[Posted 11:00 PM]
Ireland, Housing and the Global Economy
As I was out of touch with the world Wednesday through
Saturday, except for an Irish newspaper, and spent most of
Sunday flying home, my comments will be brief and I’ll catch up
on the world-at-large next time.
I spent four days golfing and renewing friendships in the western
Ireland seaside town of Lahinch, where they have a spectacular
links course and I’m also privileged to be an overseas member.
Depressingly, I never played worse and our threesome was in the
back of the pack thanks to me not carrying more of my share of
the load, but enough of this Shia-style self-flagellation. I’m a
lucky, lucky guy and I didn’t have to watch any videos of
JonBenet Ramsey for the better part of a week.
One thing I do know about Ireland is that since my first trip in
1989 the Emerald Isle has not only changed, in some respects it’s
changed for the worse. Some of the charm is gone and it has to
do with the raging success of the Irish economy and its people.
And what’s so bad about that? Crime is soaring. In fact the
Sunday edition of the Irish Times had a front page story as I was
leaving that Ireland’s crime rate in categories such as theft,
burglary, assault, and sexual attacks is now the highest in the
European Union. [Crime overall is dropping in the EU, but
rising here and in Belgium. In the latter’s case they have a
growing issue with fascism that I’ve written of before.]
There’s a brand of hooliganism among Ireland’s youth that
didn’t exist before and for the first time in fifteen or so trips I
noticed something was amiss. My local friends also had no
problem telling me things have changed.
Every society, whether it’s in Asia, Latin America, Europe or the
U.S. and Canada has seen rising standards of living, but success
often breeds excess and it’s manifested in different ways. In the
U.S. it’s been mostly about material goods, but we’ve also had to
deal with the flipside of rising inequality, which will be even
more apparent and troublesome as our economy slows and we’re
hit with the downside of the housing bubble.
And talk about a property bubble, Ireland has one of its own in
spades. For the month of July the average home rose 15% in
value, year-over-year, and is still expected to rise 12% for all of
2006. At the same time official inflation (like in our consumer
price index) is rising at a 5% clip (2 ½ times the EU target of
2%), but the cost of items such as housing, healthcare and energy
is running at a 10% rate. [On the energy front, incidentally, the
region has major concerns over still declining production from
North Sea oilfields.]
Like everywhere else that has seen a bubble in real estate, from
Spain to Moscow, to New York and Los Angeles, across to
China and South Korea and down to Australia, speculators have
been fueling the excess. In Ireland this comes in the form of
non-nationals; as in 1 in 5 homes purchased there are bought by
Americans, Asians and other Europeans and this all helps lead to
the biggest issue worldwide these days when one talks about a
home….affordability.
No matter what developed or developing nation you’re referring
to, people are taking on debt at astronomical levels, but whereas
in the past it was mostly of the consumer variety, i.e., credit
cards, today it’s layer upon layer on just about everyone’s largest
asset, their home.
So while each nation is in various stages of the cycle, with
Ireland in the process of gradually topping out (it may not look
like it yet by the numbers but it’s started) and the United States
having peaked last fall, there is no way any rational mind can say
we don’t have a serious issue of global proportions, with, as is
always the case, the ones who can least afford it being hit the
worst.
Just to finish up on Ireland, though, and on the good news side,
back in 1987 the unemployment rate was 18%. Today it’s 4.1%.
Tourism was up 13% for the first half of the year and GDP will
likely grow in the neighborhood of 5%.
What’s particularly interesting, however, especially for those
who remember the days when Irish youth fled to other countries
for opportunities they couldn’t find at home, a trend long since
reversed, today it’s the Poles who are emigrating to Ireland. In
fact a staggering 150,000 since 2004 with an even greater
number landing in Britain, thanks in large measure to Poland’s
sky high 16% jobless rate with a pitiful wage structure to boot.
Iran, Iraq, Lebanon
I’ve said for well over a year now that Iran has played the West
for chumps and this week the New York Post’s Ralph Peters
wrote “Iran’s been playing poker while the West plays Old
Maids.”
The week started with Iran’s extensive war games “planned in
response to the evil intentions of the enemy,” according to an
Iranian general. They fired off some impressive looking missiles
(with more today) and the message was clear. Don’t mess with
the mullahs.
Then on Monday, Iran turned away UN inspectors attempting to
search a suspected nuclear facility in a clear violation of the
Nuclear Nonproliferation Treaty. Ayatollah Khamenei said his
nation “will continue its path” of nuclear liberation.
Next, the long-awaited August 22, which Iran had telegraphed as
the date it would tell the world what its plans were. Some, such
as Islamic scholar Bernard Lewis, saw some sinister message in
the selection of a date with historical meaning in the Islamic
world, but as it turned out all Iran wanted to do was present a 23-
page document that basically said it was willing to accept a new
round of talks under a “new formula.”
Ah yes, just like former North Carolina basketball coaching great
Dean Smith and his four-corners offense in the days when there
was no shot clock. It’s a continuation of Iran’s brilliant delay
game as it knows the world’s powers are split on what to do next.
The United States and Britain would like to see sanctions levied,
as would even France, for Iran’s failure to comply with a UN
Security Council Resolution demanding Iran stop enriching
uranium by Aug. 31, but France wants to still pursue a
diplomatic track further and as for Russia and China, well, you
shouldn’t be surprised they’re backtracking in a big way.
All of which means this Thursday’s deadline will come and go
with little real consequence as deep in the bowels of tens of sites
across Iran, the mullahs edge ever closer to having the bomb…an
Islamic bomb.
Regarding Iraq, last Sunday on “Meet the Press” Republican
Senator John McCain reiterated we need more troops in
Baghdad, but not just borrowed from somewhere else in the
country, and once again called for Secretary of Defense
Rumsfeld’s resignation (in so many words), saying he has “no
confidence” in the man.
The violence in Baghdad proper, though, has lessened slightly
with the infusion of more troops over the past few weeks, but
going from suicide attacks killing an average of 70 a day to 30
isn’t exactly cause for a victory parade and Sunday was another
bloody one with at least 60 dead.
Iraqi Prime Minister Maliki got key tribal chiefs to pledge their
support for his efforts, but let’s face it, it all comes down to
corruption and divvying up the oil revenues. Unless it’s done in
an equitable fashion, with the Sunnis receiving a fair share, it’s
going to be hard for the United States and its few allies left in
theatre to exit with dignity.
It doesn’t help when Iraqis feel as they do. According to surveys
of public opinion from 2004 and 2006, there is an “increased
feeling of powerlessness, insecurity, pessimism and a striking
level of distrust of U.S. intentions among all three of Iraq’s major
ethnic and religious groups,” as stated in U.S. News & World
Report. And when asked for “the three main reasons for the U.S.
invasion,” less than 2% picked “to bring democracy to Iraq” as
their first choice. “To control Iraqi oil” was selected by 76%,
followed by “to build military bases” (41%) and “to help Israel”
(32%). But the sponsors of the project, the National Science
Foundation, did at least find a rise in support for secular
politics.
Lastly, we have Lebanon. On Sunday, Hizbullah’s Hassan
Nasrallah admitted that if he had to do it over again he wouldn’t
have kidnapped the two Israeli soldiers because of the
consequences. Israeli officials are saying this is proof Israel, not
Hizbullah, won.
More importantly is the reaction in the streets of Lebanon as it
begins the painful process of rebuilding. A week ago Lebanese
Speaker Nabi Berri and Prime Minister Fouad Siniora spent less
than an hour in bombed out south Beirut, Hizbullah’s stronghold,
in their first visit there a week after the fighting had stopped.
A local resident told the Daily Star, “Hizbullah’s officials were
here from the very first day and their party started working on
the ground lifting the rubble and assessing the damage before the
government even thought of thinking of us. Why do we love
Hizbullah and why are we volunteering to help? I tell you it is
because they took care of us and they still do, and it’s about time
we take care of them.”
Otherwise, the week saw movement in building a UN
peacekeeping force for south Lebanon as France agreed to up its
troop levels to 2,000, as well as lead the force until February,
while Italy said it would contribute 3,000 and command it
afterwards. [Spain is talking 1,200 and Turkey could end up
supplying 5,000 of the 15,000-strong army that will work with
15,000 Lebanese soldiers.]
But while some such as Italian Prime Minister Romano Prodi
talk of a new “era of responsibility,” there is really just one issue;
disarming Hizbullah. Here there are no takers. The UN force
won’t, even though it’s in their mandate to do so, and obviously
Lebanon’s army, replete with Hizbullah sympathizers, won’t
pick up arms against their new brothers. So just as in the case of
Iran the world community, including the U.S., talks a good game
and nothing more.
As for Israel, Prime Minister Olmert’s popularity has plummeted
in the aftermath of the disappointing way Israelis now see the
war as having been fought, with 63% wanting him to resign.
Former Prime Minister Benjamin Netanyahu’s support is rising
fast. Of course it doesn’t help Olmert that his president, Moshe
Katsav, is under investigation for sexual harassment and Israel’s
Justice Minister Haim Ramon resigned over allegations he
forcibly kissed a teenage woman soldier during a party at
government offices. Earlier, before the war, the army chief of
staff, Lieut. Gen. Dan Halutz, was selling his stock holdings so
as not to lose on his investments when the shooting started.
Wall Street
The market meandered downward, pressured by the latest dismal
readings on housing as both sales of new and existing homes fell
yet again in July while inventories soared. By one measurement
the median home price is now up only 1% over the previous year
as the comparisons continue to weaken. Merrill Lynch chief
economist David Rosenberg believes the chances of a hard
landing in real estate are now 40-80% and as housing is the
“quintessential indicator,” just as in the bursting of the tech
bubble it spells big-time trouble.
I was reading a story in U.S. News & World Report about
housing’s importance in the overall economy and while I’ve
broached this topic ad nauseum for years now it’s still worth
repeating that 1 in 10 jobs, nationwide, are housing-related. In
some coastal regions of Florida the sector accounts for 1 in 5.
Separately, Josh P. wrote that for the month of July in San Diego
County, 1,300 construction jobs were shed. That’s just the
beginning.
So for those expressing little concern, think again. By the end of
this year an awful lot of folks will be facing negative equity on
their homes and when it comes to consumer behavior the reverse
wealth effect isn’t a good thing, let alone if you have a home
equity loan or two on top of it. Santa could be traveling light this
year.
Street Bytes
–U.S. Treasury Yields
6-mo. 5.16% 2-yr. 4.86% 10-yr. 4.79% 30-yr. 4.93%
Bonds continued to rally on the feeling the Federal Reserve is
finished raising interest rates due to the overwhelming evidence
the economy is slowing, as best exemplified by the housing data,
while the latest figures on durable goods (big ticket items) were
weaker than expected.
–German investor confidence plunged to a five-year low this
month, a rather worrisome development for the health of
Europe’s largest economy.
–Ah, politics and defense contractors. BAE, the British defense
group, has contributed over $670,000 to U.S. candidates this
election cycle, 68% of which has gone to Republicans. $20,000
apiece has been forwarded in plain brown paper to Congressmen
Jerry Lewis (R-Ca.), John Murtha (D-Pa.), and Duncan Hunter
(R-Ca.), the three biggest figures on the House side in
appropriating funds for defense contracts. [Financial Times]
[Foreign companies can do this through U.S. subsidiaries.]
–Former tech investment banker Frank Quattrone avoided a third
trial on obstruction of justice in the IPO scandal and will be able
to continue as if nothing happened in his beloved financial
services industry. Quattrone will be setting up an investment
boutique specializing in huge paydays.
–Ford extended buyouts to all workers, not just those previously
identified in specific plants.
–In Ireland, Coca-Cola remains the leading grocery brand
despite lower prices for many generic offerings. And believe it
or not, Budweiser is the top beer and alcohol brand, with Bud
ahead of Smirnoff, Heineken, Bulmers, Guinness, and Jameson.
–Prudential Securities agreed to pay a fine of $600 million for its
failure to supervise a number of brokers in its Boston branch as a
result of the mutual funds market timing scandal going back to
2001. [Prudential’s brokerage arm is now under the name of
Wachovia Securities these days.]
–Chile’s tourism is up 16.5% for the first six months of the year.
–And while I was away my carbon fiber stock play showed some
life, which makes coming back a little easier.
Foreign Affairs
[Just this one other item of note]
Mexico: With the nation’s Federal Electoral Tribunal slated to
name a president-elect by September 6, and with that choice
expected to be Felipe Calderon, opposition leader Andres
Manual Lopez Obrador continues to call for a full recount of the
July 2 vote.
“If the fraud is ratified, I could not recognize the institutions,
(and) obviously I would not recognize Felipe Calderon because I
would consider him to be a spurious, illegal and illegitimate
president. We would fight to make democracy count.”
Geezuz, Lopez Obrador is a real pain in the butt.
Random Musings
–Before I went to Ireland I caught the first half of Spike Lee’s
documentary on Hurricane Katrina and it is devastating for the
White House. This could be an ugly week for the president.
–It’s really pretty sad that President Bush has to try to convince
us of his intellectual curiosity by releasing the fact he is a
voracious reader, including two books on Lincoln, his political
hero, yet he obviously hasn’t picked up on Lincoln’s lesson in
waging war. Change generals, as Lincoln did many times before
settling on Grant.
–Senator John McCain is waffling and for some of us this is
good. When asked about Sen. Joe Lieberman’s campaign as an
independent, McCain said he “wouldn’t be disappointed if
Lieberman won….I think he’s a great American.” That’s a tiny,
tiny step towards the creation of a true third party for 2008. I just
keep thinking McCain won’t in fact go that route, especially in
light of the fact he is gobbling up many key Republican
operatives for his campaign.
–There was some good news for the Bush White House in a
USA Today / Gallup survey. Democrats are chosen over
Republicans in congressional races by only a 47-45 margin. It
had been as large as 16 points just a few months ago. Bush’s
overall approval rating in this same survey had also ticked up to
42%.
–Pat Buchanan is looking more and more like a man who wants
to stir things up in ’08. He’s got the right issue…immigration.
–Another presidential candidate, Senator Chuck Hagel (R-Neb.),
has policy disagreements with the administration over national
security.
Appearing last week on “Fox News Sunday,” Hagel said ‘The
fight against terrorism is “too serious to be left to headline
seekers or politicians or political parties….Both parties are at
significant peril in the election this year if they continue to define
down to the lowest political common denominator this issue of
terrorism.” [Bloomberg News]
–Juan Williams, National Public Radio, in an op-ed for the
Washington Post titled “Banish The Bling: A Culture of Failure
Taints Black America”:
“The civil rights movement continues, but the struggle today is
not so much in the streets as in the house – and with our children.
If systemic racism remains a reality, there is also a far more
sinister obstacle facing African American young people today: a
culture steeped in bitterness and nihilism, a culture that is a
virtual blueprint for failure….
“With 50 percent of Hispanic children and nearly 70 percent of
black children born to single women today these young people
too often come from fractured families where there is little time
for parenting. Their search for identity and a sense of direction is
undermined by a twisted popular culture that focuses on the
‘bling-bling’ of fast money associated with famous basketball
players, rap artists, drug dealers and the idea that women are at
their best when flaunting their sexuality and having babies….
“Recently Bill Cosby…decried the excuses for opting out of the
competition altogether.
“Cosby said that the quarter of black Americans still living in
poverty are failing to hold up their end of the deal with history
when they don’t take advantage of the opportunities created by
the Supreme Court’s (Brown v. Board of Education) decision
and the sacrifices of civil rights leaders from Martin Luther King
Jr. to Thurgood Marshall and Malcolm X….Their triumphs led to
the nationwide rise in black political power on school boards and
in city halls and Congress….
“A generation after those major civil rights victories, black
America is experiencing alarming dropout rates, shocking
numbers of children born to single mothers and a frightening
acceptance of criminal behavior that has too many black people
filling up the jails. Where is the focus on taking advantage of
new opportunities to advance and to close the racial gap in
educational and economic achievement?
“Incredibly, Cosby’s critics don’t see the desperate need to pull a
generational fire alarm to warn people about a culture of failure
that is sabotaging any chance for black people in poverty to
move up and help their children reach the security of economic
and educational achievement. Not one mainstream civil rights
group picked up on his call for marches and protests against bad
parenting, drug dealers, hate-filled rap music and failing
schools….
“Where are the exhortations for children to reject the self-
defeating stereotypes that reduce black people to violent,
oversexed ‘gangstas,’ minstrel show comedians and mindless
athletes?”
–Former Newark Mayor Sharpe James is under federal
investigation for using two city credit cards for his own use,
including road trips to the Dominican Republic, Florida, Arizona
and Martha’s Vineyard. But he even used a card two days before
the 2002 election against Cory Booker – who was just elected a
few months ago after James announced he wouldn’t seek another
term – for the purpose of charging airline tickets for the fake
Rev. Jesse Jackson so that Jackson could campaign for James.
–There have been a slew of recent studies on the water crisis
facing the world and one of them comes from Waterwise of
Stanford University. A new term is “embedded water,” or the
amount required to produce various items throughout the whole
process. For example:
It takes 200 liters of water to produce one kg of rice (less than 3
pounds)
250 liters to produce a pint of milk
450 liters for one egg
100,000 liters to produce one kg of beef
150,000 liters for one car
–From a global warming conference in Concepcion, Chile.
“Temperatures in the Antarctic are rising six times faster than the
global average. The recent appearance of black-necked swans,
wild ducks, herons, pigeons, and thrushes – none of them ever
before seen in the Antarctic – is just one of many signs of drastic
changes in the ecosystem.
“By 2050 the rise in levels of atmospheric carbon dioxide, which
melts faster in cold water, will provoke an ecological disaster
difficult to conceptualize, said Jose Ratamales, director of the
Chilean Arctic Institute. One consequence, he said, is that
‘invertebrate animals will have a hard time forming their shells, a
problem that will be replicated in the South Pacific and
Atlantic.’”
–I was watching NBC News on Monday and heard this.
“When NBC News continues, the national obsession with the
JonBenet Ramsey case…”
It sure as hell isn’t my obsession. Speak for yourself.
–Follow-up to my call to kill the Canada geese from last week’s
column, the next day the Star-Ledger here in New Jersey
editorialized:
“At the risk of unleashing a barrage of attacks from animal rights
advocates, we’re going to cheer the U.S. Fish and Wildlife
Service decision to make it easier to get rid of those foul Canada
geese that seem to be everywhere in New Jersey….
“In a densely populated state, where there are an estimated
90,000 geese trying to coexist with 8 million residents, this is
welcome relief given the birds’ reputation for polluting parks and
swimming areas, destroying plant life and being a plain old
nuisance.”
Case closed.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $631
Oil, $72.51
Returns for the week 8/21-8/25
Dow Jones -0.9% [11284]
S&P 500 -0.6% [1295]
S&P MidCap -2.0%
Russell 2000 -1.8%
Nasdaq -1.1% [2140]
Returns for the period 1/1/06-8/25/06
Dow Jones +5.3%
S&P 500 +3.8%
S&P MidCap -0.3%
Russell 2000 +3.9%
Nasdaq -3.0%
Bulls 40.0
Bears 34.7 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
