[Posted 7:00 AM ET]
North Korea
“Week in Review” 9/9/06
“Pyongyang is showing no signs of wanting to return to the six-
party talks on its nuclear weapons program and the more I think
about 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.”
This week the foreign ministry proclaimed “The DPRK
(Democratic People’s Republic of Korea) will in the future
conduct a nuclear test in a condition where safety is firmly
guaranteed,” the first time the North has publicly announced its
intent to join the club of nuclear powers, citing Washington’s
“threat of nuclear war.” Immediately everyone began to
scramble to prevent it, but a UN Security Council statement
adopted on Friday, 15-0, was pitifully weak in tone.
Editorial / Washington Post
“North Korea’s threat to conduct a nuclear test is first and
foremost a threat to its closest neighbors, China and South
Korea. Pyongyang’s emergence as a nuclear power would create
a grave danger for their people and would probably transform
regional security in East Asia in ways that both Beijing and
Seoul would find harmful. Among other consequences, Japan
might choose to build its own nuclear arsenal. South Korea’s
policy of seeking closer relations with the North and China’s
complementary strategy of propping up the totalitarian
dictatorship of Kim Jong-il will have produced not stability but a
potentially far-reaching destabilization….
“It follows that the South Korean and Chinese governments
ought to be leading the effort to stop North Korea from going
forward. They, more than the United States or the United
Nations, have the means to exert pressure. Without the energy
and food aid they supply, and China’s willingness to close its
borders to North Korean refugees, the Kim dictatorship would
almost certainly collapse. Most experts believe the North is not
bluffing when it says it could detonate a nuclear warhead, but
whether it does will probably depend on international reaction to
this week’s threat….
“The North’s latest provocation produced the usual claims that
the United States was somehow at fault for failing to ‘engage’
the dictatorship. Yet the Bush administration has made it clear
that it will be open to a broad security dialogue if the North
returns to the multiparty negotiations it has boycotted for the past
year. Just last month the senior U.S. negotiator again offered to
meet his North Korean counterpart to discuss how talks could
resume. There was no response.
“Instead of demanding that Washington answer the threats of a
criminal regime with appeasement or bribery, those who want to
prevent a North Korean bomb test should be insisting on action
by the governments that now shirk their responsibility to stand
up to that regime – South Korea and China.”
Nicholas Eberstadt / Wall Street Journal
“If the flower children in charge of South Korean national
security policy these days have acquitted themselves poorly, the
record of the self-proclaimed grownups who took charge of
Washington’s policies in 2001 does not look that much better.
Passive-aggressive in the face of North Korean brinkmanship,
irritable and reactive in the face of mounting frictions in the
relationship with Seoul, the Bush administration’s main
achievement to date in ‘alliance management’ seems to have
been the drawdown of U.S. forces in South Korea, with more in
store. It is not even clear that our statesmen understand the
stakes of the game they are embroiled in. All this, of course, will
hardly dissuade Pyongyang from pressing the U.S.-South Korea
alliance ever harder.
“With his latest nuclear gambit, Kim Jong-il has just reset the
clock on the U.S.-South Korean military alliance, moving the
hands palpably closer to midnight. If we listen closely, we can
hear the ticking.”
—
Russia
Last week I touched on Russian pride and nationalism (as
opposed to the lack of same I found in Bulgaria and Romania)
and there is no clearer example of what I’ve been writing on
Russia for years now than its ongoing actions against neighbor
Georgia. The Kremlin’s deputy foreign minister said on
Thursday, “Russia does not want to be provoked. Russia wants
to be respected. Russia wants the anti-Russian campaign to
stop.”
Yes, it’s increasingly about Russian pride and President Vladimir
Putin’s growing nationalism and reassertion of his nation’s “near
abroad.”
This time the one stuck in the middle is fledgling democracy
Georgia, and the United States and Europe, for different reasons,
are virtually powerless to do anything about it.
Even when the Georgian government returned the alleged
Russian spies, whose arrest had precipitated this crisis, to
Moscow, the Kremlin merely tightened the screws further.
Georgian businesses in Russia were raided and 130 Georgian
citizens were deported. Moscow also levied all kinds of trade
sanctions, stopped the mail between the two and sealed the
border. Russian defense minister Sergei Ivanov accused Eastern
European members of NATO of illegally selling Soviet-made
arms to Georgia. Putin accused Georgia of “state terrorism.”
One million Georgians work in Russia and now the vital money
flow back to their homes has been cut off. Putin’s thugocracy is
exhibiting its muscle.
Amidst all this you can be sure Russian natural gas monopoly
Gazprom will be putting the screws to Georgia; that is if the
Kremlin wants the residents to receive any gas at all. Georgian
officials are looking for a three-fold increase in prices shortly.
Putin told leaders of his State Duma:
“I would not advise anyone to talk with Russia in the language of
provocation and blackmail.”
The president of Georgia’s Nation Bank said Georgia, a member
of the World Trade Organization, would oppose Russian entry to
the WTO until Russia lifted its economic sanctions. I noted
earlier this year that Russia was already banning Georgian wine
and mineral water.
The official, Roman Gotsiridze, said “These sanctions are the
behavior of an uncivilized country, and it is hard to imagine that
a country that imposes a blockade on its neighbor is a member of
the Group of Eight.”
Good point, but alas the ultimate victim of all this maneuvering
is possibly Georgian President Mikhail Saakashvili, a staunch
ally of the White House.
Editorial / Washington Post
“Russian President Vladimir Putin has never fully accepted the
breakup of the Soviet Union, which he once called ‘the greatest
catastrophe of the 20th century.’ Having consolidated power in
Moscow by dismantling his country’s nascent democracy, he has
devoted himself in recent years to reestablishing the Kremlin’s
political and economic dominion over former Soviet republics….
“Yesterday (Monday), pressed by the Bush administration,
Georgia allowed the Russian officers to return home. But Russia
continued its bellicose acts, while improbably claiming that it –
and not the poor nation of 5 million it is besieging – is the victim
of aggression. In a telephone conversation, Mr. Putin told
President Bush that ‘it was unacceptable for other countries to
take steps that Georgia could interpret as support,’ according to
the Russian news agency RIA Novosti.
“Mr. Bush ought to reject that imperious warning. U.S.
diplomats in fact have spent the past several days urging
compromise and caution on the part of Georgia’s sometimes
impulsive president….But the United States has not only the
right but also the duty to support Georgia’s independence and
Mr. Saakashvili’s aspirations to consolidate liberal democracy
and steer his country toward membership in NATO. As the
Georgian president rightly said yesterday, ‘The message to
Russia is: ‘Enough is enough.’’”
But Putin won’t see it that way, and, back to the issue of energy
security, Robert Amsterdam, a defense counsel for former Yukos
founder Mikhail Khodorkovsky, wrote the following in the
International Herald Tribune.
“A global economic challenge has been presented by Russia,
driven by energy markets and threatening to distort the
foundations of international trade….
“The Kremlin has stolen one of the world’s key oil producers and
then resold it to Western investors who have now bought the
same assets twice, with the complicity of Western banks.
“It has steered its foreign relations so as to divide the West. No
sooner does the Kremlin have Romano Prodi accept market
access for Gazprom than Gazprom seals a deal with Algeria to tie
up over two thirds of Italy’s energy supply.
“In addition…(the) failure to soften the Gazprom monopoly,
which violates fundamental norms of competition, is somehow
deemed acceptable because Western financiers and investors can
participate in the resulting windfalls.
“The true brilliance of the Kremlin’s strategy is the concept of
cooptation. Whether turning Germany against Poland or political
leaders against their own people or ABN AMRO against a proud
Dutch history of sensitivity to human rights, not only does
everyone have a price, but everyone avoids shame while loudly
declaring the beauty of the emperor’s clothes.
“The consequences are worrisome when political considerations
trump capital markets logic and respect for law….
“Another feature of the Russian offensive is speed. From
Algeria to Iran to Venezuela, a new gas cartel is being formed.
From Norway to Canada to Brazil, new opportunistic energy
market players are being coopted. From Slovakia to Lithuania to
Poland and Ukraine, old-style energy hardball is being played
involving everything from phony pipeline repairs to outright
blockade….
“Western leaders must challenge their own assumptions about
the real nature of the current Russian regime. A parallel may be
drawn to 1946, when George Kennan dispatched his celebrated
‘long telegram’ from the U.S. Embassy in Moscow. The 8,000-
word dispatch provided an elaborate explanation of the
undercurrents of the emerging post-war Soviet foreign policy.
“For more than a generation, Washington’s Cold War strategy of
containment was grounded in the analysis and recommendations
in the telegram.
“Today the world stands at a similar geopolitical turning point.
Russia is mutating rapidly, and the post-Cold War window of
opportunity to engage Russia as an ally and partner is closing.
“It is time for someone to write the ‘long telegram’ of 2006 – not
to reignite a Cold War, but to avert one by awakening to the
realities and implications of a kleptocracy that poses real threats
to global economic and political security.”
So remind me again, sports fans…just why the heck is Russia
still in the G-8?
—
Iraq
John Warner is the highly respected Republican chairman of the
Senate Armed Services Committee and upon his return from yet
another fact-finding trip to Iraq, he uttered some words that are
reverberating loudly. Addressing the ongoing violence and the
Maliki government’s inability to control it, Warner said:
“In two or three months if this thing hasn’t come to fruition and
this level of violence is not under control, I think it’s a
responsibility of our government to determine: Is there a change
of course we should take?”
While Warner didn’t go on to say just what changes may be
necessary, he said no options can be taken off the table.
It certainly hasn’t been a good stretch for the U.S. in Iraq.
Between last Saturday and Friday, at least 23 Americans were
killed, many in Baghdad as a result of the conscious decision to
increase U.S. exposure there. For the month of September, 74
Americans were killed while only 150 Iraqi security forces died.
And speaking of the Iraqi ‘face’ on things, a police brigade of
700 was disbanded and sent back to school, so to speak, for
being tied to death squads, as Prime Minister Maliki continues to
be criticized for not doing enough to crack down on them; one of
Sen. Warner’s clear inferences.
But thankfully, the United States, and the Bush administration,
escaped what could have been a catastrophe in breaking up an
alleged plot by a leading Sunni politician’s bodyguard to wreak
havoc inside the Green Zone. Last January 28, I wrote in this
space that U.S. military experts had told Defense News this was
their ultimate concern and I added “one catastrophic attack in the
Green Zone could represent the final tipping point in maintaining
our forces there at significant levels,” meaning if this plan had
been carried out and, say, 20 or 30 soldiers and/or American
officials had been killed (let alone if the Iraqi government itself
had been decapitated), the calls to bring our troops home would
have resulted in an almost immediate forced withdrawal,
regardless of the president’s apparent resolve. It also would have
resulted in huge Republican losses at the polls, with or without
the scandal de jour.
As for the spate of books critical of the Bush White House and
its handling of Iraq, topped off by Bob Woodward’s “State of
Denial,” it’s all just more of the same, or, as the Washington Post
put it, further examples of the “overwhelming and shocking
incompetence” in the administration’s handling of the war.
I also go along with the conclusion of a Post editorial on
Wednesday:
“We continue to agree with Mr. Bush that it would be wrong and
dangerous for U.S. troops simply to withdraw. But it is also
dangerous when leaders such as Mr. Bush, Vice President
Cheney and Mr. Rumsfeld continue to resist reality.”
Iran
It’s been over five weeks since the UN Security Council
demanded Tehran cease with its uranium enrichment program
and now it appears the latest attempt at talks with the EU has
failed.
Israel / Palestine / Lebanon
Secretary of State Condoleezza Rice toured Israel and Palestine
in an attempt to jumpstart the peace process here as the White
House does what it can to buck up Palestinian President
Mahmoud Abbas. But these days the battle is as much between
Abbas’s Fatah organization and Hamas as between Israel and the
Palestinians. Nine were killed in one day of fighting between
Fatah and Hamas over a pay row, while in a survey 77 percent of
Palestinians described themselves as “severely depressed.”
In Lebanon, no one should be surprised if a coup topples the
government of Prime Minister Fouad Siniora. Siniora is making
a sincere attempt to get a handle on reconstruction and to ensure
funds are distributed properly and not handed to corrupt officials
instead, but at the same time the only real help people are seeing
in the devastated south remains through the auspices of
Hizbullah.
Meanwhile Speaker Nabi Berri, a Hizbullah sympathizer, warned
Israel that fighting could be renewed unless Israel withdraws
from Shebaa Farms, though at the same time Berri claims he’s
getting along with Siniora.
Editorial / Daily Star (of Lebanon)
“U.S. Secretary of State Condoleezza Rice’s current mission in
the Middle East faces a number of difficult hurdles that are
indigenous to the region, but the most daunting obstacle is one of
her own government’s making. The crux of the matter is that the
U.S. secretary of state cannot hope to revive the Arab-Israeli
peace process unless and until she at least feigns
evenhandedness. As the Jewish state’s most ardent advocate,
Washington’s only hope of achieving credibility in the Arab
world is to examine Israeli actions in an unbiased fashion and to
condemn those that are not conducive to the building of
confidence and trust that are so badly needed.
“There is no shortage of issues on which Rice could do so
without contradicting existing U.S. policy. Provocative Israeli
policies like settlement expansion and assassination, for example,
are two areas in which she could help convince Arabs in general,
and Palestinians in particular, of America’s good faith. To do so,
however, Rice needs to take a stand.
“It is rare for U.S. officials to publicly criticize Israeli actions,
which is precisely why a forthright American message is so
necessary at this juncture. The Arabs need to feel that the would-
be mediator in any future negotiations is capable of straight talk
when it comes to their Israeli interlocutors’ more egregious
activities. And the Israelis need to understand that there are
limits to how far they can go without incurring U.S. displeasure.
“Rice and her colleagues have not been reticent to condemn
immoderate positions held by the current Palestinian Cabinet.
Without a similar willingness to acknowledge the extremist and
unhelpful nature of certain Israeli policies, however, American
words will continue to ring hollow among Arab audiences. That
can only make Rice’s attempts to foster a resumption of dialogue
look something less than genuine.”
Rami Khouri / Daily Star
“There is a new regional cold war taking place in the Middle
East, pitting pro-Western leaderships against those forces who
defy and resist U.S. and Israeli-led Western aims in the area
The ideological polarization that has taken place in recent years,
however, is partly, perhaps largely, a consequence of
Washington’s use of its army, diplomacy and economy to push
for Israeli strategic aims and to go against majority sentiment in
most Arab countries. The U.S. speaks about promoting
democracy, but largely supports non-democratic Arab regimes.
It has actively isolated and tried to bring down the
democratically elected Hamas government in Palestine, instead
of engaging it and nudging it and Israel toward mutually
rewarding peace talks.
“Washington looks very foolish or very naïve talking about a
plan to work with Arab moderate governments to check
extremists. Its own policies have helped promote the extremism
it now fears, and have weakened the impact and credibility of the
so-called moderate Arabs it now seeks to bolster. The GCC
(Gulf Cooperation Council), Egypt and Jordan do not have the
collective credibility or clout to have much impact beyond their
own Green Zones in their own capitals; for they – like the U.S. in
Baghdad – often tend to be out of touch and out of step with
public opinion in their own societies.”
Last week I said I was going to comment on President Bush from
the standpoint of why so many around the world truly despise
him. I’ve seen countless examples of this in my own travels,
believe me, and in a nutshell it comes down to seeming
arrogance and disdain for the rest of the global community.
Oh, I know how many on the far right dismiss such talk with a
wave of the hand….as in ‘who gives a damn about what some
Europeans or Muslims in the Gulf think. It’s about protecting
fortress America.’
But this is such a dangerous sentiment at a time when we need
allies to keep up the pressure not just on the al Qaeda types, but
also rogue regimes and ensuring the safety of existing weapons
of mass destruction in places like Russia.
I caught former secretary of state James Baker on Fox the other
day as he promoted his new book. Understand that Baker had
worked for Bush 41 and Reagan and he is loath to criticize the
current inhabitant of the White House, but he nonetheless made it
clear that one must constantly engage leaders in other nations,
including one’s enemies. Baker cited the case of Syria, where he
shuttled 15 times for fruitless discussions with then Syrian leader
Hafez Assad, but suddenly on the 16th attempt struck gold and
Assad agreed to talks with Israel.
It’s about pragmatism, which is in short supply in the White
House these days. But more importantly, as alluded to in some
of the opinion pieces above, the U.S. must be seen as an honest
broker and today that is the furthest thing from the truth and a
major cause why, as the National Intelligence Estimate
concluded, there is a “pervasive anti-U.S. sentiment among
Muslims.”
Talk, as Baker himself says, is not appeasement. As I’ve spelled
out recently, and do further below, for example, what Pope
Benedict XVI is doing in attempting to establish a dialogue with
the leaders of Islam shows guts and if other religious and
political leaders don’t take such steps themselves we will never
reach solutions to the biggest problems on the geopolitical scene.
But talk of any kind is worthless if one of the party’s to the
dialogue also happens to be incompetent and the Bush White
House has exhibited this trait in spades; or as Bob Woodward
described some of Condi Rice’s moves, “pathetic.”
I’ve held back on President Bush this week, though only because
my true opinions should have been long clear. Suffice it to say,
America is losing the battle for the hearts and minds and it’s our
leaders who are failing us.
—
Wall Street
Thank goodness the market doesn’t waste its time with weightier
issues like I do. It’s far easier to ignore the potential implications
of a nuclearized Korean peninsula and Japan, let alone a bunch
of nuclear mullahs, and focus on Goldilocks instead.
In this instance Goldilocks refers to the perfect scenario for the
markets; an economy that’s not too hot and not too cold, with
tame interest rates and inflation and steadily growing earnings.
For this week, and basically for the past few months for that
matter, most investors believe we are in a Goldilocks
environment and the Dow Jones hit a new all-time closing high
of 11866 as a result. [That and the fact neither North Korea nor
Iran forced television networks to break into “The View.”]
But what did the economic data actually tell us this week? Key
readings on both manufacturing and the service sector were
down, though still at levels reflecting growth, and retail sales for
September at the large chain stores were very strong, all except,
it seems, Wal-Mart, which had to revise downward an already
desultory figure due to a bookkeeping error. [In order to reduce
costs and further lower prices, Wal-Mart has been employing
Bob Cratchett. Good guy, mind you, but a little in over his
head.]
Friday’s employment report showed a meager gain in job
creation, just 51,000 in September, but prior months were revised
sharply upward, let alone the fact the Labor Department, in an
annual revision, checked its abacus and…presto!…810,000 more
jobs were found in the U.S.
Well, take the above and couple it with a lowering of the
unemployment rate to 4.6 percent, a five-year low, and it’s no
wonder the president stepped forward to crow, even though the
latest NBC News / Wall Street Journal survey still gives him just
a 41 percent approval rating (53 percent disapproval) on his
handling of the economy.
For consumers, gasoline prices continue to decline, to about
$2.30 a gallon nationwide, and OPEC’s murmurings about a
production cut to stem the slide have been met with a big yawn.
And speaking of the savings in energy, including September
utility bills for those of us in the northeast, it would appear my
monologue of two weeks ago is panning out. Consumers are
clearly preferring to look at actual cash savings from lower gas
prices, say at an annualized rate of $450 a year, vs. a paper loss
on their real estate investment of, say, $20,000 to $50,000 after a
prior gain of $200,000. I mean that’s pretty much the logic being
followed these days. [Of course more recent home buyers may
view this whole equation differently.]
But at some point the mindset is bound to change, though maybe
not until 2007, thus perhaps saving Christmas, too.
However, before you go popping the Korbel (hey, it’s not like
Nasdaq hit a new high, you know), Federal Reserve Chairman
Ben Bernanke told you this week, in his strongest words yet on
the topic, that real estate was undergoing a “substantial
correction” and that it would shave one percent off GDP the
second half of the year and who knows how much in ’07;
admitting it was tough to predict the “dynamics” of housing and
its overall impact.
And then Bernanke’s vice chairman, Donald Kohn, said the
falloff in real estate has “proven to have been more rapid and
deeper than many economists had predicted.”
Well I’m no economist (my sheepskin says poli-sci major and
beer drinker), but anyone with half a brain knew real estate had
long entered the frothy stage by last fall….a full 12 months ago,
Mr. Kohn…ergo, when bubbles pop, the fall can be rough. Or
maybe Kohn forgot Nasdaq 5048. Moody’s Economy.com also
weighed in with research that predicts the average home price
will decline about 4 percent in 2007, with far greater losses in the
hotter markets.
But lest I get too smug, which I’m not entitled to be anyway
because I thought the three major equity indexes would decline 3
to 7 percent this year, I do agree with Bernanke that it’s tough to
predict the dynamics of housing and its overall impact; which is
why I muse about the psychological impact between $450 in the
pocket and a $20,000 hit to the net worth, as well as the fact that
Americans, overall, are spending more on housing (including for
real estate taxes, insurance and utilities) than ever before,
according to the latest Census Bureau data.
Finally, next week we get the first trickle of report cards on the
third quarter and everyone will be looking for the accompanying
comments from the executive suite on the future. I’ll be shocked
if they aren’t largely cautious, which may help impede any
attempts at further gains in share prices.
Street Bytes
–Tuesday through Thursday the Dow Jones Industrial Average
hit new highs, only to decline slightly on Friday on the
uncertainties surrounding the jobs revisions and its impact on
Fed policy. It also didn’t help that Dow component General
Motors declined on news the respected Jerome York resigned
from its board, as his investment partner, Kirk Kerkorian, has
decided not to raise his stake in GM following word the
automaker was not pursuing an alliance with Renault and Nissan.
For the week the Dow had its second straight advance of 1.5
percent, to 11850, while the S&P 500 added 1 percent and
Nasdaq 1.8 percent to 2299. Yes, finally the pattern of
alternating weeks of gains and losses has been broken.
–U.S. Treasury Yields
6-mo. 5.04% 2-yr. 4.74% 10-yr. 4.70% 30-yr. 4.84%
Bonds were rallying early in the week on the thought the
economy was slowing enough to allow the Federal Reserve to
begin lowering rates, perhaps by December, but then on
Thursday, Fed officials Kohn and Donald Plosser both said
inflation remained a bigger risk than a slowdown. Couple that
with Friday’s employment report that revealed wage growth of 4
percent over the past 12 months and it’s no surprise that bonds
tanked at week’s end. Additionally, the European Central Bank
raised its key lending rate to 3.25 percent and strongly hinted it
was going higher by year end.
–Going back to Jan. 14, 2000, and the Dow Jones’ previous all-
time high of 11722, the five biggest gainers since then among the
30 components in the average have been Altria, Caterpillar,
United Technologies, Boeing and Exxon Mobil. The biggest
loser has been Intel. [Source: Dow Jones Indexes / Wall Street
Journal]
–Russia, continued…..a senior official at oil and gas company
TNK-BP was shot three times in the back and head while
working on a big project in eastern Siberia. TNK claimed it
couldn’t have been related to his work. Russian energy giants
Gazprom and Rosneft just so happen to be interested in further
consolidating their respective holdings by going after TNK.
–Can it get any worse for Airbus and its jumbo flying wiener,
the A380? For the third time in 16 months it announced another
delay in delivery of this incredibly stupid project and this latest
one will cost parent European Aeronautic, Defense & Space Co.
(EADS) $6 billion.
Airbus has 159 orders from 16 customers thus far for the plane,
which cost $13.5 billion to develop. The biggest is by Emirates
for 45 aircraft and it said it’s reviewing “all options.”
The latest delay has to do with the complexity of installing 300
miles of wiring in each of the double-decker planes. 300 miles!
This whole story is a nightmare.
–While SUV and truck sales rebounded some in September
thanks to falling gasoline prices, Toyota’s market share
continued to climb as it posted a 25 percent year-over-year sales
increase last month, even as GM and Chrysler’s sales dropped
and Ford’s rose almost 5 percent.
–Trader George alerted me to a Consumer Reports study on
ethanol and E85 gasoline (85 percent ethanol / 15 percent
gasoline). After putting a 2007 Chevy Tahoe flexible-fuel
vehicle through the paces, CR found:
“The fuel economy of the Tahoe dropped 27 percent when
running on E85 compared with gasoline…
“When we calculated the Tahoe’s driving range, we found that it
decreased to about 300 miles on a full tank of E85 compared
with about 440 on gasoline. So you have to fill up more often
with E85.”
Those are just two of many reasons to beware the hype.
–California’s attorney general filed felony charges against
former Hewlett-Packard chairwoman Patricia Dunn and four
associates, accusing them among other things of using false
pretenses to obtain confidential information and identity theft in
the ongoing investigation into methods used by HP to probe
boardroom leaks.
–The Wall Street Journal reported the European Union has
enough evidence to pursue antitrust charges against Intel. The
probe, however, has been going on for five years and should
charges be formally brought it would be another few years,
undoubtedly, before there was any resolution. Rival Advanced
Micro Devices has long claimed Intel abused its market-leading
position to squelch competition.
–In catching up on my mail following my European trip, I got
around to the Oct. 2 issue of Business Week and its cover story
on click-fraud, a topic near and dear to my heart. No one should
be surprised there is “growing unease among advertisers” as an
estimated 15 percent of all clicks are fraudulent.
On a related topic, the New York Post reported that Yahoo is
suffering from the softening real estate market to the tune of
about $75 million in lost advertising. Industrywide, online real
estate ad spending is expected to reach $1.7 billion this year.
[Borell Associates]
–Google may be in the process of acquiring YouTube for $1.6
billion.
–The Securities and Exchange Commission has cleared hedge
fund Pequot Capital Management of any wrongdoing in
connection with an insider trading investigation that also
involved Morgan Stanley CEO John Mack. Back on 6/24/06, I
wrote in this space “I give little credence to” the allegations;
adding it was only a story because of the Mack angle and his
being a leading fundraiser for George Bush.
–Private-equity firms have already raised more money in 2006
than they did all of last year, meaning you’ll continue to see
leveraged-buyouts such as this week’s big entry, a $15 billion
move to take Harrah’s Entertainment private.
–Andy Xie, the chief economist at Morgan Stanley for Asia, was
forced to resign after writing in an internal e-mail that the
Association of Southeast Asian Nations was a “failure” and that,
basically, Singapore is nothing more than a haven for money
laundering. He also had strong comments about Singapore’s
prime minister, all of which could cost Morgan Stanley
significant business in the future. Xie has always been known
for his blunt opinions, though in this case he admits he may have
crossed the line. It’s another lesson learned about e-mail in
general as well.
–Online gaming stocks such as PartyGaming, many of which are
headquartered in the UK and/or traded on the London Stock
Exchange, took a huge hit this week after Congress passed a law
banning U.S. gamblers from using credit cards and other fund
transfers to place online wagers. These outfits receive a lion’s
share of their business from the States; like 77 percent in the case
of PartyGaming.
–Ryanair made a hostile bid for Aer Lingus just a week after the
latter went public. Ryanair’s dynamic CEO Michael Ryan is
seeking to form “one strong airline group for Ireland,” though
Aer Lingus has rejected the offer thus far.
–A story in the Journal reminded me it’s time for the annual
warning to mutual fund buyers. Beware of imbedded capital
gains before buying over the coming months or you could find
yourself picking up an unwelcome tax liability. Make sure your
financial advisor looks into the fund’s cap gain estimate before
you buy a particular offering. And be careful of bond funds, as
well. They too can distribute significant gains, remember.
–The Playboy Club is back…opening at the Palms Casino in Las
Vegas this weekend. Some of us of a certain generation recall
these quite fondly.
–Crain’s New York Business reports that the average room rate
at hotels in the Big Apple is approaching $300 and occupancy is
declining, slightly, as a result. Yes, at a certain price level
consumers begin to rethink some of their plans…a lesson others
like Ireland are going to have to be aware of.
–My friend Jimbo is in mourning. The founder of Lands’ End,
Gary Comer, passed away this week. Comer started out selling
sailing equipment in 1963 and rapidly expanded from there. But
what I didn’t know is that the apostrophe in Lands’ was the result
of a printer’s error and Comer decided to keep it there.
–In the near future, the Census Bureau will announce America’s
population has hit 300 million; the U.S. being virtually alone
among developed nations in exhibiting growth in this area.
Economist Robert Samuelson / Washington Post
“Population growth has raised two serious concerns. One is
environmental. It is that we are creating overcongested
communities that will demand energy and – particularly in the
Southwest – water that won’t be there or will be there only at an
exorbitant price. Population growth will cause an economic and
social backlash.
“Perhaps. But this is a big country, and much of it is still empty.
There’s plenty of coal. If Southern and Western metro areas
become too crowded or costly, maybe people will return to
Cleveland and Milwaukee, where water is plentiful and housing
prices are low….Still, population growth shows why curbing
energy use – and greenhouse gas emissions – is so hard. The
population is projected to increase 40 percent by 2050. Simply
to keep total energy demand steady would require each
American, on average, to make correspondingly deep cuts in
energy use.
“The second concern involves immigration – and its possibly
explosive combination with aging. Up to a point, America’s
willingness to accept immigrants is a sign of confidence that
promotes economic growth. But our careless approach to
immigration is creating social problems. Many Hispanic
immigrants are poor and have few skills. Their average weekly
wages ($389) are only two-thirds of the average for all workers
($577). The predominance of poor workers frustrates future
assimilation. It’s hard to move into the middle class. All this
makes immigration seem threatening to millions of Americans,
who visualize their country being overrun by an alien underclass.
“The potential mixing with aging is obvious. Paying the
retirement benefits of baby boomers could easily require federal
tax increases of 30 to 50 percent. Even without immigration,
younger workers might object to such steep burdens, especially
because many retirees will be richer than workers. Now add the
impact of immigration. A growing part of the labor force will
consist of Hispanic and Asian Americans. Most won’t have
relatives on Social Security and Medicare. They may wonder
why they should pay so much to support somebody else’s
wealthier parents. The politics could get ugly.
“We might have mitigated all these problems. We might have
controlled the border better and favored more highly skilled
immigrants with better assimilation prospects. We might have
reduced boomers’ Social Security and Medicare costs by limiting
benefits for younger and wealthier retirees. We might even have
curbed our energy appetite. But we have done none of these
things. So if population growth backfires, we will have only
ourselves to blame.”
–Ah yes, the coming entitlement disaster. Federal Reserve
Chairman Ben Bernanke commented on it this week in an
important policy speech. [See my “Wall Street History” link]
Like Samuelson, Bernanke stressed “some sacrifice on the part
of the current generation,” but then offered no solution. Now I
recognize in his position he is not going to talk specifics, but it
gives me an opportunity to trumpet yet again my own long-held
idea.
Freeze benefits for one year and let the power of compounding
take over from there. We may have to do it every four or five
years, but at least it’s not a hard-dollar cut in benefits and people
can plan accordingly. Couple this with a gradual increase in the
retirement age and a growing economy and Social Security
becomes more of a budget item than a disaster. [Medicare,
however, is a different story.]
Separately Bernanke adds:
“Unfortunately, many years of concentrated attention on this
issue by policymakers and economists have failed to uncover a
silver bullet for increasing household saving. The Federal
Reserve has actively supported such efforts, which may be useful
in helping people understand the importance of saving and to
learn about alternative saving vehicles.”
Yeah, but this is another pet peeve of my mine. When the heck
did you ever see the Federal Government do a public service
announcement on retirement plan investing and saving for the
future? Just do it, Uncle Ben!
Foreign Affairs
Afghanistan: In catching up on the mail I noticed a telling chart
in the Oct. 2 issue of Newsweek concerning spending in
Afghanistan vs. Iraq.
Between 2001-02 and 2006, spending in Afghanistan rose only
from $18.1 billion to $19.9 billion.
By contrast, in 2006 we spent $100.4 billion in Iraq.
This week, NATO formally took charge of Afghanistan’s eastern
provinces, meaning 12,000 U.S. troops are under the control of a
British commander. The total NATO force here is 32,000.
The Vatican: Last week I wrote the mass media misinterpreted
Pope Benedict XVI’s meeting with ambassadors and
representatives of Islamic countries and that in reality he had
refused “to back down in stressing his opposition to religious
intolerance.” The following was then part of an op-ed by John
Vinocur in Tuesday’s International Herald Tribune.
Quoting Marcello Pera, who collaborated with the Pope on a
book about Christianity and Islam two years ago:
“I believe he really didn’t apologize to the ambassadors. And in
using the word dialogue, he knows what he’s doing. He also
introduced the word ‘reciprocity.’ That, I think, represents his
notion of the necessity of respect for the West.”
Which in part also goes to the big issue in Britain at week’s end;
former cabinet secretary Jack Straw’s comment that Muslim
women should not wear the full veil because it made community
relations “more difficult.”
Of course immediately many Muslim leaders took off on Straw,
but, like the Pope, he knew full well what he was doing. He is
attempting to start a critically important dialogue, and one based
on his own past experience.
Straw claims anytime he asked a woman he was meeting within
his district (Straw is now Leader of the House of Commons) to
take off the veil before talking with him, “Most seem relieved
I have asked.” He is also not talking about removing the
headscarf.
Straw’s big point, though, is that Britain now has two parallel
societies and that’s dangerous.
There are also legitimate security concerns these days, and as one
female human rights expert told the BBC during coverage I was
watching, remember, back in 1973 Yassir Arafat fled Jordan
disguised as a woman; let alone all the tales of suicide bombers
today.
China / Japan: New Japanese Prime Minister Shinzo Abe is
slated to meet with China’s President Hu Jintao and Premier
Wen Jiabao on Sunday in China, thanks to some sort of
understanding reached ahead of time on the Yasukuni war shrine
visits that Abe’s predecessor Junichiro Koizumi made, much to
the chagrin of both China and South Korea. This could be
significant. At the same time, though, the topic of North Korea
is overshadowing discussions on China / Japan relations.
Separately, Abe, in his first full week in office, called for
instilling patriotism in Japanese schools and reviving traditional
virtues and family values, which to some of Japan’s neighbors is
a bit unsettling given the past.
In China itself, the BBC aired a special report on Friday
concerning the execution of up to 10,000 people a year here,
many falsely accused of crimes who are then tortured into
making confessions. The reporter interviewed some victims’
family members and it was powerful….and speaks to the nature
of a regime that many prefer to ignore.
Then there is this item, as reported by Robyn Dixon of the Los
Angeles Times. You know all those tails of China eagerly
exploiting Africa’s riches? They may be taking it too far.
“Deep in the tunnel of the Collum mine (in Zambia), coal dust
swirls thickly, and it’s stifling for workers such as Chengo
Nguni. He describes his $2-a-day job with a sigh: His supervisor
yells incomprehensibly in Chinese. His rubber boots leak. The
buttons to control the flow of ore out of the mine often deliver an
electric shock.
“But the worst thing about life in the Chinese-owned mine in
southern Zambia is that there is no such thing as a day off. Ever.
“When the government minister concerned with the region, Alice
Simango, saw the conditions at the Collum mine, she wept on
national television and accused the management of treating
workers like animals, prompting the government to close the
mine for three days in July.”
Chinese investment in Africa is soaring, but in Zambia and
elsewhere across the continent, a backlash is growing. Recall
from past items I’ve noted, China has also made threats to those
politicians who have the guts to question Beijing’s tactics.
This is the China of Mao…rather than the ‘China miracle’ so
many choose to trumpet.
India / Pakistan: After an investigation into the July 11 Mumbai
bomb attacks, the Indian government directly blamed Pakistan
and elements in the ISI. I’m surprised the story then quickly died
down, at least for now.
Turkey: Prime Minister Erdogan met with President Bush and
called the U.S. a “strategic partner,” while Bush endorsed
Turkey’s E.U. bid. But all eyes are on Turkey’s struggle with the
Kurds and, in November, the Pope’s still scheduled trip there.
Serbia / Kosovo: The Serbs continue to assert their rights to
Kosovo even as the UN prepares to grant Kosovo (comprised of
ethnic Albanians) full independence.
This is going to get nasty and Kosovo will be back in the
headlines soon. But while it’s not necessarily a ‘market-moving’
event, what it has the potential to do is sap NATO of precious
resources at a time when it should be all hands on deck in
Afghanistan.
Venezuela: The UN is preparing to vote on Latin America’s
rotating seat on the Security Council and Hugo Chavez is doling
out the cash to secure support for Venezuela’s bid. Incredibly,
Brazil may side with Chavez as President Lula now faces a tough
run-off later this month after he failed to capture the required 50
percent in last week’s election.
But just two weeks ago I was writing of how the United States
can not ignore the growing role of Iran in Venezuela as relations
blossom between the two, yet in comments this week, neither
Secretary of Defense Rumsfeld nor the head of the Southern
Command brought it up in discussing the threat posed by
Chavez’s arms build-up. Instead they talked of how Chavez
could pass off arms to terrorists to destabilize the region, but I’m
arguing, yes, that also includes Iran which will soon have
hundreds or thousands of operatives in a nation just about a two-
hour flight from Miami. Or am I missing something?
Hungary: Embattled Prime Minister Gyurcsany called for a vote
of confidence in parliament on Friday and received it, 207-165,
after the opposition president demanded Gyurcsany be ousted for
lying about state finances prior to last spring’s parliamentary
elections.
Austria: Chancellor Wolfgang Schussel’s coalition lost to the
Social Democrats, after Schussel tried to reform the pension
system. Ultra-right Joerg Haider’s party barely captured 4
percent of the vote, the threshold for maintaining a presence in
parliament.
Czech Republic: I see from Saturday’s New York Times that
Prague is under its highest terror threat ever and here I didn’t
even know it in my two trips there over the past few weeks.
Thailand: The coup aftermath is orderly thus far, with the
military government reaching out to the insurgency in the south.
Former Prime Minister Thaksin, now living in London, quit his
party, leaving them in turmoil, as the new government estimates
Thaksin’s corruption was responsible for almost $12 billion in
lost revenue for the state treasury.
Britain: Good news….a commission monitoring developments in
Northern Ireland has declared the IRA’s terror “campaign is
over.” While many members have shifted to more standard
criminal activities, the IRA “has done what we asked it to do.”
Power-sharing talks between Protestants and Catholics, however,
remain an entirely separate, volatile issue.
France: Interior Minister Nikolas Sarkozy, the conservative
front-runner for the race to succeed President Jacques Chirac,
called for the European Union to toughen immigration standards,
blaming Spain in particular for allowing amnesty to flourish
there, in his opinion.
Random Musings
–I have little to say about the Mark Foley / Dennis Hastert
scandal. It’s obvious….it kills Republicans…but a lot can
happen over the next four weeks, though even here there’s one
problem. None of the potential “October surprises” would help
the White House either.
–The Wall Street Journal’s Bret Stephens on an interview the
paper conducted with Condoleezza Rice.
“Some of what she says is bland, some of it bunk, some of it
smart, and some of it revealing.”
But the bottom line is she’s been a huge disappointment, just like
all the other “grownups” many of us fell for in 2000 when
looking at the Bush team.
–R. Warren Langley, former president of the Pacific Stock
Exchange, in an op-ed for Defense News.
“Hard experience has taught us that business leaders must be
held accountable for the performance of their companies. Enron,
WorldCom and other companies have shown us the
consequences to shareholders, employees, pensioners, and the
public if the people at the top think that they ‘know best.’….
“Clearly, we should demand the same financial accountability
from our government.
“We shouldn’t have a double standard, in which government
regulators actively police the private sector (with good results)
while government agencies are not accountable (with unfortunate
consequences and costs to us all).
“President George W. Bush, the first chief executive/MBA
president, promised that he would run our government more like
a business. People liked this idea because they knew the value of
business accountability and wanted it in their government.
“Unfortunately, the agency in our government that consumes
over half of federal discretionary spending is not being run like a
business and is not being held accountable. That’s the Defense
Department.
“The Pentagon’s financial management system is an
embarrassment, and despite documented instances of specific
waste and poor accounting, there is no fix in sight….
“The financial disarray at the Pentagon ‘would put any civilian
company out of business,’ according to former Government
Accountability Office (GAO) official Kwai Chan…
“If the Pentagon were a public company, you can bet that the
SEC, Eliot Spitzer and the Department of Justice would be all
over them and their top executives – it would be Enron,
WorldCom and several other infamous companies’ scandals
rolled into one….
“The financial mess at the Defense Department represents a
betrayal of the trust of American taxpayers, who expect their
government to follow the same basic financial practices that
American businesses follow.”
–NBC News reported 64 American servicewomen have died in
Afghanistan and Iraq. Over the course of the Vietnam War, only
8 did.
–According to a WNBC / Marist poll, in a survey of registered
voters across the nation, 44 percent would vote for Rudy
Giuliani, 39 percent for Hillary Clinton and 8 percent for
Michael Bloomberg.
–Back in 1951, the native population in Venice, Italy was
171,000, but today it is just 62,000; largely the result of the
locals not being able to afford to live there anymore due to
soaring housing costs. So as the Herald Tribune put it, it begs
the question, is Venice still a city? 150,000 tourists go there
every day, but soon there will be no Venetians.
–On my flight back to the U.S. from Europe on Tuesday, we
flew over the southern tip of Greenland and whereas it has
almost always been covered with clouds when I’ve flown over it
in the past, this time it was crystal clear and the scenery was
spectacular. And, yes, you could tell some of the glaciers were
receding.
But did you see this bit about an iceberg in Antarctica, B15a,
being smashed into pieces by storm-generated swells from
Alaska that traveled 8,300 miles in six days?!
B15a was 60 miles long and almost 20 wide when the waves hit.
“Our jaws dropped,” said a scientist after discovering the source
of the swell and reporting it in the journal Geophysical Research
Letters. B15a was the biggest iceberg ever recorded, but the
findings suggest “that an increase in storms driven by climate
change will have hitherto unforeseen impacts in far-flung parts of
the globe,” as a piece in The Times of London concluded.
–Gem Diamond Mining Co. of South African reportedly found
the world’s biggest diamond in 13 years and will sell the stone.
The 603-carat gem is named Lesotho Promise, the biggest since
the 777-carat Millennium Star, owned by De Beers, was found in
the Congo. Lesotho Promise could fetch as much as $40,000 a
carat and is being called one of the top-10 white diamonds ever
found. The biggest in history, incidentally, is the 3,106-carat
Cullinan found at Premier mines in South Africa in 1905, which
in turn produced the 530-carat Star of Africa, which lies in the
scepter of the British royal family in the Tower of London.
[Bloomberg News]
I couldn’t help but note the above because as I was checking out
of my overly-priced hotel in Prague on Tuesday morning, this
elderly American woman in front of me had on the biggest rock I
have ever seen in my life. It was layer after layer, seemingly
stretching to the sky……OK, the top of the pen holder on the
reception desk.
So I’m thinking that this is also the most ridiculous thing I’ve
ever seen.
But then I’m going through security at Prague’s airport and this
other American woman in line with me must have had a giant
diamond ring on virtually every finger. I was floored at the
amount of wealth she was wearing.
Now I’ve been around a little, but within the span of about an
hour these two cases had to be tops in the offensive category.
I also immediately thought of something I saw in Transylvania
earlier on my trip, a story I didn’t pass on last review; lots of
peasants in their horse-driven carts, gathering wood for the rough
winter ahead in the mountains there.
And so I later landed back in America to the story of the tragedy
at the Amish schoolhouse, and like all of you marveled the next
few days at their amazing grace and dignity under the absolute
worst of circumstances.
The peasants of Transylvania don’t have much of a say in how
they lead their lives, I imagine. They are forced to make best
with the lousy hands they’ve been dealt.
But the Amish make a conscious choice to live life the way they
do. I’ve been through their towns before and viewed them with
the same curiosity I’m sure many of you have in the past. I’ve
sometimes wondered about (and probably criticized) the methods
in which they treat illness, mostly forsaking modern medicine.
From here on, though, I and most other Americans, no doubt,
will view the Amish with nothing but the utmost respect and
admiration. Who am I, ever again, to judge my own way of life
as being better or more fulfilling than theirs?
As for the Americans I saw in Prague, wearing the gross
domestic product of most emerging nations on their fingers,
those are conscious decisions made as well. I assume they’re
happy.
—
Pray for the men and women of our armed forces.
God bless America…especially the Amish.
—
Gold closed at $576
Oil, $59.66
Returns for the week 10/2-10/6
Dow Jones +1.5% [11850]
S&P 500 +1.0% [1349]
S&P MidCap +1.3%
Russell 2000 +2.0%
Nasdaq +1.8% [2299]
Returns for the period 1/1/06-10/6/06
Dow Jones +10.6%
S&P 500 +8.1%
S&P MidCap +3.5%
Russell 2000 +9.9%
Nasdaq +4.3%
Bulls 49.5
Bears 33.3 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
