[Posted 10:00 AM ET]
Winning the War
In my “Week in Review” column of 8/27/06 I wrote it was “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.”
Former House Speaker Newt Gingrich in a 9/7 op-ed for The
Wall Street Journal.
“The first and greatest lesson of the last five years parallels what
Lincoln came to understand. The dangers are greater, the enemy
is more determined, and victory will be substantially harder than
we had expected in the early days after the initial attack. Despite
how painful it would prove to be, Lincoln chose the road to
victory. President Bush finds himself in precisely the same
dilemma Lincoln faced 144 years ago. With American survival
at stake, he also must choose. His strategies are not wrong, but
they are failing. And they are failing for three reasons.
“(1) They do not define the scale of the emerging World War
III, between the West and the forces of militant Islam, and so
they do not outline how difficult the challenge is and how big the
effort will have to be. (2) They do not define victory in this
larger war as our goal, and so the energy, resources and intensity
needed to win cannot be mobilized. (3) They do not establish
clear metrics of achievement and then replace leaders,
bureaucrats and bureaucracies as needed to achieve those
goals….
“Because the threat of losing millions of Americans is real,
Congress should hold blunt, no-holds-barred oversight hearings
on what is and is not working. Laws should be changed to shift
from bureaucratic to entrepreneurial implementation throughout
the national security and homeland security elements of
government.
“Beyond our shores, we must commit to defeating the enemies of
freedom in Iraq, starting with doubling the size of the Iraqi
military and police forces. We should put Iran, Syria and Saudi
Arabia on notice that any help going to the enemies of the Iraqi
people will be considered hostile acts by the U.S. In Southern
Lebanon, the U.S. should insist on disarming Hizbullah,
emphasizing it as the first direct defeat of Syria and Iran – thus
restoring American prestige in the region while undermining the
influence of the Syrian and Iranian dictatorships.
“Further, we should make clear our goal of replacing the
repressive dictatorships in North Korea, Iran and Syria, whose
aim is to do great harm to the American people and our allies.
Our first steps should be the kind of sustained aggressive strategy
of replacement which Ronald Reagan directed brilliantly in
Poland, and ultimately led to the collapse of the Soviet empire.
“The result of this effort would be borders that are controlled,
ports that are secure and an enemy that understands the cost of
going up against the full might of the U.S. No enemy can stand
against a determined American people. But first we must
commit to victory. These steps are the first on a long and
difficult road to victory, but are necessary to win the future.”
Robert Kaplan / The Wall Street Journal
“No leader since Napoleon has roiled the Middle East as has
George W. Bush. By invading Iraq, President Bush set history in
motion. By doing so without a strategy for governing it
afterwards, he did not plan for the worst, and so the worst has
happened. Iraq has become the pivot for strengthening the
radical forces that the invasion should have weakened. Yet to
assume history follows a straight path is fatalism, not analysis.
“A strengthened Shiite world was not an unintended
consequence of the Iraq war….People forget that moving history
forward after 9/11 required shaking up the suffocating
complacency of the Sunni Arab police states from where the
terrorists originated.
“Back then, Iran seemed to offer an opportunity for regional
change. It was among the Muslim world’s most sophisticated
populations, a significant portion of which was pro-American,
embarrassed by their own regime. In late 2001, when the
seemingly reformist president, Mohammed Khatami, was in
power, a gradual political shift in Tehran without military action
seemed possible, particularly if somewhat stable, somewhat pro-
American governments emerged on Iran’s borders in Iraq and
Afghanistan.
“But ideas, particularly bold ones, are hostage to the quality of
their execution. There was indeed a political shift in Iran – for
the worse. Mahmoud Ahmadinejad became president of the
Islamic Republic in June 2005, in the wake of the Cedar
Revolution in Lebanon, the withdrawal of Syrian troops from
that country, and historic elections that saw millions of Iraqis
hold up the purple finger against tyranny. In the dynamic
environment that Mr. Bush had unleashed, even a flawed
occupation led to encouraging developments – however
superficial – to which Iran’s radicals reacted. Iran’s advantages
were these: Though Iraqis had voted, they had no governing
authority worth the name; likewise, the Syrian troop withdrawal
from Lebanon could not erase the fact of Lebanon’s
demographically ascendant and militarized Shiite community.
“Statements by the Arab League and the governments of Egypt,
Jordan and Saudi Arabia initially blaming the violence in
Lebanon on Hizbullah, rather than on Israel, stood as evidence
that a heightened fear of Shiism had indeed shaken these states
out of their complacency. Arab support proved short-lived,
though, because of Israel’s dragged-out and bungled operation.
But while Iran is strengthened, it is not dominant: The radical
Islamic universalism that it once sought to represent has been
narrowed to a sectarianism with no appeal beyond its own Shiite
community. Iran plays the spoiler in Iraq. But Iranian politics
will become gnarled by its interaction with a more pluralistic,
ethnically Arab, Shiite southern Iraq. We are tearing our hair out
over Iraq. The Iranians will be too, if there is a full-scale civil
war….
“To say that George Bush has been among the greatest agents of
freedom in the region is a nebulous historical statement. It
avoids the harder question: Did he go about it prudently? Given
that good planning is the better part of valor in any decision-
making process, the provisional answer is ‘no.’
“Next year could see the beginning of a massive draw-down in
Iraq, from 140,000 to 40,000-or-so troops: a number by which
the military manpower strain becomes alleviated. An increase in
troops above 140,000, coupled with the willingness to destroy
Shiite militias, could dramatically improve the situation. But
outside the universe of some policy journals there is no appetite
for that. The political calculus is disturbingly inexorable: No
more troops in Iraq now or ever, and the bulk out before the 2008
presidential season. Without immediate demonstrable progress
in Baghdad, the Republican Party will overtake the White House
on this issue….
“The carnage caused by Mr. Bush’s shattering of the post-
Ottoman state system is minor compared to that in the former
Soviet Union and its shadow zones after the Berlin Wall fell.
Can he keep it that way? Can he undermine Iranian hegemony
even as he reduces whatever control he has in Iraq?
“The president may need to pull closer to the Saudi royals,
Egypt’s Hosni Mubarak and Jordan’s King Abdullah. Weakened
by our response to 9/11, terrified by Israeli incompetence in
defending their interests in Lebanon, these regimes still
demonstrate more enlightenment than their populations. They
fear Iran more than do the Europeans. Whatever our ultimate
decisions in regards to a nuclearizing Iran, we require all the help
we can get. That is what comes of bold ideas, poorly executed.”
Thomas Friedman / The New York Times
“We are stalled in Iraq not because of something some fringe
antiwar critics said, or did, but because of how the Bush team,
the center of U.S. policy, approached Iraq from the start. While
it told the public – correctly, in my view – that building one
example of a tolerant, pluralistic, democratizing society in the
heart of the Arab-Muslim world was really important in the
broader war of ideas against violent radical Islam, the
administration acted as though this would be easy and sacrifice-
free.
“Bush-Cheney-Rumsfeld told us we are in the fight of our lives
against a new Islamic fascism, and let’s have an unprecedented
wartime tax cut and shrink our armed forces. They told us we
are in the fight of our lives against a new Islamic fascism, but
let’s send just enough troops to topple Saddam – and never
control Iraq’s borders, its ammo dumps or its looters. They told
us we are in the fight of our lives against a new Islamic fascism,
but rather than bring Democrats and Republicans together in a
national unity war coalition, let’s use the war as a wedge issue to
embarrass Democrats, frighten voters and win elections. They
told us we are in the fight of our lives against a new Islamic
fascism – which is financed by our own oil purchases – but let’s
not do one serious thing about ending our oil addiction.”
The above pretty much covers the political spectrum, yet all are
in agreement on the central thought about the war in Iraq….the
cause may have been just, despite the now discounted theories on
any ties between Saddam and al-Qaeda, but the execution of the
game plan has been abysmal. And this week Grand Ayatollah al-
Sistani told Iraqi Prime Minister Maliki that he must bring the
situation under control, soon.
Iran
It certainly has been a bizarre week, with former Iranian
President Mohammad Khatami giving a series of speeches in
America on tolerance, while reiterating his government’s
position that Iran’s nuclear program was peaceful in scope.
President Bush:
“The world’s free nations will not allow Iran to develop a nuclear
weapon….Iran’s leaders have also declared their absolute
hostility to America. Last October, Iran’s president declared in a
speech that some people ask – in his words – ‘whether a world
without the United States and Zionism can be achieved. I say
that this goal is achievable.’ Less than three months ago, Iran’s
president declared to America and other Western powers: ‘Open
your eyes and see the fate of Pharaoh. If you do not abandon the
path of falsehood, your doomed destiny will be annihilation.’
“Less than two months ago, (President Ahmadinejad) warned:
‘The anger of Muslims may reach an explosion point soon. If
such a day comes, America and the West should know that the
waves of the blast will not remain within the boundaries of our
region.’ He also delivered this message to the American people:
‘If you would like to have good relations with the Iranian nation
in the future, bow down before the greatness of the Iranian nation
and surrender. If you don’t accept to do this, the Iranian nation
will force you to surrender and bow down.’”
John Podhoretz, in an op-ed for the New York Post, commented
on the above.
“Bush wants the world to understand that he sees the nation of
Iran as different only in degree from bin Laden and the terrorists
in Iraq, not different in kind. We are to take Ahmadinejad’s
rhetoric seriously. We are not to dismiss his threats as flowery
rabble-rousing but as honest statements of intent.
“And if you do that, then the conclusion is inescapable that the
world must do everything it can to prevent Iran from joining the
nuclear club. ‘Armed with nuclear weapons,’ Bush said, Islamic
extremists ‘would blackmail the free world, and spread their
ideologies of hate, and raise a mortal threat to the American
people. If we allow them to do this, if we retreat from Iraq, if we
don’t uphold our duty to support those who are desirous to live in
liberty, 50 years from now history will look back on our time
with unforgiving clarity, and demand to know why we did not
act. I’m not going to allow this to happen – and no future
American president can allow it either.’ ….
John Podhoretz:
“Like most people, I’ve presumed for the past few years that our
commitment in Iraq and the extreme difficulty of targeting the
proper sites had basically foreclosed a serious military option in
Iran. Certainly the hesitant and cautious behavior of Secretary of
State Condoleezza Rice in the past few months suggested as
much.
“Now it seems to me that, barring a miraculous change of heart
on the part of the Iranian regime, a military strike is all but
inevitable. Bush himself will view his own presidency as a
failure if he doesn’t act.
“So act he will.”
President Ahmadinejad told UN Secretary General Kofi Annan
Iran would not stop enriching uranium and that Tehran would
host a conference to examine “exaggerations” about the
Holocaust.
Israel / Lebanon
The blockade of Lebanon’s air and seaport facilities was finally
lifted by Israel as UN peacekeepers filled the breach to the
satisfaction of Israeli Prime Minister Ehud Olmert. Earlier,
Lebanese Parliament Speaker Nabbi Berri, a Hizbullah
sympathizer, urged Arab planes to break the blockade.
And in the first public opinion survey in Lebanon since the war,
57 percent “supported” the decision made by Hizbullah in
kidnapping the Israeli soldiers, while 34 percent were “against.”
Additionally, 79 percent believe Hizbullah’s Hassan Nasrallah’s
performance was “good/great,” with Berri receiving a 71 percent
favorability rating. So to those still claiming Hizbullah suffered
a loss, the mood in the street argues otherwise. [Daily Star]
For its part, Israel continues to conduct its own debate.
Elliot Jager / The Jerusalem Post
[On the report that Israel was about to exchange 800 Palestinian
prisoners for Gilad Shalit, kidnapped by Hamas from Gaza on
June 25.]
“Days after Shalit’s kidnapping, the prime minister (Ehud
Olmert) said something that made me proud I voted for his
Kadima Party: ‘Israel will not give in to extortion by the
Palestinian Authority and the Hamas government, which are led
by murderous terrorist organizations. We will not conduct any
negotiations on the release of prisoners. The Palestinian
Authority bears full responsibility for the welfare of Gilad Shalit,
and for returning him safe and sound to Israel.’
“With that as a basis, Israel launched Operation Summer Rain, a
series of military incursions into Gaza – the first since
disengagement….
“True, the (Israeli Defense Force) has failed to track down Shalit
– but we’ve made them pay dearly for the kidnapping and
killings. The Hamas government is hurting; so is the Palestinian
polity which elected it.
“Then, on July 12, Hizbullah attacked across the Lebanese
border, killing eight IDF soldiers and capturing Ehud Goldwasser
and Eldad Regev.
“Once again Olmert made me proud when, in a seminal speech
before the Knesset on July 17, he declared: ‘Citizens of Israel,
there are moments in the life of a nation when it is compelled to
look directly into the face of reality, and say: No more! And I
say to everyone: No more! Israel will not be held hostage – not
by terror gangs, or by a terrorist authority, or by any sovereign
state.’
“What ensued was a month of difficult war in which 117 IDF
soldiers were killed. Because we took a justifiably tough stance,
Hizbullah launched 4,000 rockets against northern Israel. Forty-
two civilians were killed and over 4,000 wounded. It will take
the North years to recover from the damage to homes, farms and
forests….
“If Olmert’s pledge that Israel would not be held hostage doesn’t
preclude ransoming our soldiers for terrorists – what exactly did
it mean?
“One could argue that an Israeli military retaliation (against
Hamas and Hizbullah) was called for even if we planned to trade
prisoners for kidnapped soldiers all along. In that case, however,
our actions should have been more carefully calibrated. Instead
we acted as if a new-found principle was at stake: that Kadima,
unlike Likud and Labor, wouldn’t cave in to terrorists. And on
the basis of that principle a million Israelis stoically accepted a
hellish summer.
“One might also argue that both Hizbullah and Hamas have
learned that although Israel does eventually cave in when faced
with a ransom demand, Jerusalem will exact a heavy price before
throwing in the towel. But couldn’t such a deterrent message
have been sent – especially on the northern front – with greater
dexterity?
“I have no problem with trading ‘fresh’ Palestinian prisoners –
taken since Gilad Shalit’s capture, like members of the Hamas-
led Palestine National Council; or Lebanese and Hizbullah
POW’s (and corpses) taken during the war itself. But anything
beyond that would be a clear reversal of Olmert’s principled,
indeed revolutionary, stand.
“This is not one of those grey areas. Either we went to war
because a principle was at stake, or it wasn’t. Either we trade
hostages for prisoners, or we don’t.
“History shows that every time we free killers, at least some of
them go back to their line of work. And giving terrorists their
liberty lifts the enemy’s spirits. Arab society can more easily
tolerate ‘martyrs’ than the lengthy incarceration of husbands,
sons, brothers and daughters.
“Don’t we want to undermine enemy morale – not bolster it?”
But there’s another side to the Israeli – Palestinian struggle.
This week the Olmert government announced it was building 700
additional housing units on the West Bank.
Editorial / Daily Star
[This is harsh…but it’s also a mainstream view in the Arab world.]
“Since taking office, Israeli Prime Minister Ehud Olmert has said
many times that he wants to start a dialogue with the Palestinians
with the aim of reaching a peace agreement. But even as Olmert
renews his expressed commitment to opening negotiations with
the Palestinians, the Jewish state continues to erect barriers to
peace.
“In the latest example of this trend, Olmert’s government
announced on Monday that it will delay any further withdrawals
from occupied territory and will instead fortify its illegal
occupation of Palestinian land by building 700 new housing units
in the West Bank. The ‘centrist’ Israeli government’s decision to
invite tenders for the construction of these new homes suggests
that Israel’s expansionist appetite is far from satisfied and a
genuine Israeli desire to make peace is virtually non-existent.
“As the Daily Star went to press (Tuesday), world leaders – who
have recently been applying considerable pressure on the
Palestinians and the Lebanese to abide by international law – had
not uttered a word of condemnation over Israel’s latest illegal
expansion of its settlements. Nor have very many condemned
Israel’s other discriminatory and oppressive policies, such as the
Jewish state’s separation barrier, its war crimes or its
discriminatory laws. The message that is being sent repeatedly
to the region is clear: Arabs must respect international norms or
face dire consequences, while the Israelis are free to annex
Palestinian land, violate human rights, ignore UN resolutions and
ride roughshod over international law.
“The West’s application of double standards and blind support
for Israel’s imperialist policies only fuel the kind of extremist
sentiments that drive young men to resort to violence, as one
gunman did at a tourist venue in Amman on Monday. Incidents
such as these will only become more commonplace in the region
and around the world until the festering Arab-Israeli conflict is
resolved.”
Wall Street
While the week was light on economic data, the Federal
Reserve’s study of regional activity revealed that five of 12
districts were reporting a deceleration in growth as consumer
spending slowed and real estate weakened. Separately, a reading
on labor costs, up 4.9% on an annualized basis, spooked the
stock and bond markets, temporarily, on the feeling that perhaps
the Fed will have to resume raising interest rates, but by week’s
end sentiment turned and bonds rallied back some as the
slowdown trumped inflation expectations.
The market, as well as Republican congressional candidates, also
took comfort from the continuing slide in energy prices as
gasoline is heading towards $2.40 or so at the pump over the
coming weeks; barring a hurricane in the Gulf of Mexico or an
increase in tensions over Iran. At $66, oil is now trading at its
lowest level since March and Iran’s oil minister said OPEC
would not cut production at its next meeting.
And much was written this week of the massive potential find in
the Gulf by a consortium headed up by Chevron; as much as 15
billion barrels in new reserves, pumping at a rate when fully
developed of perhaps as much as 750,000 barrels a day.
But the first significant production won’t come online before
2010 and it’s kind of like some cancer “cures” you often read
about….it’s hard to separate fact from the hype in the initial
stages.
Nonetheless, it is a huge technological achievement that the oil
companies were able to drill down some five miles to tap this
field, and it also points out that the United States must continue
to drill for further sources of crude, including in the Arctic
National Wildlife Refuge.
Finally, the other market-moving issue of the week was once
again real estate as homebuilders Lennar, Hovananian
Enterprises, Beazer Homes and KB Home all lowered their profit
outlooks; citing declining orders, higher cancellation rates, and
weaker-than-expected demand.
The Office of Federal Housing Enterprise Oversight (Ofheo)
reported that single-family home prices rose just 1.17%,
nationwide, in the second quarter over the first, the biggest
slowdown in price increases since 1975. The number is actually
worse than this because Ofheo’s index excludes condo and
luxury home sales. As Ofheo Director James Lockhart pointed
out, “The housing market is cooling in a very significant way.”
I also just want to add a little discussion from the 9/11 issue of
Business Week, as reported by Mara Der Hovanesian,
concerning some popular adjustable rate mortgages and the
games the banks and mortgage originators are playing with the
books.
“(The) signs of excess are crystal clear. Up to 80% of all option
ARM borrowers make only the minimum payment each month,
according to Fitch Ratings. The rest of the money gets added to
the balance of the mortgage, a situation known as negative
amortization. And once balances grow to a certain amount, the
loans automatically reset at far higher payments. Most of these
borrowers aren’t paying down their loans; they’re underpaying
them up.
“Yet the banking system has insulated itself reasonably well
from the thousands of personal catastrophes to come….Some
$182 billion of the option ARMs written in 2004 and 2005 and
an additional $83 billion this year have been sold, repackaged,
rated by debt-rating agencies, and marketed to investors as
mortgage-backed securities…Banks also sell an unknown
amount of them directly to hedge funds and other big investors
with appetites for risk.
“The rest of the option ARMs remain on lenders’ books, where
for now they’re generating huge phantom profits for some
lenders. That’s because, according to generally accepted
accounting principles, or GAAP, banks can count as revenue the
highest amount of an option ARM payment – the so-called fully
amortized amount – even when borrowers make only the
minimum payment. In other words, banks can claim future
revenue now, inflating earnings per share….
“ ‘This is basically an IOU that may never get paid,’ says Robert
Lacoursiere, an analyst at Banc of America Securities. James
Grant of Grant’s Interest Rate Observer recently wrote that
negative-amortization accounting is ‘frankly a fraudulent gambit.
But what it lacks in morality, it compensates for in ingenuity.’”
The Financial Accounting Standards Board told Business Week
that it is “concerned that the disclosures associated with these
types of loans (are) not providing enough transparency relative to
their associated risks.”
Street Bytes
–Stocks continue to trade in an ‘up one week, down the next’
pattern with this past one down; 0.6% in the case of the Dow
Jones, 1.3% for Nasdaq.
–U.S. Treasury Yields
6-mo. 5.10% 2-yr. 4.81% 10-yr. 4.77% 30-yr. 4.92%
After yields spiked higher early in the week, bonds rallied back
to recover most of their losses. Fed Governor Janet Yellen’s
comment that the Board will continue to exhibit a “bias toward
further tightening” was largely ignored.
Meanwhile, the IMF warned of a sharp global slowdown in
2007.
“Risk to the global outlook is clearly tilted to the downside…
there is a one-in-six chance of growth falling below 3.25% in
2007.”
Seeing as growth is projected to come in at 5.1% this year, and
that G7 economies will register just 2.5% for ’07, that’s a
significant deceleration.
–Bill Ford hired his own replacement as CEO, Alan Mulally of
Boeing’s commercial aircraft division. Seems like a super pick
to me, Mulally having spearheaded Boeing’s success with its
new Dreamliner aircraft. Plus I don’t see a tremendous
difference between autos and planes, at least nowhere near as
much as others are saying in criticizing the selection. For his
part, Bill Ford, Henry Ford’s great-grandson, will remain as
chairman.
But while I might agree with the move, that doesn’t mean Ford’s
many problems are over, especially if I’m right on my recession
forecast.
–General Motors announced a sweeping improvement in its
warranty program on 2007 model cars and trucks. The warranty
has been extended to five years or 100,000 miles vs. the existing
3-year / 36,000 mile coverage on engines, transmissions and
powertrains. [Hyundai offers a 10-year / 100,000-mile
warranty.]
–The Kremlin won agreement on a new pipeline that will carry
Russian oil from Bulgaria to Greece (the Black Sea to the
Aegean) and thus avoid the congested Bosporus at Istanbul,
which costs oil companies $hundreds of millions extra.
–Intel is reducing its work force by 10,500 jobs by the middle of
2007, some of which had been previously announced, with the
goal of reducing costs by $3 billion annually starting in 2008.
–In Congressional hearings, the SEC announced its investigation
into possible violations involving executive stock options now
covers over 100 companies.
IRS Commissioner Mark Everson told Congress:
“The unquestionable appetite for exorbitant compensation on the
part of executives and the sheep-like willingness of boards to
feed it yet again raise the issue of whether modification” of
taxpayer privacy standards is warranted. [Wall Street Journal]
Everson said about 25 executive pay cases have been referred for
criminal investigation, though it’s not known how many involve
backdating.
–Related to the above, Broadcom is restating earnings for 1998
and 1999 to the tune of $1.5 billion (or “substantially more” as
the company itself said) as a result of finding further accounting
issues due to its options backdating policy. Just two months ago
Broadcom said the restatement would be ‘only’ $750 million.
–Tom Freston, who built MTV, was fired as CEO of parent
company Viacom by chairman Sumner Redstone. The 104-year-
old Redstone was upset that Viacom lost out to Rupert
Murdoch’s News Corporation in the latter’s acquisition of the
popular social networking site MySpace. Recently Redstone also
canceled the long-time production deal Tom Cruise had with
Viacom’s Paramount film studio, whose own head, Brad Grey, is
now twitching nervously.
[Freston, by the way, is receiving some $60 million in parting
gifts as his buyout.]
–Ben Stein, on the surge in private-equity and leveraged
buyouts, the accompanying conflicts of interests, including
insider trading, and how shareholders are being short-changed.
“No court has yet put all of this together and banned
management buyouts. But it took a long time for courts to bar
segregation or for Congress to bar residential housing
discrimination. Management buyouts are great for management.
But by every standard I can see, they are yet another sad sign of
how our corporate trustees have lost their moral compass.
“The time for them to stop is long overdue. If the stockholders
have hired you and pay your wage to manage their assets, your
job is to do that for them – not to buy them out at fire-sale prices
and turn around and make billions that rightfully belong to them.
The management buyout is a sad and infuriating avatar of a
decadent age.” [New York Times]
–The State of California is investigating boardroom leaks
surrounding the ouster of former CEO Carly Fiorina, amidst
reports some board members obtained others’ private phone
records in an effort to identify the source of the leaks. Then it
came to light the records of nine reporters were also examined
under false pretenses. Board Chairman Patricia Dunn could be
forced to resign this weekend.
–I’m a Dunkin’ Donuts guy so I found it interesting that the
chain is planning on adding 10,000 new stores around the
country by 2020. Today it has 4,400 stores compared to
Starbucks’ 8,600. [The plans were previously announced but I
wasn’t aware of them until reading a piece in the Washington
Post.] Today there is one coffee or doughnut shop for every
10,000 people in the United States
–U.S. authorities arrested another CEO of a UK-based online
betting site, this one from Sportingbet. Earlier, the former CEO
of BetonSports was nabbed. Internet gambling in most forms is
illegal here, though it nonetheless comprises the bulk of revenue
for the offshore companies.
–According to a survey by Entertainment Media Research,
interest in downloading music is beginning to wane. For
example just 11% of consumers were paying for music
downloads on their mobile phone, or half the level from a year
ago. A huge 44% said they were not interested in downloads.
This is potentially bad news for Apple which is looking to
introduce a mobile phone patterned after the iPod. [Financial
Times]
–On a somewhat related topic, shock-jock Howard Stern’s daily
audience is still just about one million at Sirius Satellite Radio
compared to the 12 million he was drawing over the commercial
airwaves before he made the move. Rivals Opie & Anthony,
who took over Stern’s FM slot and still have their own satellite
show on XM, told Crain’s New York Business that the difference
between being heard on satellite and on terrestrial radio “is night
and day,” satellite being a very slow build. But Stern can take
credit for putting Sirius on the map.
Foreign Affairs
Mexico: The Electoral Court ruled 7-0 that Felipe Calderon was
the winner of the July presidential election and he is set to be
sworn in on December 1.
But opponent Andres Manuel Lopez Obrador refuses to give up.
“To hell with the institutions!” he said in response to the
tribunal’s decision, as Lopez Obrador’s next target date is Sept.
16, Independence Day, where he is threatening to hold a national
convention and form an alternative government.
Both Calderon and current President Vicente Fox are losing
patience, but it’s up to Fox to act with force if necessary and he
shows no inclination of doing so. This issue is far from over.
Russia: President Vladimir Putin made a significant visit to
South Africa, the first Russian head of state to do so, and Putin
announced he was eager to invest more in Africa, particularly in
the diamond, mining and metals sectors. The Russian president
acknowledged his country had a lot of catching up to do
compared to other European nations.
Back in the times of apartheid, the Soviet Union was a leading
supporter of the African National Congress and Nelson Mandela,
while current South African President Thabo Mbeki received
military training in Russia in 1970 as did many others in the
current government.
But as a further sign of deteriorating relations with the United
States, Russia canceled its annual joint military exercise with
U.S. forces.
China: Just as in the case of Russia, China is doing all it can to
influence events in Africa and capture mineral rights. In an
audacious move, Beijing warned Zambia that it would cut
diplomatic relations if voters elected an opposition candidate in
its upcoming presidential election.
Such overt interference in the vote is outrageous, but it reflects
China’s growing role as lead investor in Africa when it comes to
securing supplies of raw materials. In the case of Zambia, China
is the biggest buyer of Zambian copper.
The reason why China is against the man running against the
incumbent president is because he has been quoted as calling
Taiwan a “sovereign state” and has also spoken out against
Chinese labor practices in Zambia. The politician in question,
Michael Sata, has guts; that’s for sure.
Separately, in an interview published in The Times (of London),
Chinese Premier Wen Jiabao said those looking for democracy in
China will have to wait quite a while.
“Multi-candidacy elections are practiced in China and the
number of candidates standing will increase,” said Wen, but he
was referring solely to local elections at the village level.
“We are confident that when the people are capable of running a
village through direct election, they will later be able to run a
township, then a country and a province.”
But to hold democratic elections at higher levels will require
proof, first.
On the economy Wen was optimistic, but he also ruled out any
“surprise” adjustments when it came to China’s currency.
On Iran, Premier Wen said “Our goal is to bring about eventual
peaceful resolution (of the nuclear issue). But imposing
sanctions will not necessarily get us there, and may even prove
counterproductive.”
Lastly, on the pollution front government officials have begun
naming and attempting to shame the biggest industrial culprits.
It’s a start.
Taiwan: President Chen Shui-bian remains under intense
pressure as a result of the corruption scandal that has implicated
members of his cabinet and family. On Saturday the opposition
is expected to turn out 300,000 or so demanding his resignation.
The movement’s leader, Shih Ming-teh, said “Taiwan will be
doomed if we let (Chen) and his corrupted and ruthless interest
group run the country until his term ends in May 2008. It is not
true democracy if Taiwanese people can elect their president
but are not able to oust him for failing to serve the country and
the people well with honesty and dedication.”
Japan: The frontrunner to be the next prime minister, Shinzo
Abe, said “Japan will follow a foreign policy that makes firm
demands based on national interests. The security treaty with the
U.S. forms the center of Japan’s foreign and security policy. We
must work to strengthen that stance.”
Meanwhile, remember the housing scandal from last spring
where an architect was responsible for designing buildings that
fell far short of code in terms of earthquake protection? He just
pleaded guilty, after falsifying data on nearly 100 apartment
buildings and hotels that enabled contractors to cut costs.
Tenants were forced to find other shelter. The architect’s wife
reportedly committed suicide last March.
And on a far happier note, many in Japan are ecstatic a male heir
to the throne was finally born, the first to the royal family in 41
years. There had been concerns of a succession crisis, since only
males by tradition were allowed to ascend to the top. Shinzo
Abe was known to oppose any efforts to enact a law allowing
females to succeed the emperor.
North Korea: Pyongyang is showing no signs of wanting to
return to the six-party talks on its nuclear weapons program and
the more I think of it, the more it makes sense that Kim Jong-il
could opt to conduct an underground test in October, right before
our mid-term elections.
Turkey: Attitudes are changing here, and it’s unsettling for the
West. Transatlantic Trends, an annual survey of European and
American public opinion, reveals a big shift in Turkey.
On a 100-point “thermometer” scale, Turkey’s “warmth” toward
the United States declined to 20 degrees from 28 from 2004 to
2006. At the same time, Turkey’s warmth towards Iran
increased to 43 degrees from 34 over the same period.
Warm feelings for Britain and France were just 25, while
Germany, with many Turks residing there, registered a 44.
And then there’s the issue of EU membership, where positive
feelings have plummeted from 73 percent to 54 percent. Positive
feelings among Turks toward NATO membership have also
fallen to 44 percent. [Judy Dempsey / International Herald
Tribune]
[The same Transatlantic Trends poll found that 58 percent of
Americans disapprove of President Bush’s foreign policy. In
Europe it’s 77 percent. After talking to some folks in Ireland
while I was there the other week, it felt closer to 99 percent.]
This week Turkey’s parliament voted 340-192 to send up to
1,000 troops for the Lebanon peacekeeping force, far short of the
hoped for 5,000, while parliament insisted Turkey’s forces not be
used to disarm Hizbullah.
Britain: What the heck is Prime Minister Tony Blair doing?
Eight of his junior level aides resigned in protest over his
schedule for leaving office; which he now concedes will be next
spring or summer.
Blair has been in office since May 1997 and was hoping to beat
Margaret Thatcher’s record as the longest-serving prime minister
in more than a century, but he’d fall short if he leaves in ’07.
More importantly, his Labour Party is up in arms over his refusal
to step down in favor of Gordon Brown as Blair has faced one
scandal after another and plummeting approval ratings over his
handling of Iraq and a flip-flop in policy over the war in
Lebanon.
The Labour Party holds its annual conference later this month
and there will be fireworks. For his part, Brown is demanding a
“dual premiership” until Blair leaves.
Random Musings
–Seven of us from high school had our annual little shindig at
the Jersey shore on Thursday and Friday (thus the delay in
posting the column); golf, poker, basketball and this year’s
addition, beach bocci ball. David P., my full-service broker (the
editor wrote mischievously), and I were the big losers in bocci.
But what was more interesting was the fact that in the days after
9/11, six of us strongly supported President Bush and one didn’t.
Today, all seven of us give him a negative approval rating,
particularly when it comes to the conduct of the war in Iraq; with
four of the seven being life-long Republicans. As the national
polls show, we aren’t alone in our assessment.
–President Bush admitted for the first time that top terrorism
suspects were initially held in secret CIA prisons before being
consolidated at Guantanamo Bay.
The president then urged Congress to immediately pass
legislation approving of military tribunals to try the suspects, the
administration’s hand being forced by a June Supreme Court
ruling that struck down Bush’s original tribunal idea.
But Republican Senators Lindsey Graham, John McCain and
John Warner, all Veterans, said the White House cannot cut legal
corners, such as in the introduction of “secret or hearsay
evidence” that is normally barred in trials such as this . The top
military lawyers also criticized the administration’s plans.
But a compromise should be reached and the president will have
once again focused debate on the war on terrorism right before
the mid-term election.
–A Senate Intelligence Committee report disclosed that Saddam
Hussein “did not have a relationship, harbor or turn a blind eye
toward” al Qaeda. The administration has consistently stretched
the truth in building, and then defending, the case for war in Iraq.
–As all of us expected, researchers at New York’s Mount Sinai
Medical Center found that 70% of workers who helped in the
recovery effort at the World Trade Center are suffering from
breathing problems, or worse, as a result of working in a “toxic
stew.” Doctors said the study is proof of a link between various
ailments and “massive toxic exposures” at Ground Zero.
–Last time I mentioned that New York Mayor Michael
Bloomberg was a potential third party presidential candidate,
though he has consistently denied such a run in the past. Then I
saw a piece on him in the 9/7 issue of Rolling Stone and now I’m
not so sure. His aides told the magazine Bloomberg is definitely
running.
–Newark, N.J., was once again in the news for the wrong
reasons; this time because of a particularly heinous crime where
three were shot to death, two others wounded, the dog and cat
were killed, and then the murderers set the house on fire in an
attempt to cover up the crime. As of this writing the killers are
still loose.
New Mayor Cory Booker is being tested and we’re pulling for
him. It’s amazing that he already has such a high name
recognition in the state. If he can have any kind of success on
the crime-fighting front, the sky’s the limit for him.
–As a result of the U.S. Basketball team’s loss to Greece in the
World Championships, the U.S. must go through a qualifying
tournament next year to get to the 2008 Beijing Olympics.
But when I hear sports broadcasters mention the destination for
the Americas’ qualifier you never hear the obvious.
And where is the tourney next summer? Venezuela. I’m telling
you, this could be more than a little interesting with all the anti-
American sentiment that President Hugo Chavez is likely to stir
up. An incident or two is not out of the question.
–You ever think about the brain drain taking place in Iraq? And
on a smaller scale it’s the same thing in Lebanon as well as
Israel. But especially in Iraq, the best and the brightest have
long gone, if they weren’t already killed, such as in the case of
the hundreds of doctors who have been.
–A special “Dirtball of the Year” award to Adam Gadahn, the
figure on al-Zawahiri’s latest video.
–It’s emerging that methane is a ticking time bomb in the
climatology game. Methane happens to be 23 times more
powerful than carbon dioxide and according to a study published
in the journal Nature is being released from the permafrost at a
rate five times faster than thought.
“The higher the temperature gets, the more permafrost we melt,
the more tendency it is to become a vicious cycle,” said Chris
Fiel, director of global ecology at the Carnegie Institution of
Washington. “There are lots of mechanisms that tend to be self-
perpetuating and relatively few that tend to shut it off.” [Seth
Borenstein / AP]
–This year’s freshman class at Tulane University in New
Orleans is 44 percent smaller than last year’s, while the school
faces $410 million in Hurricane Katrina bills. [Bloomberg
News]
–Bono, when asked why he lives in France.
“Because the French are so snobbish and into themselves that
they don’t even notice you.”
–So I watched Katie Couric’s first newscast and she was alright,
I guess. I could do without the ‘freeSpeech’ (sic) segment. All I
want is hard news and little fluff.
–How could you not love Steve Irwin? But now we all know that
if a stingray nails you with an 8-inch barb, calmly swim to your
boat, barb intact, and ask for help. Then when none is
forthcoming, continue to leave the barb in your chest, despite the
excruciating pain, because to do otherwise means instant death.
Oh yeah….I can handle that.
It turns out that Irwin had been quietly acquiring land to save
threatened species; a whopping 90,000 acres, mostly in
Queensland, to preserve the habitat of koalas and porcupine-like
echidnas threatened by land clearance. [The Times (of London)]
“I believe our biggest issue is the same that the whole world is
facing, and that’s habitat destruction.”
But what you also had to love about Irwin was his enthusiasm
and optimism.
“I am optimistic globally,” he once said. “So many scientists are
working frantically on the reparation of our planet.”
And on the topic of education:
“I believe that education is all about being excited about
something. Seeing passion and enthusiasm helps push an
educational message.”
He will be missed.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $617
Oil, $66.25
Returns for the week 9/4-9/8
Dow Jones -0.6% [11392]
S&P 500 -0.9% [1298]
S&P MidCap -1.9%
Russell 2000 -1.8%
Nasdaq -1.3% [2165]
Returns for the period 1/1/06-9/8/06
Dow Jones +6.3%
S&P 500 +4.1%
S&P MidCap +0.2%
Russell 2000 +5.3%
Nasdaq -1.8%
Bulls 43.2
Bears 33.7 [Source: Chartcraft / Investors Intelligence]
Back to my normal schedule next week, and hopefully the rest of
the year…7:00 AM ET.
Of course that’s barring computer problems. We had a serious
little outage on Thursday, thanks to a foul-up between Network
Solutions and Akami. It was totally out of our control and of
course nothing frustrates me more. Thanks for your patience that
day.
And I forgot to mention last time that my “Hott Spotts” link has a
good piece on the war on terror, especially if you want to be an
optimist.
Brian Trumbore
