEC and another two
leading figures went on trial this week in this still-developing
scandal.
[As an aside, the New York Post’s John Crudele reports that
Grasso’s big friend, Ken Langone, who chaired the NYSE
compensation committee, told the SEC in his own deposition,
“There’s an old saying that if you have a seat on the New York
Stock Exchange, it’s a license to steal. I shouldn’t say that in
front of a prosecutor, but anyway.” As Crudele said, “What a
dope!”]
–And then there’s the ongoing investigation into Fannie Mae.
While both Congress and the White House are adamant about
reducing both Fannie and sibling Freddie Mac’s monopoly in the
mortgage sector, owing to the gigantic risk should there be some
kind of systemic failure, current CEO Daniel Mudd and
Chairman Stephen Ashley were grilled by the Senate Banking
Committee about Fannie’s accounting shenanigans.
“I really do find it astounding that neither of you knew what was
going on,” said Sen. Chuck Hagel (R-Neb.) “I’m astounded that
you would stay with this institution.”
For his part Mudd insisted that even though he was chief
operating officer from 2000 to 2004, “Never at any point would I
sanction any departure from the (accounting) rules in order to hit
(incentive) targets.” [USA Today]
Former CEO Franklin Raines remains the prime target and we
hope indictments are forthcoming.
–Boy, what a couple John and Pamela Torkelson are. Actually,
they’re divorced and therein lies part of the problem for John.
You see, Pamela Torkelson pleaded guilty last year to assisting
in the theft of $1.9 million from Acorn Technology Fund, a
former venture-capital partnership. Ex-hubby John is tied up in
the investigation into improper payments to witnesses by class-
action lawsuit king Milberg Weiss Bershad & Schulman.
Milberg Weiss allegedly paid Torkelson $10s of millions to be
an expert in various suits. And now Pamela is singing… “Laaa!”
She also hasn’t been sentenced yet in her own case thanks to her
cooperation.
–For watchers of “Kudlow and Company,” don’t you think it is
more than a bit hypocritical that Larry Kudlow, who was barking
all last fall that the Federal Reserve was going too far in hiking
interest rates, has now been saying another “quarter- or half-
point is a good thing”?
–Last week I commented on the passing of L-3 Communications
founder and CEO Frank Lanza. After posting the column I read
a piece in the Saturday edition of the Wall Street Journal that
there are serious questions as to why shareholders weren’t
apprised just how sick Lanza was, considering he was the
company to a great extent in being both the public face and
driver of its success. Lanza, it turns out, was suffering from
esophageal cancer and the issue is what do shareholders have the
right to know?
But in exchanging notes with Scott P. on this topic, we also
talked about the overall cancer situation in the New York / New
Jersey area. The incidence of esophageal cancer appears to be
exploding, as a Journal piece noted a while back, and Lanza, who
was from the area, is the latest victim. I know of two such cases
literally within 50 yards of my home.
So it’s the water, it’s easy to muse. Separately, Scott reminds me
that 9/11 unleashed a toxic cloud down in Manhattan that we’ll
be learning the consequences of for years to come.
But coincidentally, two managers of water plants in Toms River,
New Jersey, were just arrested on Thursday for falsifying records
on the purity of the water there going back years. The
community of Toms River had long suspected the sky-high
cancer rate in their own area had something to do with it. As
much as possible, I’m drinking bottled from here on. [I should
have been years ago.]
Foreign Affairs
Israel: Talk about ‘waiting 24 hours,’ it was embarrassing how
Israel responded to the tragedy on the Gaza beach where a
Palestinian family of seven was killed by a shell of some kind.
First, Israel regretted the mistake, saying it had to be one of its
own. Then, upon analysis of the shrapnel, Israel said it couldn’t
have been. Then, Israel said it had to be an old land mine laid by
Hamas. Then, Israel said it could have been old ordnance from
the Israeli military. And so that’s where we stand for now, with
the United Nations preparing its own investigation.
At the same time, Hamas had called an end to the ceasefire and
resumed firing rockets into Israel. But by week’s end Hamas
hinted it may be willing to reinstitute it.
While all this was going on, though, there were more pressing
issues for the average Palestinian, like how to feed themselves
and so workers stormed parliament, seeking paychecks. It’s a
desperate situation.
Lastly, as Palestinian President Mahmoud Abbas pushes for his
July referendum on a two-state solution (thereby recognizing
Israel), British Prime Minister Tony Blair backed Israel’s
unilateral redeployment plan, thus infuriating the Arab world.
North Korea: Within just the past few weeks, both Japan and the
United States have become convinced Pyongyang is preparing
for a long-range ballistic missile test. As I go to post, it appears
imminent.
–China: Iran supplies China with 13% of its crude oil imports,
thus the splendid reception being given Iran’s President
Ahmadinejad at the Shanghai Cooperation Organization meeting.
Separately, China and Taiwan reached a deal on charter flights
between the two on four major public holidays. Taiwan’s
President Chen Shiu-bian continues to struggle amid all the
scandals swirling around his administration and the air deal is
seen by most as a sign of weakness. In this instance I disagree.
There is no reason for Taiwan and China’s citizens not to be able
to travel to each other’s place without having to first go through
Hong Kong.
On another matter, though, Amnesty International came down
hard on China for exporting arms to Sudan, Burma and Nepal;
arms that in Amnesty’s report are used to further violations of
human rights. A spokesman for the organization explained:
“China describes its approach to arms export licensing as
‘cautious and responsible,’ yet the reality couldn’t be further
from the truth. China is the only major arms exporting power
that has not yet signed up to any multilateral agreements with
criteria to prevent arms exports likely to be used for serious
human rights violations.”
Amnesty also notes China exchanges arms for raw materials; see
Iran. [BBC News]
And one last bit on the mainland. The vice-mayor of Beijing,
who was in charge of construction activities for the 2008
Olympics, was fired after a foreign businessman accused him of
extortion.
But further investigation revealed Liu Zhihua had built himself a
sex den filled with lovelies. The act that got him fired, though,
had to do with a land transaction. Well, now everyone is
wondering about how much corruption there is as the Games
draw near, to which I’d say, hey, corruption is what makes the
world go ‘round.
Russia: According to the annual report of Freedom House, on a
scale of 1 to 7, 1 being the most democratic and 7 the least,
Russia is a 5.75.
“The major theme for 2005 was the state’s continuing crackdown
on all aspects of political life in Russia,” the report said. [The
Moscow Times]
India: The International Atomic Energy Agency’s Mohamed
ElBaradei on the debate over the exchange of nuclear technology
between India and the United States.
“India clearly enjoys close cooperation with the United States
and many other countries in a number of areas of technology and
security. It is treated as a valued partner, a trusted contributor to
international peace and security. It is difficult to understand the
logic that would continue to carve out civil nuclear energy as the
single area for non-cooperation.
“Under the agreement, India commits to following the guidelines
of the Nuclear Suppliers Group, an organization of states that
regulates access to nuclear material and technology. India would
bring its civilian nuclear facilities under international safeguards.
India has voiced its support for the conclusion of a Fissile
Material Cut-Off Treaty. The strong support of both India and
the United States – as well as all other nuclear weapons states –
is sorely needed to make this treaty a reality.
“The U.S.-India agreement is a creative break with the past that,
handled properly, will be a first step forward for both India and
the international community. India will get safe and modern
technology to help lift more than 500 million people from
poverty, and it will be part of the international effort to combat
nuclear terrorism and rid our world of nuclear weapons.
“As we face the future, other strategies must be found to enlist
Pakistan and Israel as partners in nuclear arms control and
nonproliferation. Whatever form those solutions take, they will
need to address not only nuclear weapons but also the much
broader range of security concerns facing each country. No one
ever said controlling nuclear weapons was going to be easy. It
will take courage and tenacity in large doses, a great deal more
outside-of-the-box thinking, and a sense of realism. And it will
be worth the effort.” [Washington Post]
Of course I agree with the above. But it’s incredibly frustrating
to know that ElBaradei, who has been a roadblock in cracking
down on Iran’s weapons efforts, can also be so supportive of the
groundbreaking agreement between India and the U.S. when it
draws fierce opposition in Congress.
Indonesia: Abu Bakar Bashir, the Muslim cleric tied to the 2002
Bali bombing, was released after just two years in prison,
whereupon he said “the world must unite behind an Islamic god.”
Needless to say, the Australian government is rather upset.
Lebanon: The world’s most colorful politician, Druze leader
Walid Jumblatt, said “Hizbullah’s role is over” in his country and
he also had something to say of the Lebanese government’s
cracking of an Israeli spy ring that supposedly was involved in
the killing of both Hizbullah and Palestinian militants over the
years, including two deaths two weeks ago. As Jumblatt put it,
the government can figure out who killed the Palestinian figures
in short order, but it can’t figure out who killed former prime
minister Rafik Hariri in almost 1 ½ years. [Because of Syria’s
continuing influence here.]
Syria: Tehran and Damascus signed a new defense pact to
address “common threats” presented by Israel and the United
States. Neither side gave specifics.
Sri Lanka: A while back I noted how the Tamil rebels are really
the world experts when it comes to terror tactics and how
important it was to reach a true peace agreement in Sri Lanka as
a possible way of preventing some of their ideas from getting
into the hands of others. So this week we had another example
of their methods. It appears they attached two claymore mines
filled with ball bearings to tree branches and when a bus brushed
them they exploded. At last count a staggering 64 had died,
including at least 15 children.
[Friday’s Baghdad mosque suicide attack was another worrisome
development in the terror war as the bomber supposedly had the
explosives in his sandals, thereby eluding what had been very
tight security. Outside of Richard Reid’s attempt, this is the first
episode of this kind that I can recall.]
Thailand: The nation celebrated the 60th anniversary of the reign
of revered King Bhumibol Adulyadej, then a few days later
insurgents in the south set off 40 bombs, simultaneously, killing
two. The government admitted it was aware of such a plan but
still couldn’t prevent it. Since 2004, some 1,300 have died in the
region where Muslim’s make up just 4% of the population.
Global Attitudes: The Pew Research Center released its annual
survey and the image of America has slipped again in some
quarters.
For example, in Spain only 23% have a positive opinion of the
U.S., down from 41% in 2005, while Britain’s have remained in
the mid-50s, still down from 2002’s 75%.
India’s favorable opinion of us is now 56%, down from 71%;
Russia is 43%, down from 52%; and Indonesia 30%, down from
38% in just the past year.
Particularly disturbing is the continued slide in Turkey, where
only 12% of the people here have a favorable view of America.
In some countries, however, it’s more about President Bush.
When asked of their opinions of ordinary Americans, for
instance, 82% of Japanese like us, and Britain’s approval is back
to 69%. But only in India and Nigeria did majorities express
confidence in Bush. In Spain, just 1 in 14 like him. [Only 20%
of Spaniards back the war on terror, too.]
But if you’re looking for some good news, there is unanimity on
handling Iran. More than 90% of Americans, Germans, Japanese
and French oppose Iran acquiring nuclear weapons.
[International Herald Tribune]
Random Musings
–President Bush’s job approval rating merely ticked up, post-
Zarqawi; 37% in the NBC News / Wall Street Journal survey and
38% in the USA Today / Gallup poll. The better test will be in
September, after the Iraqi government has had a few months to
show it can do the job. September’s figures will also give us a
better indication on November’s vote. And for the archives,
advisor Karl Rove partied down upon learning he wouldn’t be
indicted in the CIA leak case. I thought this whole deal should
have been thrown out last fall, despite my disdain for Mr. Rove.
–Violent crime in the U.S. rose 2.5% in 2005, the first such
increase since 1992. Houston’s murder rate soared 23%, while
the overall murder rate in America was up 4.8%.
–Nobody should be surprised the GAO has uncovered fraud in
FEMA’s handling of hurricane disaster assistance to the tune of
$1.4 billion. I just don’t understand why this was a story this
particular week. We were discussing it last fall, including the
trips to strip clubs, massage parlors and Hawaii.
–Speaking of Hawaii, President Bush designated the
Northwestern Hawaiian Islands a national monument, thereby
offering its inhabitants maximum protection from real estate and
penny-stock swindlers. But since no commercial fishing
operations will be allowed, expect a flood of non-native fish to
migrate here as word gets around. Nonetheless, despite the
stresses this will cause, we give the president credit for the move.
Now get cracking on acquiring the last land surrounding our
biggest Civil War battlefields, for crying out loud.
–Bird Watch: Tokyo continues to have all kinds of problems
with its crow population. Now you all know how intelligent
these birds are (smarter than Steelers quarterback Ben
Roethlisberger, for starters) and it seems “the crows discovered
that broadband cable can be pecked into usable strips more easily
than power cables or telephone copper wire (and) are the perfect
consistency for building nests.” [Tokyo strings its broadband
alongside telephone wires.]
Fifteen years ago Tokyo had a crow population of 7,000; but it
soared to 33,000, whereupon the government launched an
offensive, capturing 11,000. But then the insurgents were
reinforced by their country cousins and the force is back to
33,000.
These crows are so smart that they’ve been observed “placing
nuts in front of the tires of stopped vehicles while waiting for the
cars to run them over and crack the shells.” [London Times]
–Britney Spears was dressed totally inappropriately for Matt
Lauer’s “Dateline” program……………….no, really.
–Ann Coulter really should eat a steak or something. Her face is
morphing into a skull.
–I forgot to note this last time but I was watching a medical story
on infections in hospitals and 50% of doctors don’t wash their
hands between patients.
–Congressman Patrick Kennedy pleaded guilty to being a loser.
–NBC News anchor Brian Williams:
“Children alive today can say they lived in the era of 88-year-old
Robert Byrd.”
Goodness gracious. Where the heck did Williams come up with
this garbage? It’s a total embarrassment that Sen. Robert Byrd
just broke the longevity record…17,327 days…held by the late
Sen. Strom Thurmond, another embarrassment the last ten years
or so of his career.
No, Mr. Williams. Hopefully children alive today will be part of
a generation that finally initiates real term limits. Geezuz, even
reducing it to 10,000 days or 27 years (make it 30, five terms)
could make some kind of difference.
But as if it’s not bad enough that Byrd’s best days (being fair
here) are long behind him, he’s running for yet another term and
with all the pork he’s delivered to West Virginia, these folks will
undoubtedly send him back to live out his own “Weekend at
Bernie’s” moment.
–With my two picks, Paraguay and Ivory Coast, out of the
World Cup, I’m hopping on board the Ecuador train…there’s
room for a few more.
–Finally, thoughts on the future from two rather intelligent gents.
Dr. Leon Kass, former Bush chair for the Council on Bioethics.
“I have to say that I’m pessimistic. I think growing up in the
United States in the post-World War II era was as good a time as
one could wish for – we got all those things that were in the 1939
World’s Fair: washing machines, dishwashers, products to
relieve the arduous toil of everyday life. Yet all those things
haven’t made anybody happier. We’re not grateful for those
devices. You could not today put on a World’s Fair and arouse
intense longings for a future we don’t know. We simply couldn’t
do it, because there are no more deep unfulfilled human wishes
for which technology of the future is going to provide the
answer. Yes, we’d like a cure for cancer, and prevention of
Alzheimer’s disease. But in terms of how we live, we already
have more than what we need to live well.
“I myself have no desire or curiosity to see 2020, never mind
later, except for the fact that I am deeply in love with my
grandchildren, and I want to see how they will turn out and to be
around to share as much of their life as I can. But I don’t envy
them their adolescence. I don’t envy them the difficulty of
finding husbands – they’re all girls – or finding private happiness
of the sort that I have been blessed to enjoy. I don’t envy them
the possibilities of getting the kind of liberal education that I’ve
had. I don’t envy them living in a post-9/11 world, or the
‘plugged in’ culture. I hope that they will find pockets where
they can enjoy what modernity has to offer without becoming its
slave. But I wouldn’t trade my life for theirs.” [The American
Enterprise]
And then there’s Stephen Hawking, who’s been in Hong Kong
for a series of lectures. Asked whether he thought humans could
live in space, Hawking said we have to “spread out…for the
survival of the species,” predicting a lunar settlement within 20
years and a Martian colony in 40. But first, he added, mankind
has to survive threats such as nuclear weapons, engineered
viruses and global warming. Doh!
But I can’t end on that note, so I must add that when Professor
Hawking, who has been in a wheelchair since age 21 with a
horrible disease, was asked about legalized euthanasia, he
responded that “although he should be able to end his life
if he wanted to, it would be ‘a grave mistake. While there’s life,
there is hope.’” [Steve Cray / South China Morning Post]
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $583
Oil, $69.88
Returns for the week 6/12-6/16
Dow Jones +1.1% [11014]
S&P 500 -0.1% [1251]
S&P MidCap -0.7%
Russell 2000 -1.2%
Nasdaq -0.2% [2129]
Returns for the period 1/1/06-6/16/06
Dow Jones +2.8%
S&P 500 +0.3%
S&P MidCap +0.3%
Russell 2000 +3.0%
Nasdaq -3.4%
Bulls 38.7*
Bears 34.4 [Source: Chartcraft / Investors Intelligence]
*Reminder…these figures come out Wednesday and are a
compilation of newsletter writers’ sentiment over the previous
week; important to remember for you junkies out there. The
current bull reading of 38.7 is the lowest since a major Oct. 2002
low of 28.4, so contrarians take note. And, as if on cue, equities
staged their spectacular two-day rally, Wed. / Thurs.
Have a great week. Happy Father’s Day!
Brian Trumbore
