[Posted 7:00 AM ET]
The Middle East
This week marked the fourth anniversary of the Iraq War and a
number of polls of Iraqis were released. A survey for USA
Today/ABC News/BBC/ARD (German TV) revealed that 6 in 10
feel their lives are going badly, but by a 43-36 margin say life is
better than before the invasion. [Similarly, a poll for the London
Times noted by a 49-26 margin, Iraqis preferred life under the
new government vs. under Saddam.]
Attitudes break down on sectarian lines, as you’d expect, with
2/3s of Kurds saying they feel “very safe” in their neighborhood,
33% of Shias, but a mere 3% of Sunnis.
The London Times survey said by a 61-27 margin, Iraqis do not
consider today’s action to be a civil war. But when it came to
commenting on the availability of electricity or clean water, 69%
to 88% said the situation is either “quite bad” or “very bad.”
On the issue of U.S.-led forces, just 18% have confidence in
them, while, disturbingly, 51% said it was “acceptable” for
“other people” to attack coalition forces. In 2004 this figure was
just 17%. [USA Today et al]
Meanwhile, the House voted 218-212 to call for the withdrawal
of most U.S. combat forces by Sept. 2008, though the measure
will find tough going in the Senate next week, let alone a certain
veto as President Bush affirmed on Friday. The Democratic
position is largely incoherent and while Americans want the war
to end, the majority still recognizes we can not as yet cut and run.
The Washington Post editorialized on the specifics of the bill that
not only includes funding for the war until 9/08, but is also
loaded with $21 billion in pork for items ranging from support
for peanut storage in Georgia, to aid for shrimp fishermen, and
another $1.3 billion to build more levees in New Orleans.
“Congress can and should play a major role in determining how
and when the war ends. Political benchmarks for the Iraqi
government are important, provided they are not unrealistic or
inflexible. Even dates for troop withdrawals might be helpful, if
they are cast as goals rather than requirements – and if the timing
derives from the needs of Iraq, not the U.S. election cycle. The
Senate’s version of the supplemental spending bill for Iraq and
Afghanistan contains nonbinding benchmarks and a withdrawal
date that is a goal; that approach is more likely to win broad
support and avoid a White House veto.
“As it is, House Democrats are pressing a bill that has the
endorsement of MoveOn.org but excludes the judgment of the
U.S. commanders who would have to execute the retreat the bill
mandates. It would heap money on unneedy dairy farmers while
provoking a constitutional fight with the White House that could
block the funding to equip troops in the field. Democrats who
want to force a withdrawal should vote against war
appropriations. They should not seek to use pork to buy a
majority for an unconditional retreat that the majority does not
support.”
Iran…On Saturday, the UN Security Council is slated to vote on
a new set of sanctions against Tehran, including a ban on Iranian
arms exports as well as freezing more assets. But the New York
Times reported that Russia had issued Iran an ultimatum –
suspend uranium enrichment immediately or the nuclear reactor
project at Bushehr will never be finished – only to have Russian
Foreign Minister Lavrov say Russia had not issued any such
ultimatums and that there was no link whatsoever between
Bushehr and UN sanctions. Additionally, Moscow said it “will
not support excessive sanctions against Iran” so we’ll see what
eventually emerges. It is now over a month since Iran’s first UN
deadline to suspend enrichment expired.
But with regards to Iran and Bushehr, it is clear that Russia is
pulling workers from the plant that is 95% completed because if
Moscow isn’t going to be shipping fuel oil while it negotiates
with Tehran over a payment dispute, there is nothing for the
technical staff to do; so of course, bring them home.
[In keeping with my ‘wait 24 hours’ approach, there is little to
say on the capture of the 15 British marines by Iranian
Revolutionary Guards until we know more. As of this writing,
Iran has not stated its intentions and in past instances released
those in similar circumstances within a few days. But the recent
alleged kidnapping of senior Revolutionary Guard figures leads
one to think this is in retaliation.]
Israel…The new Palestinian unity government of Hamas and
Fatah is in place and immediately Israel and the U.S. said they
would not negotiate with it on a formal basis because Hamas
continues to refuse to recognize Israel and renounce violence.
But while the European Union supports the U.S. and Israel in
terms of not alleviating the sanctions on the Palestinians, some
European governments are personally meeting with Hamas
Prime Minister Haniyya, while even U.S. Secretary of State
Condoleezza Rice said she would see some cabinet-level
members of Hamas, against Israel’s wishes.
For the better part of 1 ½ years, since the Bush administration
failed to follow up on the democracy movement in Lebanon after
the assassination of former prime minister Rafik Hariri, and
especially during the conflict between Lebanon and Israel this
past summer (one that Vice Premier Shimon Peres labeled a
mistake this week under questioning from a government
investigative panel), I have written the United States is not being
an honest broker in the region.
The New York Times’ Nicolas Kristof had this to say on the
topic in general.
“Democrats are railing at just about everything President Bush
does, with one prominent exception: Mr. Bush’s crushing
embrace of Israel.
“There is no serious political debate among either Democrats or
Republicans about our policy toward Israelis and Palestinians.
And that silence harms America, Middle East peace prospects
and Israel itself.
“Within Israel, you hear vitriolic debates in politics and the news
media about the use of force and the occupation of Palestinian
territories. Yet no major American candidate is willing today to
be half as critical of hard-line Israeli government policies as, say,
Haaretz, the Israeli newspaper….
“For more than half a century, the U.S. was an honest broker in
the Middle East. Presidents Harry Truman, Lyndon Johnson and
Ronald Reagan were warmer to Israel and Dwight Eisenhower,
Jimmy Carter and George H.W. Bush a bit cooler, but all sought
a balance. George W. Bush has abandoned that tradition.
“Hard-line Israeli policies have profoundly harmed that country’s
long-term security by adding vulnerable settlements, radicalizing
young Palestinians, empowering Hamas and Hizbullah, isolating
Israel in the world and nurturing another generation of terrorists
in Lebanon. The Israeli right’s aggressive approach has only hurt
Israeli security, just as President Bush’s invasion of Iraq ended
up harming U.S. interests….
“Last summer, after Hizbullah killed three Israeli soldiers and
kidnapped two others, Prime Minister Olmert invaded Lebanon
and thus transformed Hizbullah into a heroic force in much of the
Arab world. President Bush would have been a much better
friend to Israel if he had tried to rein in Mr. Olmert. So let’s be
better friends – and stop biting our tongues.”
It bears repeating that President Bush did not speak to Olmert
once during the entire Israel-Lebanon war.
—
The Housing Sector
Two weeks ago, March 10, I wrote that I was incredulous that
some actually thought what former Federal Reserve Chairman
Alan Greenspan had to say at a speaking engagement or two
moved the markets.
“The man is irrelevant…and I see zero reason to bring him up in
the future, unless it’s about his earlier forecasts as chairman
which fell woefully short of being accurate.”
Well, Randall Forsyth had a terrific column in the March 19
edition of Barron’s and on the issue of Greenspan, Forsyth
writes:
“In a speech to the Fed’s Community Affairs Research
conference in April 2005, The Maestro sang the praises of
‘technological advances’ that ‘have resulted in increased
efficiency and scale within the financial services industry.
Innovation has brought about a multitude of new products, such
as subprime loans,’ he continued, adding that technology had
allowed lenders to size up the creditworthiness of borrowers
more cheaply.
“ ‘Where once more-marginal applicants would simply have
been denied credit, lenders are now able to quite efficiently judge
the risk posed by individual applicants and to price that risk
appropriately. These improvements have led to rapid growth in
subprime mortgage lending; indeed, today, subprime mortgages
account for roughly 10% of the number of all mortgages
outstanding, up from just 1% or 2% in the early 1990s.’
Forsyth:
“Since then, subprime mortgages have burgeoned to about twice
that level, to around 20% of the total, according to most
estimates. And the results are becoming apparent….
“Yet among the avalanche of coverage of the subprime debacle,
the deterioration of adjustable-rate mortgages – even of prime
quality – is still more dramatic. But three years ago, Greenspan
was touting ARMs for Everyman. ‘American consumers might
benefit if lenders provided greater mortgage product alternatives
to the traditional fixed-rate mortgage,’ he told the Credit Union
National Association in 2004. ‘To the degree that households are
driven by fears of payment shocks, but are willing to manage
their own interest-rate risks, the traditional fixed-rate mortgage
may be an expensive method of financing a home.’
“As Greenspan spoke, the Fed’s key interest-rate target, the
overnight federal-funds rate, stood at a mere 1%. Just over four
months later, however, the Fed began tightening its monetary
policy, eventually raising the funds rate 17 times, to the current
5.25% level.
“The impact on those who took Mr. G’s advice has been
dramatic. The latest data from the Mortgage Bankers Association
show a sharp jump in delinquencies and foreclosures in the
fourth quarter. People with ARMs with low ‘teaser rates’ at the
beginning are getting into trouble once they adjust up to
prevailing market rates….
“But this latest fiasco goes beyond mortgages. ‘Subprime is
today’s dot-com – the pin that pricks a much larger bubble,’
writes Stephen Roach, Morgan Stanley’s chief economist…‘the
actors have changed, but the plot is strikingly similar,’ he
continues. ‘This time, it’s the U.S. housing bubble that has burst,
and the immediate repercussions have been concentrated in a
relatively small segment of the market – subprime mortgage
debt.
“ ‘As was the case seven years ago, I suspect a powerful dynamic
has been set in motion by a small mispriced portion of a major
asset class that will have surprisingly broad macro consequences
for the U.S. economy as a whole,’ Roach concludes.”
James Grant, in an op-ed for the Washington Post:
“The top man at the Treasury Department urged calm last week
in the face of losses on Wall Street brought on by fears of
defaults on the riskier kinds of mortgages. Really, he said, the
damage is easily containable.
“But of all people, Henry M. Paulson Jr., former head of the New
York investment banking house of Goldman Sachs, should know
just how reasonable this near-panic was. Easy credit has long
been the American financial lifeblood. Anything resembling
stringency on the part of our formerly carefree lenders would
tend to set the economy on its ear.
“Easy credit financed the bull market in houses and the flood of
home refinancings. Americans felt richer and spent as though
they were. It stands to reason that the withdrawal of this manna
will lead them to spend less – with substantial collateral damage
to the housing-centered U.S. consumer economy, and, perhaps,
well beyond. Our captains of industry owe as much to their
lenders’ leniency as does any subprime, or high-risk, home
buyer. They, too, have been able to raise money on terms
unimaginable only four years ago.
“All this sounds scary enough, and it is. But financial history
offers some solace. The U.S. economy excels in the art of facing
up to error – of identifying it, reappraising it and then repricing
it. Loans, especially the risky kind, have been mispriced. They
were, and are, too cheap. They will be repriced – as they were,
for example, in the aftermath of the junk-bond and real estate
troubles of the late 1980s and early 1990s. Borrowing costs will
go up, and the value of the things that debt financed will tend to
go down. In an attempt to ease the pain, the Federal Reserve will
print more money….
“But the ripples from this cold bath go even further than the $8
trillion mortgage market. The truth is that the no-down-payment,
no-documentation, interest-only mortgage loan has its
counterparts in most branches of American finance.
“The date of the last ceremonial burning of an American
mortgage is lost in the mists of time. Outright, unencumbered
ownership of a house, a building or a corporation is no longer an
ideal that most Americans embrace. The new goal is to borrow
as much as possible, as soon as possible, against any asset that
could be financed. And these days – thanks to Wall Street’s
ingenuity – all manner of assets pass as good collateral for a
loan….
“Nowadays, loans rarely rest on the balance sheets of the lenders
who make them. Rather, they are scooped up and fashioned into
securities – ‘asset-backed securities.’ And these are gathered up
and refashioned into still other securities – ‘collateralized debt
obligations.’ And the CDOs, many of them dizzyingly complex,
are sold to investors the world over. No bank regulator watches
over these financial sausage-making operations. As the Federal
Reserve has receded in importance in this worldwide financial
system of ours, so has the U.S. banking system. A parallel kind
of banking system has come into existence. Wall Street calls it
the ‘CDO machine.’ ….
“In a speech two years ago, Federal Reserve Chairman Ben
Bernanke pointed to a curious coincidence: Growth in U.S.
mortgage debt tracks closely with the growth in the trade deficit
– that is, the difference between what we consume and what we
produce. ‘Over the past two decades,’ he said, ‘major
innovations in the United States have improved the availability
and lowered the costs of home mortgages. These developments
likely spurred homeowners to tap increasing home equity to
finance consumer expenditures beyond home purchase. In
contrast, mortgage debt is not so readily available among our
trading partners as a vehicle to finance consumption
expenditures.’
“If I were the head of state of one of our trading partners, I would
be asking myself if these ‘major innovations’ were as wholesome
as they used to seem. Deciding not, I would command my
minister of investments to unload U.S. mortgage holdings. And I
would imagine that I would not be the only head of state to
whom this thought had occurred.”
You’d be hard-pressed to find someone who has written more
than I have on the real estate bubble, and I’m continually amazed
by those who offer we’ve already hit a bottom. Robert
Froehlich of DWS Scudder went so far as to say the subprime
mortgage crisis “will be the most hyped disaster that never
occurred since Y2K.” Right, Bob, but then you have mutual
funds to hump so I’d expect nothing less. How the heck can you
compare Y2K, which indeed proved to be nothing (though I was
taken in by it myself) to a real estate debacle that has caused real
pain to a broad class of Americans; those who can least afford it?
It’s that kind of irresponsible shillery (my word of the week) that
gives Wall Street a bad name.
Every few weeks I have to repeat myself on a key point. When
we do hit bottom in the real estate market, it is not just going to
bounce right back up. Think of the plight of the Kansas City
Royals baseball team. They last won 90 games in 1989 (92-70).
They then stair-stepped down the next four seasons before flat-
lining, with the worst period being the last five-year stretch,
2002-2006. Or, since Detroit’s housing market is suffering as
bad as any these days, think the Detroit Lions. We will bottom
and stay there.
But we aren’t close to that bottom yet. I also have a confession
to make. Until recently I didn’t know what the definition of an
“Alt-A” mortgage was, the class between subprime and prime.
You know, for Alt-A, I’m told, lenders are finally demanding 5%
down! This isn’t even subprime, and yet you can still get one
without little documentation and basically no money down. So
doesn’t that make Alt-A really the same as subprime?
Andy Laperriere of ISI Group in an op-ed for the Wall Street
Journal.
“According to Credit Suisse, the number of no or low
documentation loans – so-called ‘liar loans’ – increased to 49%
last year from 18% of purchase loans in 2001, a nearly three-fold
increase. The investment bank also found that borrowers put up
less than a 5% down payment in 46% of all home purchases last
year.”
That’s staggering. Laperriere:
“The Alt-A market….has increased sevenfold since 2001 and
accounted for 20% of home-purchase loans last year. Fully 81%
of Alt-A loans in ‘06 were no or low documentation loans….
Why have borrowers employed this kind of risky financing?
Because it was the only way many of them could afford a home
in some of the hottest housing markets, where prices more than
doubled in five years.”
There are some idiots out there, snug in their castles, who go on
the air and say ‘It serves them right.’ That’s simply cruel and my
heart goes out to those who made some very bad mistakes in
judgment, or were flat out swindled.
I also am not one of those free marketeers who say the
government needs to stay out of this mess. Wrong! Think back
to the Tech Bubble. What was one thing Alan Greenspan could
have done that would have without a doubt lessened the pain?
Raise the margin rate. What one thing could the Fed, the FDIC,
or the Comptroller of the Currency have done during the real
estate boom? Insist that mortgage documents be written in plain
English and spell out the risks.
You think that is hard to do? Ask my old mutual fund buddies.
Years ago, when I was still in the business and before the
market-timing scandals that hit the industry, we were forced to
come up with simpler prospectuses that spelled out as plainly as
possible the impact of expenses on shareholders. Regulators also
insisted that past performance be laid out for all periods (and
adjusted for applicable sales charges), not just the hottest one.
So it can be done. It doesn’t mean the government is interfering
in the ability of Mr. and Mrs. Jones to buy their first home, but at
least some of the homebuyers may have realized that when their
mortgage resets, the payment goes up $500. It’s been shown
time and time again that in many instances this wasn’t explained
to them. No doubt, there is the principle of individual
responsibility, but there is also accountability.
I don’t feel in the least bit sorry for speculators who were
flipping Miami or Las Vegas condos and finally got burned.
They should have known the risks and if they didn’t, tough.
But it makes me sick how some of the ‘little people,’ and I use
the term affectionately, were burned when all they thought they
were doing was pursuing the American dream.
So, no, we haven’t hit bottom and while I’m at it, let me tell you
what is really on my mind, something that Barron’s Randall
Forsyth and countless others in the financial press want to write
but can’t because they have editors standing behind them. Alan
Greenspan was not a great Fed chairman. He was a fraud, as
history is increasingly revealing.
—
Just a brief note on the Federal Reserve’s move to hold the line
on interest rates for a sixth consecutive time. There is a debate
as to whether they dropped the bias to raise rates in their
accompanying statement. Frankly, I don’t give a damn because I
have been adamant they will not hike again in this cycle…period.
Of course the Fed said inflation remains its chief concern, but
they will always say that. It’s their raison d’etre, after all. What
Ben Bernanke and crew did say, however, was that the economy
was sending mixed signals and that the “adjustment in the
housing sector is ongoing,” both less bullish sentiments than
before. Is a rate ‘cut’ thus in the cards? Not right away, but one
thing I do know is that corporate earnings will increasingly
disappoint.
Street Bytes
–Stocks roared to their best performance since last summer, in
the case of the Dow Jones and Nasdaq, and since 2003, if you
can believe it, for the S&P 500. All three gained between 3%
and 3.5% and the major indices are back in the black, though in
most cases just barely.
Why did stocks have such a good week? Most investors
(gamblers) took great heart in the Fed’s pronouncement. Since I
never believed they would raise rates, I don’t understand why
there were so many who did. Whatever makes you happy, I
guess. More importantly, deals were back in the news and if
acquirers can still obtain financing then that’s a positive.
Otherwise, not for nothing but oil climbed back above $62, with
Friday’s spike coming as a result of the news from Iran on the
capture of the British soldiers as well as the ongoing debate in
the UN over sanctions and how Iran may respond.
[Check out my latest “Wall Street History” piece on the price of
gasoline at the pump.]
–U.S. Treasury Yields
6-mo. 5.09% 2-yr. 4.61% 10-yr. 4.61% 30-yr. 4.80%
It turned out to be a rather volatile week for bonds, though at the
end of the day rates were little changed except in the 30-year
which rose 10 basis points. But remember, since with few minor
exceptions the weekly close on the key 10-year has been between
4.50% and 4.80% since Aug. 25 of last year, my new stated
policy is not to make anything of the bond market until we break
out of this range. You shouldn’t give one lick either. In the
meantime, you’d be a fool not to invest in the short end of the
curve, if you feel you must have some exposure to bonds, or just
stick with cash….like we do here in the home office. The rate is
the same, after all.
–More real estate tidbits:
Housing starts for February rose 9% and existing home sales
(two distinctly different items) were up a better than expected
3.9%. But building permits were down 2.5%. Bottom line, as
we’ve all learned these are volatile readings and particularly so
during the winter months when they are subject to the whims of
Mother Nature….and the jet stream.
Colorado led the nation in foreclosures 9 out of 12 months in
2006. The top five states in terms of percentages are CO, GA,
NV, TX and MI.
22% of all subprime mortgages are in California, 10% in Florida.
For years, especially after each trip I’ve taken to Europe, I’ve
written of how the real estate bubble is global, like in my Week
in Review of 5/27/06.
“Ask anyone who’s been to Europe in the past few years,
chatting up a few blokes in a pub, and you’ll find everyone is
buying a second home in Spain, to cite but one prominent
example; thanks in no small part to the prevalence of low-cost
airlines that make it far easier to jet away for the weekend. But
these same communities are going to slide like the rest.”
So this past week there were a slew of articles on just this topic.
“Vacation Home Boom May Turn to Bust in Spain as Banks
Recoil” was one headline on Bloomberg News.
“Opening a sales office and hiring an attractive woman is no
longer enough to sell houses,” said James Stuart, who has
marketed vacation homes since the 1980s in Marbella on the
Costa del Sol. “I don’t know any project in default, but banks
are asking for more guarantees and more sales to be agreed on
before lending any money.”
Get this. 98% of mortgages in Spain have floating rates. In the
U.S., the majority are still fixed, at least until recently.
Wolfgang Munchau, in another article for Bloomberg News,
wrote:
“The bogus economic theory from Spain is that large
immigration can maintain a construction boom indefinitely.”
Munchau also noted, “In the past the correlation between U.S.
and European property price movements has been extremely
high.”
I would just add after reading the above that before you rush in
and buy European bank shares, understand what you’re getting.
I know I couldn’t begin to tell you what the exposures are for the
biggest ones.
–While real estate loses its luster around the world, land prices
in Japan rose for the first time in 16 years…which perhaps gives
you a window into just how long the U.S. and other real estate
markets could be in the doldrums.
–OPEC President Mohammad al-Hamili said the cartel was
“committed” to providing enough oil for world consumption, and
at affordable prices! But for now he said existing supplies were
sufficient, even as inventories tumble in some categories.
–Meanwhile, for about 24 hours investors focused on
Halliburton and its earnings warning, with the oil field services
operator talking of decreased drilling in North America, thanks
in no small part to falling natural gas prices since the peak in late
2005.
But to those that say this signals the end of the boom, they will
be sadly mistaken; and share prices in the entire oil and gas
sector rallied anew the day after Halliburton’s announcement.
Any drop in drilling activity will obviously lead to tighter
supplies for natural gas in particular and as long as the economy
is growing, even at its increasingly moribund pace, I’d expect a
floor in prices around current levels (maybe a $1 or so lower)
and profits that will remain strong.
–Thomas Sowell / New York Post
“Amid all the media hysteria over the price of gasoline and the
profits of ‘Big Oil,’ one simple fact has been repeatedly
overlooked: The oil companies’ earnings are just under 10% of
the price of a gallon of gas, while taxes take 17%.”
–Eric Fry on ethanol:
“I liken U.S. ethanol production to using caviar to make cat food.
You are taking imported foreign oil and dumping it into a
production process that yields a ‘renewable resource’ where the
energy return on energy invested is probably no better than one-
to-one. Where is the ‘renewable’ facet of that process? Where’s
your energy independence?
“In addition, the economics of ethanol production itself are
questionable. Without the 51-cent a gallon government subsidy,
most ethanol producers are not making money. These economics
could change with market conditions. But the more ethanol we
produce, the higher the price of corn rises, the less profitable
ethanol production becomes.”
–Blackstone Group filed its IPO, as expected, and underwriters
Morgan Stanley, Citigroup, Merrill Lynch, Credit Suisse,
Lehman Brothers and Deutsche Bank will reap some of the
rewards. But no Goldman Sachs.
Last week the story was just breaking as I went to post so I need
to fill in some of the gaps. The $4 billion IPO is for the
management company and investors will not be investing in the
actual portfolio. What the IPO provides, however, is a
permanent source of financing for Blackstone; instead of having
to schlep around with their hat out, returning to the same
investors time after time.
Some say the IPO marks the sign of a top in the private equity
market, let alone auguring an era of lower future returns. There
are also concerns about the ability to finance future transactions,
no doubt, and the IPO could help in that regard.
But the real story to me remains Stephen Schwarzman, the man
most in charge at Blackstone. He is reportedly worth $10 billion
and the offering could double this. That would put him a mere
$30-$40 billion behind Warren Buffett and Bill Gates, and don’t
you know that is really what’s driving him….seriously.
–Morgan Stanley reported a terrific quarter, earning $2.66
billion, thanks to CEO John Mack’s focus on taking more risks
in the trading area….prudently, of course. A Florida appeals
court also overturned a $1.58 billion judgment against Morgan
for allegedly misleading investor Ronald Perelman on
Sunbeam’s financial condition before he acquired it.
–Oracle issued a strong earnings report and is suing rival SAP,
accusing the German business software maker of corporate
espionage; specifically alleging that some of SAP’s workers in a
Texas unit posed as Oracle customers and downloaded all
manner of software from Oracle’s customer-support Web site
that then appeared in SAP’s own programs.
–NBC Universal, News Corp., Yahoo, AOL and MSN are all
teaming up to go after Google’s YouTube in a distribution
agreement to share TV shows, video clips and movies online.
The main point is to give the likes of NBC and Twentieth
Century Fox’s movie and TV studios greater control over how
their product is distributed.
–The Chinese central bank raised its key lending rate a third time
in 11 months in yet another attempt to slow the economy. In
response the Shanghai Composite, which just weeks ago crashed
9%, hit one new record high after another. The government has
set a growth target of 8%, but it’s still running substantially over
10%.
–Airbus took its giant flying hot dog on a tour of the U.S., but
there are still no buyers in the States for the $300 million A380
that can carry up to 850 passengers. The giants of the U.S. cargo
industry, UPS and FedEx, have also canceled their prospective
orders for a cargo version.
But it’s the airports that will really get screwed, those that
stupidly opted to spend $tens of millions on improvements to
accommodate an aircraft that only a few European and Asian
airlines may end up employing.
–As noted in a piece by Charles Babington of the Washington
Post, the proposed merger between Sirius Satellite Radio and
XM faces a number of challenges apart from any regulatory
hurdles, chief of which is the fact both are “straining their
systems’ transmission capacities even before they try to add each
other’s content,” let alone already huge fixed costs in the
multiyear, multimillion-dollar contracts for talent and sporting
events.
–A federal judge issued a permanent injunction against Internet
phone carrier Vonage for using Verizon’s patents, thus in
essence sentencing Vonage to death. What a disaster this outfit
has been.
–Former Reagan White House budget director David Stockman
faces indictment related to his days running now bankrupt
Collins & Aikman, a multi-billion-dollar maker of instrument
panels and carpets, according to the Wall Street Journal and
Washington Post. Stockman will be charged with accounting
fraud and other serious offenses.
–Fidelity’s Research Institute issued its 2007 retirement-index
results, among which is the figure for the median household
retirement savings of working Americans… $22,500.
[Trader George and I have some advice for Fidelity. Produce
new commercials! We both agree we would never open a
Fidelity account with such irritating stuff being rammed down
the throats of those of us who tend to have CNBC on all day.]
–CNBC’s Jim Cramer is in trouble over remarks he made in an
interview with his TheStreet.com Web Site, months ago, that just
surfaced in a video making the rounds. Cramer bragged about
his ability to manipulate share prices back when he was a hedge
fund manager and while there is nothing authorities could do to
him today, he also disparages the work of Bob Pisani, CNBC’s
NYSE floor reporter, as well as a journalist at the Wall Street
Journal. It’s just a matter of time before Cramer self-destructs;
kind of like golfer John Daly has on occasion.
–My portfolio: I still have yet to sell anything since the market
tremors of recent weeks and I’ve been buying more of a few
selected issues. But I also remain heavily in cash.
–The U.S. Postal Service announced it was hiking the cost of a
first-class stamp to 41 cents on May 14 and over the coming
weeks you’ll see a bunch of incredibly idiotic stories discussing
how awful this is.
So consider this. Since I still don’t pay my bills online, I figure I
send out 20 letters a month, max, or 240 a year, plus about 50
Christmas cards.
Ergo, that’s 290 letters, or a whopping $5.80 increase over the
full year. Needless to say, I won’t be losing any sleep over this,
especially because I could cash in my coffee cans full of coins at
CoinStar and probably pick up $300 or so. [This is really my
‘End of the World’ emergency beer money.]
Anyway, cut your U.S. Postal employees a little slack in the next
few weeks. When you think about it, for all our complaints the
mail service is downright spectacular in this country.
Foreign Affairs
North Korea: Talk about ‘wait 24 hours,’ you should have
learned over a decade ago to adopt the mantra when it comes to
this place. On Monday, U.S. negotiator Christopher Hill
proclaimed that the issue of the disputed $25 million sitting in a
Macao bank had been resolved. Then on Thursday, six-party
talks broke down because the Bank of China, serving as a transit
point, didn’t want to accept the money from Macao, before being
handed over to North Korea, because it was afraid it would be
sucked into the controversy in terms of losing future business, a
legitimate concern. Russia blamed the U.S. for failing to assure
the Bank of China it could accept the funds without
repercussions. There is no word on when talks will resume.
Of course this is against the backdrop of the Feb. 13 agreement
signed by Pyongyang to shut down its facility at Yongbyon by
April 14 and allow UN monitors in in exchange for the first
shipment of fuel aid. Earlier, North Korean negotiators blasted
Japan and questioned why it was still part of the talks.
Zimbabwe: President Robert Mugabe’s police force is in a
shambles amidst mass resignations over not being paid, so
Mugabe went out and rented 2,500 Angolan paramilitaries,
known for their brutality, to patrol his nation’s streets and
enforce the law. This nightmare will all be over by the end of
April as Mugabe is ousted in one form or another. It won’t be
bloodless, however.
Pakistan: Intriguing situation here as over 130 have been killed
in Waziristan in clashes between tribal forces and foreign
militants, most from Uzbekistan, who owe their allegiances to al
Qaeda. Is it an irreparable break in relations? Does it lead to the
uncovering of Osama and Zawahiri’s hideouts, said to be in the
same region?
Separately, President Musharraf is under increasing pressure as a
result of his dismissal of the chief justice of the Supreme Court.
Opposition rivals, including two former prime ministers, are said
to be joining forces to force Musharraf out.
And then there is the murder of Pakistan’s cricket coach, Bob
Woolmer, at the World Cup in Jamaica following his team’s
shocking loss to Ireland. This was hours after his effigy was
burned in the streets by fans who demanded that Woolmer be
arrested on his return to the country. Shocking stuff.
Afghanistan: The U.S. and some of its allies are in an uproar
over the move by the Italian government to trade a journalist,
kidnapped by the Taliban, for five Taliban terrorists already in
custody. A UN spokesman said, “The UN does not negotiate
with terrorists.” Italian Prime Minister Romano Prodi was
challenged by his Opposition to explain why once again the
government was giving into kidnappers’ demands.
China: I found the following opening of a story by Wendell
Minnick of Defense News to be rather telling, in light of my own
recent missives.
“China and North Korea are the catalysts for virtually all defense
procurement and policy decisions being made in Japan, South
Korea and Taiwan.
“At the same time, there appears to be no overall policy from
Washington guiding East Asia on how to deal with a new
emerging superpower – one that is clearly interested in pushing
the United States out of the region.
“ ‘Japan and South Korea are hedging against fears of a
potentially diminished U.S. military-leadership capacity in
Northeast Asia, due to fears that Washington will increasingly
accommodate growing Chinese military power in East Asia,’
said Richard Fisher, vice president of the Washington-based
International Assessment and Strategy Center.
“Reuben Johnson, a Ukraine-based aerospace and technology
analyst and consultant, argues, ‘There is almost no intelligent
analysis or thinking in Washington about what China will be like
– what the nature of the state and its policies will be – when
Beijing is a true superpower.
“ ‘What disturbs China’s neighbors is that there is little – if any –
sort of strategic vision emanating from D.C. on this subject. In
the absence of anything other than the usual polemics, they will
seek to go their own way in developing a response to the
implications of China,’ he said.”
Russia: Terrible week here. A mine blast killed at least 106, the
deadliest such disaster in a decade; a plane crash landed, killing
six; and 63 died in a fire at a retirement home in southern Russia,
with the nearest fire station 30 miles away. Pathetic.
Slain journalist Anna Politkovskaya’s diaries, just published,
blame President Vladimir Putin for Russia’s problems.
Addressing his re-election in 2004, Politkovskaya wrote “Were
we seeing a crisis of Russian parliamentary democracy in the
Putin era? No, we were witnessing its death.” She also blamed
opposition leaders for courting the wealthy while ignoring the
plight of the poor. As to Putin’s popularity, she wrote “They
agreed to be treated like idiots.” [Moscow Times]
Somalia: Heavy fighting erupted all over again in the capital of
Mogadishu. Ethiopian and Somali troops were killed by
insurgents and just as in 1993 dragged through the streets.
Mexico: Over $200 million in cash was confiscated as the result
of a drug seizure in one of Mexico City’s ritziest neighborhoods.
The seven arrested were said to be involved in the production of
methamphetamine that was linked to both the United States and
Asia. They were part of a still larger group using precursor
chemicals from companies in India and China and then processed
in Mexican “super labs.”
President Felipe Calderon, who is off to a terrific start, said “We
are working in a decisive manner to save our country and to keep
Mexico safe and clean. I don’t even want to imagine how many
young people this gang poisoned with its drugs.”
A top official at the U.S. Drug Enforcement Administration told
the Los Angeles Times, “Kudos for the Mexicans. They’re very
serious in this effort, and we commend them.” [80% of the meth
sold on U.S. streets is produced in Mexico.]
A few days after the big seizure, U.S. Customs officials boarded
a suspicious tanker off Panama. The result was the largest
amount of cocaine ever taken in…$300 million, street value. Go
get ‘em, boys.
Random Musings
–I am not a fan of John Edwards, but I watched his performance
with wife Elizabeth on Thursday and like 95% of those who saw
it, I imagine, I came away with newfound respect for both of
them. Even the Wall Street Journal’s editorial page had the
following.
“In today’s nasty and polarized politics, we weren’t surprised to
see some of the cranks on the Web criticize John Edwards for
announcing that his Presidential campaign will continue despite
the return of his wife’s cancer. By these lights, he is supposed to
retire from public life and tend to her full-time.
“Shouldn’t that be up to the two of them? By the look of their
press conference yesterday, Elizabeth Edwards wouldn’t want
her husband to give up his pursuit of the Democratic nomination
despite her diagnosis. They seem to be in it together, and to like
each other besides.
“The decision to continue also reflects the changing reality of
cancer and its treatment. The spread of Mrs. Edwards’s breast
cancer to her bones means that she probably can’t be cured in the
sense of being declared cancer free. But with improving
treatments and new, less toxic anticancer drugs, she could live
her currently active life for many more years. ‘I don’t expect my
life to be significantly different,’ Mrs. Edwards said yesterday in
a demonstration of fortitude that is itself a lesson for the rest of
us. God speed.”
–Related to the above, I also couldn’t help but laugh at
Politico.com’s screw up. Just about 30 minutes before the
Edwards’ scheduled event, one of Politico’s reporters ran the
story “John Edwards is suspending his campaign for President,
and may drop out completely.” Doh! I just want to ask the
editor at this fledgling site, supposedly loaded with talent; just
what the heck was to be gained by even being right, versus being
made a fool of for being wrong?!
–I would not have handled the issue of the eight fired U.S.
attorneys the way President Bush did the other day in showing
his defiance. To me, when your approval rating is 60% you can
get away with this. But when it’s more like 35%, you can’t.
Having said that, just as in the Scooter Libby trial I’m not
wasting any ink on this one either until more facts emerge, such
as whether or not Republican Sen. Pete Domenici did anything
illegal in possibly pressuring one of the eight on various cases.
We’ll all learn soon enough anyway.
What this issue does illustrate is just how incredibly inept the
administration is. Yes, Alberto Gonzales should be removed, but
if you’re the White House, obviously the last thing you want
these days is a confirmation hearing for a new nominee; so
Gonzales stays as long as possible.
–Former Deputy Interior Secretary Steven Griles pleaded guilty
to obstruction of justice in the Jack Abramoff scandal.
–At first blush, it’s easy to bemoan the fact the presidential
primary season is being accelerated in a big way as California
and New York now look to move theirs way up to Feb. 5, while
Florida could go to Jan. 29. What was wrong with the old
system, after all?
But then you have to ask yourself, why does every other country
in the world have a ‘national’ primary and not us? And why the
heck do we let Iowa and New Hampshire, for crying out loud,
dictate who in the end is nominated these days?
I’m just uncomfortable with this helter-skelter rush to change
things for 2008. Why can’t the two parties agree to keep the
schedule as is one last time before moving to a national primary
in, say, April 2012? I also like the idea of a run-off between the
two leading vote getters four weeks later. No offense to my
friends in Iowa or New Hampshire, of course.
–Editorial in the Wall Street Journal concerning the new primary
mess.
“This is unfortunate for many reasons, not least because this
accelerated process assists the well known and well heeled
candidates who can raise boatloads of money in advance. Yes,
some darkhorse could still win in the Iowa caucuses (January 14)
or the New Hampshire primary (January 22), gaining free
publicity going into’ “Super-Duper Tuesday.’ But a genuine
upset winner will also find it hard to raise enough cash to
compete in so many large states so quickly.
“Elites favor early endgames, of course, as a way to unify party
support. But here’s a thought: What if the 2008 process serves to
favor someone else – namely, a billionaire who wants to run as
an independent? It’s possible that both major party nominees
could emerge from their accelerated primaries so bruised, and
with such high negatives, that the voters will already be feeling
buyer’s remorse.
“Then someone like New York Mayor Michael Bloomberg could
decide to get in, spend $500 million of his own money, and truly
remake the Presidential race. We’re not endorsing the idea, and
we prefer the primary season in which voters vet the candidates.
But such a scenario could well be the unintended consequence of
the parties’ attempts to get things over so very fast.”
–I still say Al Gore enters the Democratic race, and wins,
because Democrats are already fatigued with their existing
choices as Hillary stumbles and Obama flames out. [We’ll soon
see just how much Edwards gained, however.]
But boy did Gore remind us all in his congressional testimony
this week on global warming just what a sanctimonious,
pompous jerk he can be.
–I have to admit, I’m extremely disappointed with the campaign
Sen. John McCain has run thus far and I’m undecided on sending
in further dollars once he formally announces next month. But I
do agree with a statement he made this week concerning
relations with Latin America.
McCain said if elected his first trip would be to Canada, Mexico
and Latin America “to reaffirm my commitment to our
hemisphere and the importance of relations within it.”
–Editorial / Washington Post
“New Orleans Mayor Ray Nagin is at it again. The glib crusader
who said Hurricane Katrina was God’s wrath being visited upon
the Crescent City (and later apologized for it) and who said God
wanted it to be a ‘chocolate city’ again (and later apologized for
it) took a stroll on the grassy knoll of conspiracy theories when
he suggested there was a plot to alter the racial makeup and
politics of New Orleans and other cities.
“Here’s what Mr. Nagin told an association of black newspaper
editors and publishers on Thursday: ‘Ladies and gentlemen, what
happened in New Orleans could happen anywhere. They are
studying this model of natural disasters, dispersing the
community and changing the electoral process in that
community.’ Just who are ‘they’? And where are ‘they’
studying this model? We can’t tell you because neither Mr.
Nagin nor his spokesman returned our calls.”
Of course last year the idiots of New Orleans, at least a majority
of the voting public that remains, reelected Nagin. His city
remains on the critical list and one big storm away from a final
epitaph.
–Kerman Maddox, a board member of a group dedicated to
reducing violence in the African American Community, in an op-
ed for the Los Angeles Times.
“I will say publicly what many people are whispering in
barbershops, soul food restaurants and church parking lots in
South Los Angeles. If relations don’t improve between African
Americans and Latinos in Southern California, we are headed for
a major racial conflict.”
Maddox writes that there is evidence “Latinos are killing blacks
in an effort to ‘ethnically cleanse’ their neighborhoods…Many
African Americans are especially perplexed because they
remember that when we had the numerical advantage, African
Americans did not target Latinos for murder to rid them from our
neighborhoods. It would have been unthinkable.”
Mr. Maddox adds that there are no Latino political leaders
speaking out against hate crimes.
–It’s now estimated 5 million Americans suffer from
Alzheimer’s and as an official put it, the toll will only increase
because in our success in fighting other diseases, “we’re keeping
people alive so they can live long enough to get Alzheimer’s.”
–The World Health Organization warned that tuberculosis may
become almost impossible to cure unless the spread of a drug-
resistant strain is halted. TB infects 3.5 million people annually
and kills nearly 300,000 in the Western Pacific despite recent
progress in the region to provide better health care.
–You want to save some gas? Make your kids walk to school.
Stop pampering them.
–I flipped on “Hannity & Colmes” the other night for the first
time in ages and they had a bunch of folks on addressing global
warming with everyone talking over each other. It made for
simply dreadful television. But then four women followed,
discussing various topics, and what I found comical about them,
all Fox News contributors, was that three were showing off
cleavage (one grotesquely so…Jane Fleming) while the fourth,
right winger Michelle Malkin, was wearing some off the
shoulder jobbie that gave her the look of a pole-dancer. Geezuz,
ladies….have some dignity. It’s a news program, not HBO.
–Specialists have concluded the problem with the pet food that
has been causing kidney failure and death was rat poison. Of
course I bet 80% of you had the same thought I did; just another
dry run for the terrorists.
–Scientists have discovered seven large caves on Mars. I’m not
going into them…would you?
–Famed chef Wolfgang Puck said he will no longer serve foie
gras at his restaurants. Psssst….I picked up some tins in Paris
recently and am accepting bids, starting at $6,000.
–Did you know that if you eat a whole box of Girl Scout cookies
in one sitting, you’re getting 36% of your daily requirement for
iron? [OK…you try and stop at just six Thin Mints.]
–Once again, Man’s Best Friend came through. This time it was
Gandalf the rescue dog who was largely responsible for saving
the 12-year-old Boy Scout in North Carolina. Balloting is closed
for “Animal of the Year.”
–I was reading a Sports Illustrated piece on the legendary UCLA
basketball coach John Wooden, who is still a marvel at age 96,
and one of the Wizard of Westwood’s many sayings hangs in his
office:
“WHEN YOU’RE THROUGH LEARNING, YOU’RE
THROUGH.” That’s basically the motto around here.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $657
Oil, $62.28
Returns for the week 3/19-3/23
Dow Jones +3.1% [12481]
S&P 500 +3.5% [1436]
S&P MidCap +3.9%
Russell 2000 +4.0%
Nasdaq +3.2% [2456]
Returns for the period 1/1/07-3/23/07
Dow Jones +0.1%
S&P 500 +1.3%
S&P MidCap +6.4%
Russell 2000 +2.8%
Nasdaq +1.4%
Bulls 46.6
Bears 28.4 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
*I thought I”d put up a new picture to show you I did have eyes.
Brian Trumbore
