[Posted 7:00 AM ET]
Wall Street
Well, nothing like a little dumb legislation to spoil the party, see
also Smoot-Hawley and the Great Depression. Only this time
we’re talking China and sweeping protectionism, as well as an
incredibly stupid movement to allow members of OPEC to be
sued under U.S. antitrust laws. Oh yeah, it’s great for votes and I
imagine a vast majority of you on first blush might be thinking,
what’s wrong with these two initiatives, editor?
And let’s face it, China is under the gun these days, not just
because of its currency that gives them an unfair advantage, but
also because of a sudden surge in defective products. While in
dealing with OPEC, it’s pretty hard to defend them under any
circumstance, I’ll grant you that. But just remember one thing.
Oil is a product, just like Farmer Joe’s corn. Both can sell it to
anyone they want and it’s the market that determines the price.
If you want to reduce the price of oil, you have to stop using it.
Now ask me if this is possible over the, oh, next 30 years.
Both China and OPEC would retaliate by seizing American-
owned property and, in the case of OPEC, first taking a short-
term hit to profits by stopping the sale of crude to the United
States, but then accessing its ready markets in China, India and
just about everywhere else in the world. And there would be no
guarantees that the U.S. could make up the shortfall.
But I’ll listen to all sides of this debate and present them over the
coming weeks and months. For now, just remember
protectionism under almost any guise is dangerous, and at the
very least leads to higher prices.
I had to start the column this way because once again some this
week were singing “Shangri-La” in their best imitation of The
Lettermen, voices soaring, as economic releases on
manufacturing, the service economy, and employment were all
solid.
Of course at the same time the news on the housing front only
got worse, as the disconnect between the bull and bear camps
widened. Delinquencies on home equity and auto loans rose to
new highs, while the debacle in the subprime mortgage arena,
and derivatives thereof, led to a number of hedge funds
announcing they were either closing shop or suspending
redemptions; the latter being a none too subtle sign of an
imminent padlock on the door to prevent investors from taking
out their wrath on the offending principles.
Now I’ve tried hard not to be one to cry wolf with every little
hiccup, and in the grand scheme of things, trouble at the $650
million Horizon ABS Fund or $300 million Galena Street
offering, even when added to the troubles at the far larger Bear
Stearns funds, doesn’t in and of itself spell the end of civilization
as we know it, but it speaks to some far broader issues, like credit
quality and the impact when the ratings agencies finally begin to
do their job and throw around downgrades like rose petals at a
Bollywood wedding.
The agencies – S&P, Moody’s and Fitch – have been holding
back on downgrading the mortgage pools, as is their job, even
though delinquencies and foreclosures have been soaring on the
homes that comprise them. And since the pools have been sliced
and diced into instruments known as collateralized debt
obligations, understand there is trouble when subprime-related
paper comprises 45% of the collateral backing the CDOs,
according to Morgan Stanley and Bloomberg.
Also, upon being downgraded, hundreds of institutional investors
are immediately faced with a quandary. Are they violating the
mandates of their funds by holding the stuff? Chances are, yes.
So they have to sell, while everyone else is trying to do the same,
and the price goes down…down…down…until some brave soul,
or sucker, says, “Hey, at this level it’s worth a shot.”
Of course I’m oversimplifying (not really), but the important
thing to remember is the knock-on effect that a sweeping
downgrade of bonds leads to in terms of asset sales by investors,
banks and pensions funds. Such movements impact everything,
even down to the rates on car loans. It’s not just about housing.
And it certainly impacts the current private-equity boom, even if,
as Randall Forsyth writes in Barron’s, “(They’ve) been slow to
face up to the deterioration in the financing environment for
leveraged buyouts.”
Forsyth quotes junk bond expert Martin Fridson, who notes a
“turning point in leveraged finance has been reached” as dealers
cut back on making markets in high-yield (junk) paper. Reduced
activity “will remove the buyout premium from stocks,” Fridson
concludes.
Speaking of the high-yield sector, one of the great portfolio
managers, Robert Rodriguez of First Pacific Advisors, said he
wouldn’t touch junk paper with “a 500- or a 1,000-foot pole.”
Addressing the Morningstar Investment Conference, he said “It’s
a fool’s paradise. I feel fairly confident, or should I say highly
confident, that we will witness another period of time where the
spreads in high yield will probably end up setting new all-time
high records.” How high? Try 1100 basis points over
Treasuries, he said…11%. “With what is going on in private
equity and the leveraging up there it’s setting up the next
catastrophe.” [Crain’s New York Business]
You didn’t think I’d end with “Shangri-La,” did you?
Street Bytes
–Stocks broke their recent run of one up, one down, and now
have a two-week winning streak as the gains were solid, with a
holiday sandwiched in between. The Dow Jones rose 1.5% to
close at 13611, while the S&P 500 is now back to within 9 points
of its all-time high at 1530 and Nasdaq, up 2.4%, is at 2666.
Renewed takeover fever was one reason for the rally, as well as
the hope that second quarter earnings will once again surprise to
the upside as they are released over the coming weeks.
–U.S. Treasury Yields
6-mo. 5.00% 2-yr. 4.99% 10-yr. 5.19% 30-yr. 5.27%
While stocks rallied, bonds swooned. The strong economic
readings once again led to the belief that the Federal Reserve
won’t be lowering rates anytime soon, though few are foolish
enough to say the Fed will raise them. I said my spiel last time.
You all get a break.
–Oil continues to trade at levels not seen since last summer,
above $70, and now gasoline futures are rebounding after a brief
respite. But the inventory picture is just fine. So what gives?
It’s still largely about sentiment, hot spots (such as Iran and
Nigeria…the latter having seen a cut in production of 700,000
barrels per day because of the continuing insurgency there), and
the chance of another Katrina.
–Blackstone Group’s $27 billion acquisition (including debt) of
Hilton Hotels was one of the bigger stories on the week as the
private-equity giant will now control about 600,000 rooms
worldwide through its ownership in such brands as Doubletree,
Embassy Suites, Hampton Inns, and the Waldorf-Astoria, as well
as its own LaQuinta Inns and Suites. Blackstone vowed to invest
big bucks into Hilton’s already aggressive expansion overseas.
But it was the price paid by Blackstone, a staggering 40%
premium over Hilton’s share price just two days earlier, that
raised a few eyebrows. Of course there was also the usual
insider-trading activity that accompanies every single one of
these deals as the greedy continue to rout the little people.
–Not to be outdone, Blackstone Group rival Kohlberg Kravis
Roberts & Co., KKR, filed for an IPO of its own, while a large
hedge fund, Och-Ziff Capital Management Group, announced it
would sell units to the public, thus continuing a trend first
established by Fortress Investment Group back in February.
So while going public presents the likes of KKR with a currency
for future acquisitions, the issue is whether or not this rush to the
door represents a top? We’re close. Maybe one more mammoth
deal, aside from Bell Canada, the largest takeover ever in the
Great White North, and then we’ll all sit back waiting to see if
the previous ones actually get their financing. Around Aug. 15,
we’ll learn of a biggie that isn’t getting done and then it’s…
“Fire!!!!”
–U.S. auto sales continued to suck wind as General Motors’
were down a whopping 21% in June from a year ago, while
Ford’s were off 8% and Chrysler’s 1.4%. Toyota’s, though, rose
once again, another 10%, Nissan’s were up 23%, and Honda’s
grew 12%.
–We all learned this week that in terms of flight delays and the
‘official’ information we are given on various airlines and
airports, “If a flight taxies out, sits for hours, and then taxies back
in and is canceled, the delay is not recorded. Likewise, flights
diverted to cities other than their destination are not figured into
delay statistics.” [Jeff Bailey and Nate Schweber / New York
Times] Ergo, the situation is far worse than we were led to
believe. It’s also why yours truly, in case you haven’t noticed,
limits his own travel during the summer months.
–Being first to warn you about farmed fish from China, I thought
you’d enjoy the following from the front page of Friday’s
Washington Post; a story titled “Farmed in China’s Foul Waters,
Imported Fish Treated With Drugs.”
“The fish are being raised…in a country whose waterways are an
ongoing environmental problem, tainted by sewage, pesticides,
heavy metals and other pollutants….
“Batches of seafood traded at the Shanghai fish market this
week, for example, carried the tell-tale greenish tinge of
malachite green, a disinfectant powder that has been banned in
China for five years because it is a suspected carcinogen but is
still commonly used.”
–This past March, Oracle Corp. accused business software rival
SAP of illegally downloading documents from its Web site.
Back then, SAP denied this was the case. But now, SAP admits
one of its units did indeed make some “inappropriate
downloads.”
Now this kind of thing happens all the time, let’s face it, but what
makes this news is SAP going up against not just Oracle, but
Larry Ellison; Mr. Ellison not exactly being a nice man.
So while SAP seeks to settle out-of-court, quietly, for its
misdemeanor, you can be sure Ellison will do all he can to
embarrass the German software king as much as possible. Not
helping matters is the fact the U.S. Department of Justice is now
seeking information on the case.
Seeing as I have a few friends at SAP, though, and I’m not a fan
of Ellison’s, I can’t claim impartiality. Be strong, gang!
–Real Estate Crash Alert, Part XIX…ripped from the pages of
the Wall Street Journal… “Martha Stewart sold her Westport,
Conn., estate for $6.7 million – 26% below the asking price.”
–Real Estate Bubble, Part CCX…Regardless of the above,
Manhattan apartment sales, fueled by the ongoing explosion in
pay for those employed by Wall Street, continues to soar; up
103% in the second quarter vs. Q2 ’06. You may find this hard
to believe, but the average 4BR apartment on the Upper East
Side went for over $7 million.
–My sister-in-law Cindy and I were exchanging stories on how
it’s not just the large homebuilders with problems; the little guys
are also getting crushed. I myself am the first owner of my
particular townhouse where the developer went bankrupt in the
late 1980s and it sat for about five years before I adopted the
place and moved in with my beer and Chex Mix. Cindy noted
the dirtballs who stopped working on homes in her
neighborhood, stiffing her friends of $8,000 to $25,000 in work,
while leaving workers unpaid. This is part of the industry,
though. Declare bankruptcy and start over again in the next
cycle.
–Microsoft announced it would be spending over $1 billion to
repair failing Xbox 360 game machine consoles. It is currently
the best-selling brand in the U.S., but it’s estimated one third of
them have had operational issues. Microsoft said it is extending
the warranty to three years, worldwide.
–I saw this story in Friday’s South China Morning Post and I
believe it could be a real biggie once it’s better known.
“Mobile phone batteries labeled Motorola or Nokia exploded
during safety tests done by the Guangdong provincial
government.
“Only 60 percent of the 40 batteries tested passed, with three
types labeled ‘made by Motorola in China’ and one claiming to
have been made by ‘Sanyo Energy in Beijing’ exploding while
charging….
“A welder died in Gansu last month when his mobile phone
battery – which was labeled Motorola – exploded. It was
believed to be the first fatality on the mainland caused by such an
occurrence.
“Mainland media reports said that the battery was a fake.
Reports of the accident have sparked widespread concern among
mobile phone users.”
As if China doesn’t already have enough problems.
–China did, however, sentence another former high-ranking
official at its food and drug watchdog agency to death. None of
this due process garbage, I say.
–McDonald’s announced its 155 UK delivery trucks will be run
on biodiesel from cooking oil collected from its restaurants by
the end of the year.
–This just in…Iran said it will stop producing gasoline-powered
cars and produce flex-fuel ones instead. Iran manufactures over
one million autos a year. But the government, amidst its current
controversial fuel rationing program, wants the changeover to
take place in weeks and there is no way they can put the proper
infrastructure in at the fuel stations. Oh, those wacky mullahs.
–Bird flu is still simmering. Three swans in eastern France were
victims of the H5N1 virus. Then again, if you live in Iowa and
don’t plan on coming in close contact with swans in France
anytime soon, you shouldn’t lose any sleep over this.
–Mexican tycoon Carlos Slim (no relation to poker player
Amarillo Slim), is now the world’s richest man with an estimated
net worth of $67 billion, thus passing Bill Gates. Carlos makes
most of his money from his monopoly of the Mexican phone
industry. [He also has holdings in MCI, CompUSA and Saks
Fifth Avenue, among others.]
–Beer makers are losing big bucks on stolen kegs these days, as
lowlifes steal them for scrap. For example, a distributor may
charge a deposit of $10 to $30, but today you can get $15 to $55
at a scrap yard.
Now in the old days, like when I was in school, kegs made for
handy tables and chairs, but these days, it’s all about the bucks.
Miller Brewing is an example of just how costly it is for the
industry. It counts on kegs lasting 20 years, typically, but a keg
costs $150 or so to make. If you lose 30,000, that’s real money.
[It’s estimated 300,000 are lost throughout the entire industry
each year.]
–I just love these stories. Back in 1968, a New York art dealer,
Ira Spanierman, acquired a painting for $325 at auction. For
years, he thought he had a real Raphael but scholars didn’t
believe it. However, the portrait of Lorenzo de’ Medici is indeed
real and on Thursday it went for $37 million. Now I’d like to see
Blackstone beat that return on investment! Incidentally, it’s
suspected that the buyer was a Russian. You know, oil money,
Maria Sharapova, that sort of thing.
Foreign Affairs
The Middle East:
Ralph Peters / New York Post…a particularly harsh viewpoint
“We’re not fighting a single war against terrorists. We’re stuck
in two. The past few days saw both conflicts hit the headlines.
And we’re still not serious about either one.
“One war in this global struggle involves Sunni-Arab fanatics,
exemplified by al Qaeda, who believe not only that the atrocities
they commit will revive the caliphate – a romanticized religious
empire – but that their merciless brand of Islam is destined to
rule the world.
“Our other fight is with Shia extremists, such as the god-
gangsters wrecking Iran, Moqtada al-Sadr’s thugs and Hizbullah.
Their goals are regional (for now): They want to master the heart
of the Middle East and gain hegemony over the world’s oil
supply….
“The most effective action we ever launched against Sunni terror
was the destruction of the Taliban regime in Afghanistan. We
took away the terrorists’ safe-haven state….
“Shia extremists have a safe-haven state, too: Iran. But the Bush
administration ran out of steam when Iraq didn’t turn into
Iowa….
“Patience isn’t a virtue when a hostile government’s killing your
soldiers. Our timidity only encouraged Iran, which has paid no
serious penalties. Tehran has been given free rein not only in
Iraq, but also in Lebanon and Gaza.
“An invasion of Iran isn’t the answer. But selective strikes
against the infrastructure of the Revolutionary Guards, as well as
against Tehran’s security services, are the minimum needed to
get the regime’s attention….
“Our global position isn’t eroding because we’re stuck in Iraq or
because Europeans are mad at us (they’re always mad at us).
We’re losing ground because our leaders, Democrat and
Republican, still don’t believe we’re at war. They live in perfect
safety and don’t really care if you or your children die, as long as
you vote for them.
“If roadside bombs were going off on Capitol Hill, we’d punish
Iran ferociously and stop treating captured terrorists like white-
collar crooks. But as long as the IEDs only kill and cripple our
soldiers and Marines, neither political party gives a damn.”
Roger Cohen / International Herald Tribune
“Iran is an ugly regime. Its president, Mahmoud Ahmadinejad,
is a foul-mouthed buffoon. But it is also a sophisticated country
and the only one in the Middle East with a government far more
anti-Western than its generally America-loving population.
Placing Iran in the ‘axis of evil’ and isolating it has served no
constructive purpose.
“It is time to put the onus on the mullahs. The United States
should propose broad, high-level talks with Iran across the range
of issues confronting the two countries – Iraq, Afghanistan,
nuclear weapons, Lebanon, Israel-Palestine – while dropping its
meaningless insistence that Iran suspend nuclear enrichment
activities before talks begin.
“That will test whether the supreme leader, Ayatollah Ali
Khamenei, and Ahmadinejad feel they can survive without the
‘Great Satan’ distraction from acute domestic woes.
“If the answer to the invitation is no, and Iranian-orchestrated
attacks in Iraq continue, America should play hardball. Iran, like
Iraq, is a multiethnic country. Its Kurds, ethnic Baluchis and
other minorities can find money and weapons flowing to them
from a ‘worthy adversary’ of the mullah’s regime.”
Editorial / Washington Post
“It has been nearly a year since the Hizbullah movement staged
an unprovoked raid from southern Lebanon into Israel, killing
eight soldiers, abducting two others and triggering a 34-day war
in which 1,200 Lebanese and 160 Israelis died. United Nations
Security Council Resolution 1701, which ended the war,
provided for a greatly strengthened international force to keep
the peace in southern Lebanon, along with the Lebanese army. It
also mandated the disarmament of Hizbullah, a ban on arms
shipments to non-government forces in Lebanon and the clear
demarcation of the border between Lebanon and Syria.
“The deployment of the UN force…has helped to prevent further
fighting in the past 11 months. But the failure to implement the
rest of Resolution 1701 means that war in the Middle East could
erupt any day.”
As I’ve been reporting, arms are streaming across the Syrian-
Lebanese border thanks to both Iran and Syria, while Hizbullah
rebuilds its base of operations.
Washington Post:
“When Resolution 1701 was adopted, Israel urged the Security
Council to deploy international forces or monitors along the
Lebanese-Syrian border to prevent such weapons deliveries.
Intimidated by threats of attacks on UN troops, the council
refused. The result is that Syria and Hizbullah once again are
positioned to rain missiles on Israeli cities, to wage war on the
Lebanese government or to assault the foreign troops deployed in
southern Lebanon. The Security Council has been fully
informed; will it do anything to prevent war?”
Iraq
Last week I noted the defection of Republican Senator Richard
Lugar to the camp demanding an immediate change in strategy in
Iraq. Neocons such as The Weekly Standard’s William Kristol
labeled Lugar’s speech on the Senate floor “a frivolous and
thoughtless betrayal of our fighting men (and women).”
Kristol:
“Lugar acknowledges that the security strategy is working and
probably could achieve its goals. Yet in the same breath he
accepts as a given ‘the short period framed by our own domestic
political debate.’ Why? Who ‘framed’ that time period? Who
drives our ‘domestic political debate’? Don’t senators have any
influence on this? Can’t they try to shape, or reshape, the
political debate – especially if it threatens the success of a major
U.S. military effort? Apparently that would be too much to ask.”
If you just read either side of a debate in a vacuum, invariably
you’ll adopt that last read. But Kristol’s characterization, while
clever, is totally unfair and if you read his whole editorial in the
July 9, 2007, issue of his publication, you’d just shake your head
because contained therein is not one word about the culpability
in this whole fiasco of the Iraqi government, which is why the
likes of Lugar, and, this week, Republican Senator Pete
Domenici, are pleading with the president to switch gears while
he can still muster support for a bipartisan plan before the Left
totally takes over the debate and America is forced into a
precipitous withdrawal.
Pete Domenici:
“We cannot continue asking our troops to sacrifice indefinitely
while the Iraqi government is not making measurable progress. I
do not support an immediate withdrawal from Iraq or a reduction
in funding for our troops. But I do support a new strategy that
will move our troops out of combat operations and on the path to
coming home.”
This is how the debate has shifted, and frankly I spelled out two
weeks ago exactly what Commanding General David Petraeus
will be telling Congress in September in pleading for more
patience.
But, again, when the Iraqi government still can’t agree on a way
to split up the oil revenues, which account for 95% of the
nation’s income, at some point the William Kristol’s of the world
have to wake up. [There was talk of an agreement earlier this
week, but then things fell apart amidst the usual sectarian
rhetoric, including items such as the status of Kirkuk, who would
control development of the fields, and securing Shia interests.]
Heck, I’m a neocon, too. I’m also a realist, I’d like to think. The
surge was always about buying time until, one, the Iraqi
government got its act together, and, two, the Iraqi security
forces got up to speed. There is zero assurance today, however,
that this will be the case by year end, let alone 2009.
It also doesn’t help the White House that virtually every single
large reconstruction project in Iraq, such as the building of the
$600 million U.S. embassy, has ended up being a total mess.
But as noted above, debate these days is as much about Iran as it
is Iraq with virtually irrefutable evidence the mullahs are
directing a surge of their own, and if the United States doesn’t
act first to counter it, while at the same time Iran proceeds with
its nuclear weapons program, certainly Israel will.
—
Britain: At least seven doctors have been implicated in the latest
terror plot, so look for videos on Al Jazeera to the effect, “You
too can be a fake doctor. Prior training in explosives a plus.
Contact your local al Qaeda recruiting office, and don’t forget to
ask for your free bomb belt.”
I guess if I were the authorities, one thing I’d look for is doctors
who don’t believe in any modern treatments, but instead practice
the extensive use of leeches, or whatever it is they did in the 18th
century, from whence Wahhabism came into being with the
teachings of Muhammad ibn Abd al-Wahhab bin Dirtball.
One side note concerning the arrest of the accomplice in
Australia, authorities there say the Muslim population in Sydney
is 200,000 strong and that 3,000 of them are in “ideological
sleeper cells”. Just as in the UK, the Muslim community is new
and, unlike in the United States (we’d like to believe), hasn’t
established its moderate roots.
North Korea: It’s important to remember the timeline, which is
why I feel compelled to keep repeating it. Pyongyang agreed on
Feb. 13 to dismantle its nuclear facility at Yongbyon by April 14
as the first step in destroying its nuclear weapons program.
Almost three months later they still haven’t taken it.
But International Atomic Energy Agency inspectors were
allowed in to Yongbyon for the first time this week and Kim
Jong il signaled he’s ready to proceed with not just a shutdown
of the facility, but full disclosure of all other nuclear activities.
So should you believe him? Of course not. For starters, the six-
party talks, including China, Russia, South Korea, Japan and the
U.S., have to be reconvened and this is in doubt because of the
ongoing dispute between Japan and North Korea over the
abduction of Japanese citizens.
But, should agreement be reached over the coming year or so to
truly dismantle the weapons operation, those saying this would
lead to a peaceful reunification of the Korean Peninsula are
missing another point I feel compelled to repeat; that being there
would be new tensions involving South Korea and China,
separately, as North Korea becomes the new low-cost provider
of manufactured goods.
China: Hong Kong celebrated the 10-year anniversary of the
handover and “one country, two systems.” But while Hong
Kong residents still wonder when they will see full democracy,
as per the Basic Law adopted in 1997, Chinese President Hu
Jintao said power must be vested in one central government.
Ergo, since the Basic Law never established a timetable for
universal suffrage, Hong Kongers need to chill out. Well, you
can be sure the people will increasingly lose their patience with
this scam.
But these days Beijing has bigger problems to deal with, like in
the furor over shoddy products and the ongoing destruction of its
environment, let alone the government’s often misguided
attempts to cover up the worst abuses.
For example, authorities pressured the World Bank to cut the
calculations of premature deaths stemming from pollution from a
report last year. “The World Bank was told that it could not
publish this information. It was too sensitive and could cause
social unrest,” one adviser to the study told the Financial Times.
This was the report that noted 16 of the world’s 20 most polluted
cities are in China. Missing from the final draft, though, was the
finding that up to 750,000 premature deaths occur from not just
air-pollution, but also exposure to poor air indoors, let alone poor
water quality that results in all manner of intestinal disorders.
Speaking of water quality, “Tens of thousands of people in
northern Jiangsu were without tap water for more than 40 hours
after the community’s main water source was polluted. The
shutdown occurred just days after Premier Wen Jiabao headed a
meeting in the province at which he vowed to curb the
contamination of major rivers….
“Shuyang county authorities cut tap water to most of the
county’s more than 200,000 residents on Monday after supplies
were found tainted with a dark, smelly substance.” [South China
Morning Post / Xinhua]
Separately, a study was conducted of Guangdong’s 21 major
cities and in the first three months of the year, nothing but acid
rain fell on 15 of them.
As I’ve noted in the past, the Chinese government knows
what it’s up against, but it hasn’t figured out how to balance
needed growth (to keep the people employed and relatively
happy) vs. the destruction of its land.
This week, for example, Chinese inspectors announced that 1/5th
of the goods that were checked were substandard. On one hand
it’s encouraging this is finally taking place. On the other, you
may want to check virtually every food label these days. Aside
from fish and farm products, I’d be particularly concerned about
fruit drinks, not that I can think of one brand off hand that may
be on our shelves.
Russia: So if you’re naïve and think anything of a positive nature
was accomplished at the lobster summit in Kennebunkport
between Presidents Bush and Putin, your hopes were shattered
just two days later.
For starters, on the issue of the missile defense shield that Bush
wants to be based in Poland and Czech Republic, while Putin has
suggested the use of an existing facility in Azerbaijan, he also
said he would upgrade the Azerbaijan operation (I’ve seen
pictures… it needs it), while offering to build another facility in
southern Russia that would be jointly operated.
Of course this is yet another ploy, designed to paint the White
House as the villain when it rejects the idea. But two days after
the summit, First Deputy Prime Minister Sergei Ivanov, the
leading candidate to replace Putin in 2008, said if the United
States turned down Russia’s offer on the missile shield, Russia
would in turn base missiles in the enclave of Kaliningrad, which
is surrounded by Poland and Lithuania.
So it’s once again time to play the game, “Just What Am I
Missing?” As in, just why is Russia in the G-8 when it goes
around threatening Europe?
But back to the summit, not one word was said about a more
immediate issue, the fate of Kosovo, where Washington and
Moscow are deeply divided, nor does it appear much was
accomplished regarding Iran and attempts to rein in its nuclear
weapons program. The U.S. needs Russia to support further
sanctions, such as on Iran’s gasoline imports, but I’d be surprised
if Putin did so. Russia did say, however, that with regards to the
disputed nuclear plant at Bushehr that it is building for Iran, it
won’t be ready until 2008, even as Tehran says it will by
October.
The whole issue of the missile shield, though, could be moot for
a number of reasons. For starters, Congress has been slashing
funding for the project, while the Pentagon said it needs to break
ground today to have a system in place by 2013. So, since the
project isn’t likely to see the light of day unless work starts
before Bush leaves office, this is a real problem. Let alone the
fact support in both Poland and Czech Republic is drying up as
well. And there is no guarantee the system even works!!!
Lastly, Putin successfully used his personal ‘charm’ to woo the
International Olympic Committee and win the bidding for the
2014 Winter Games, to be held in the Black Sea resort of Sochi.
Understand something. The entire site will need to be built from
scratch. Sochi has nothing on an Olympic scale. In fact, it
basically just has a rope tow, let alone zero facilities for
everything else you can think of. What a gigantic waste of
money.
By the way, South Korea got screwed for a second straight time
as its candidate, Pyeongchang, once again fell short; this time by
a 51-47 margin thanks to Putin’s personal appeal. As one IOC
official said, Putin’s appearance led to at least four changing
their vote.
Pakistan: As of this writing, the standoff continues at a
mosque/seminary in Islamabad between radical Islamists and the
government. Thus far, 19 have been killed. What the episode
highlights is the growing division in Pakistan over its secular
leaders and those professing allegiance to a resurgent Taliban,
whom many of the students praise in their anti-government rants.
The chief cleric of the mosque was captured after attempting to
flee wearing a woman’s burka.
And on Friday, President Musharraf survived an assassination
attempt as his plane was fired at from a nearby rooftop in
Rawalpindi.
Afghanistan: Six Canadian soldiers were killed in a car bomb
attack. 66 Canadians have now died here.
Japan: The defense minister was forced to resign after he
commented that he thought the atomic bombings “could not be
helped,” in yet another blow to Prime Minister Shinzo Abe
whose approval rating is just 28%.
Australia: There is hope the drought may finally be coming to an
end as the El Nino weather pattern blamed for the historic
shortfall in rain could be transitioning over to La Nina and
increasing precipitation.
Random Musings
–David Ignatius / Washington Post
“America’s political disharmony is scary. But so is the lack of
practical preparation for the next attack. With all the emotional
discussion of Sept. 11 – all the commissions and studies and new
federal agencies – you might expect that we had gotten that part
right. But we haven’t.
“Despite spending billions of dollars on supposed bio-defense,
the United States is still woefully unprepared for a biological
attack. If you doubt it, listen to Dr. Tara O’Toole, director of the
Center for Biosecurity in Baltimore and one of the nation’s
leading experts on the problem. ‘More than five years after the
anthrax mailings, the U.S. still lacks a coherent plan for conduct
of operations to guide the health-care sector’s response to mass-
casualty care in the event of a bioterrorist attack or other large-
scale catastrophe,’ she told a House committee in March.
“And nuclear terrorism? Despite repeated warnings by
intelligence officials about this threat, the United States still is
unprepared to detect or counter these weapons. Listen to Fred
Ikle, a former undersecretary of defense and the author of
‘Annihilation From Within,’ a grim assessment of America’s
vulnerability to attack. ‘To detect smuggled uranium bombs, we
still lack the right tools,’ Ikle said in a recent interview. He
noted that the Homeland Security Department has not developed
such ‘active interrogation’ devices because of possible risk to
bystanders, and the Pentagon’s Defense Threat Reduction
Agency hasn’t done so because of inadequate funding.
“In a politically healthy nation, the news from Britain would
have a galvanizing effect. Politicians and the public would pull
together and take appropriate steps to prepare for future terrorist
attacks on America. There was a moment of shared purpose
after Sept. 11, 2001. It’s frightening how totally that mood of
national unity has dissipated. I can think of lots of people to
blame for the current polarization, but that’s not the point. The
point is to get serious, and to get ready.”
–I didn’t really care about the whole Scooter Libby case, but
with President Bush’s commutation of Libby’s prison sentence,
for the archives, some opinion.
Editorial Washington Post
“After two years of investigation, special prosecutor Patrick J.
Fitzgerald charged no one with a crime for leaking (Valerie)
Plame’s name; he never demonstrated that a crime occurred.
Early on, the prosecutor had learned that the primary source of
the disclosure to columnist Robert D. Novak was then-Deputy
Secretary of State Richard L. Armitage, who was not charged.
Mr. Libby’s trial provided convincing evidence that the
revelation of Ms. Plame’s identity was not the result of a
conspiracy to punish her husband, administration critic Joseph C.
Wilson IV – the allegation that caused all the partisan furor
surrounding the case and that led to Mr. Fitzgerald’s
appointment. Advocates for clemency point to President Bill
Clinton, who lied under oath but was not removed from office or
put in jail, and to Mr. Clinton’s former national security adviser,
Samuel R. ‘Sandy’ Berger, who lied to investigators about
sneaking documents from the National Archives but who also
received no jail time.
“Add to that Mr. Libby’s long and distinguished record of public
service, and we sympathize with Mr. Bush’s conclusion ‘that the
prison sentence given to Mr. Libby is excessive.’ The probation
office, as the president noted, recommended less time – 15 to 21
months. But Mr. Bush, while claiming to ‘respect the jury’s
verdict,’ failed to explain why he moved from ‘excessive’ to
zero. It’s true that the felony conviction that remains in place,
the $250,000 fine and the reputational damage are far from
trivial. But so is lying to a grand jury. To commute the entire
prison sentence sends the wrong message about the seriousness
of that offense.”
Editorial / Wall Street Journal
“(It) was Mr. Libby who found himself caught up in prosecutor
Patrick Fitzgerald’s hunt for the Plame leaker, which he and his
masters at Justice knew from Day One to be State Department
official Richard Armitage. As Mr. Fitzgerald’s obsessive
exercise ground forward, Mr. Libby got caught in a perjury net
that we continue to believe trapped an innocent man who lost
track of what he said, when he said it, and to whom.
“Mr. Bush’s commutation statement yesterday is another profile
in non-courage. He describes the case for and against the Libby
sentence with an antiseptic neutrality that would lead one to
conclude that somehow the whole event was merely the result of
Mr. Libby gone bad as a solo operator. Here is how Mr. Bush
addressed it in his statement yesterday, which may now stand as
history’s take-away from the Libby trial:
“ ‘My decision to commute his prison sentence leaves in place a
harsh punishment for Mr. Libby. The reputation he gained
through his years of public service and professional work in the
legal community is forever damaged….The consequences of his
felony conviction on his former life as a lawyer, public servant,
and private citizen will be long-lasting.’
“Mr. Libby deserved better from the President whose policies he
tried to defend when others were running for cover. The
consequences for the reputation of his Administration will also
be long-lasting.”
Robert D. Novak / Washington Post
“When he finally decided he could not be responsible for sending
Scooter Libby to federal prison, George W. Bush performed
Monday as he had from the start in the CIA leak case. He sought
to keep his distance from an incident that excited intense political
emotions, making no value judgment other than that the jail
sentence was unjustified.
“For three years President Bush had treated the leak to me of
Valerie Plame Wilson’s employment at the CIA as a legal
prosecution and then a judicial proceeding about which he could
not comment. But aides say he was sickened by the thought of
Vice President Cheney’s chief of staff being imprisoned for 30
months. How to prevent that without judging the merits of the
case? By commuting the sentence, which retains Libby’s fine
and his ignominy as a felon.
“That might be described as a Solomonic decision, but only if
King Solomon had actually split the baby and given halves to
rival mothers. Democrats such as Senate Majority Leader Harry
Reid, who called the president’s conduct ‘disgraceful,’ would not
have been any more upset by an outright pardon. While friends
of Libby toasted with champagne Monday night, they
complained that there was no pardon. It was an unsatisfying
performance as an unhappy presidency nears its end, with Bush
again standing aloof from the passion he has stirred….
“Even before he began his long investigation, Fitzgerald was
aware that the leak to me that started the case was made by
Richard Armitage, then deputy secretary of state. No proponent
of the Iraq intervention, Armitage did not neatly fit left-wing
conspiracy theories about Iraq policy. Consequently, he
disappeared from the Internet blather about the CIA leak
constituting treason.
“Armitage was not indicted because the statute prohibiting
disclosure of an intelligence agent’s identity was not violated.
But Fitzgerald plowed ahead with an inquiry that produced
obstruction of justice and perjury charges against Libby, though
there was no underlying crime.”
David Brooks / New York Times
“The farce is over. It has no significance. Nobody but Libby’s
family will remember it in a few weeks time. Everyone else will
have moved on to other fiascos, other poses, fresher manias.”
Until Bush issues a full pardon.
–Goodness gracious…we had some primo examples of dirtballs
and slimeballs this week. In the latter category, there’s Los
Angeles Mayor Antonio Villaraigosa, 54, who was kicked out of
the mayor’s residence by his wife after 20 years. It seems that
Villaraigosa was shacking up with sultry Telemundo anchor
Mirthala Salinas.
The mayor has two adult children born out of wedlock and his
wife had filed for divorce back in 1994 over another affair, but
they eventually reconciled.
Meanwhile, Ms. Salinas issued a statement that although she and
the mayor “are both public figures, I hope that everyone can
understand and respect my desire to maintain my privacy when it
comes to personal relationships.” [L.A. Times]
Fat chance of that these days, Mirty! Then again, Antonio is no
different than most of the presidential contenders.
–Then we have the case of TB patient Andrew Speaker. It turns
out Speaker has a less-severe form of the disease than originally
thought, so Speaker is now blasting the CDC for its
misdiagnosis.
However, this doesn’t make him any less of a dirtball because it
was Speaker who callously disregarded all the warnings, took
flights he wasn’t supposed to have, and snuck back into the
country. So my advice to Mr. Speaker is, keep your mouth shut.
You are hardly a victim.
–But wait…there’s more! As in Gore….as in Al Gore III, the
StocksandNews “Jerk of the Week.” Seems that the 24-year-old
son of the former vice president was clocked doing 105-mph on a
southern California highway, in a Prius, no less, and when he
was caught he reeked of pot, while having in his possession all
manner of pharmacopia such as Vicodin, Xanax and Valium…
for which he had no prescriptions. Thank god the punk didn’t
kill anyone.
–Rocker Ted Nugent, on the Summer of Love (1967), in an op-
ed for the Wall Street Journal.
“Honest and intelligent people will remember it for what it really
was: the Summer of Drugs.
“Forty years ago hordes of stoned, dirty, stinky hippies
converged on San Francisco to ‘turn on, tune in, and drop out,’
which was the calling card of LSD promoter Timothy Leary.
Turned off by the work ethic and productive American Dream
values of their parents, hippies instead opted for a cowardly,
irresponsible lifestyle of random sex, life-destroying drugs and
mostly soulless rock music that flourished in San Francisco.
“The Summer of Drugs climaxed with the Monterey Pop Festival
which included some truly virtuoso musical talents such as Jimi
Hendrix and Janis Joplin, both of whom would be dead a couple
of years later due to drug abuse. Other musical geniuses such as
Jim Morrison and Mama Cass would also be dead due to drugs
within a few short years. The bodies of chemical-infested,
braindead liberal deniers continue to stack up like cordwood.
“As a diehard musician, I terribly miss these very talented people
who squandered God’s gifts in favor of poison and the joke of
hipness. I often wonder what musical peaks they could have
climbed had they not gagged to death on their own vomit. Their
choice of dope over quality of life, musical talent and meaningful
relationships with loved ones can only be categorized as
despicably selfish….
“There is a saying that if you can remember the 1960s, you were
not there. I was there and remember the decade in vivid, ugly
detail. I remember its toxic underbelly excess because I was
caught in the vortex of the music revolution that was sweeping
the country, and because my radar was fine-tuned thanks to a
clean and sober lifestyle.
“Death due to drugs and the social carnage heaped upon America
by hippies is nothing to celebrate. That is a fool’s game, but it is
quite apparent some burned-out hippies never learn.”
That’s crazy, man.
–As reported by John Solomon of the Washington Post, John
Edwards is truly a piece of work. Solomon interviewed Joseph
Torrenueva, Edwards’ hairstylist. The two hooked up in 2003,
after the Edwards camp sought the help of fashion experts during
the ’04 campaign, and since then Torrenueva has cut Edwards’
hair at least 16 times. One haircut during the 2004 race cost
$1,250 because he traveled to Atlanta and lost two days of work.
Of course the former senator claims not to know the costs
because, you understand, such matters are handled by his staff.
On meeting with Edwards the first time, Torrenueva said, “What
I did was, there was too much hair on top, always falling down,
and it made him look too youthful. I took the top down and
balanced everything out. He couldn’t see it. But then we went
into the bathroom. He looked in the mirror and said, ‘I love
this,’ and that was it.”
Oh no it isn’t!
–In New York, Democratic Governor Eliot Spitzer and
Republican Senate Majority Leader Joseph Bruno are preparing
for a duel, or so it seems. Bruno accused Spitzer of ordering the
State Police to tail him and called for special grand juries to
investigate the governor’s possible “criminal liability,” while for
his part Bruno is an equally loathsome character.
–You can debate global warming all you want, but what is not in
dispute is that the weather extremes we’ve witnessed the past
decade are far worse than any in our lifetime. The driest year on
record in Los Angeles, record rains in Texas, record temperatures
in the West…record droughts around the world, winter showing
up two months late in Moscow…makes you want to go back to
school and become a meteorologist, doesn’t it?
–Remember, as you watch Barry Bonds at the All-Star Game
and his final assault on the home run record, none of this would
be happening if trainer Greg Anderson had told the truth instead
of accepting a jail term in order to protect Barry.
–USA Today reports that federal agents are sifting through some
11,000 potential cases of fraud related to Hurricanes Katrina and
Rita. Where is China’s system of justice when you need it?
–I was going to say the study in Science magazine that
concluded men talk just as much as women was a bunch of
malarkey, but then I realized I’ve been talking non-stop to you
for another 20 pages, like I do every week, so I better keep my
mouth shut on this one.
–Now that we’ve observed the terror doctors in Britain, suffice it
to say, if you have a colonoscopy and you find out a cellphone
was implanted, you better get it removed.
–Benjamin Anastas had a story in the Sunday Times Magazine
that proponents of the Mayan calendar believe there will be
catastrophic changes to the earth on Dec. 21, 2012. I’m going to
try and short the stock market on Dec. 15. I’m also assuming
housing won’t bottom before then. But I sure as heck hope the
Mets and Jets win championships in the interim.
–Lastly, on a personal note, I received some great news this
week from the island of Yap in Micronesia where I have this
church. Sister Joanne wrote to say they celebrated the first mass
there…at St. John the Baptist. Prayers in Yapese were offered
for me, and Lord knows I need them. Frankly, it’s still about the
most meaningful thing I’ve done with my life.
—
Pray for the men and women of our armed forces. That was a
very touching scene in Iraq and Afghanistan on the Fourth as
some soldiers received their U.S. citizenship.
God bless America.
—
Gold closed at $654
Oil, $72.68
Returns for the week 7/2-7/6
Dow Jones +1.5% [13611]
S&P 500 +1.8% [1530]
S&P MidCap +2.3%
Russell 2000 +2.2%
Nasdaq +2.4% [2666]
Returns for the period 1/1/07-7/6/07
Dow Jones +9.2%
S&P 500 +7.9%
S&P MidCap +13.9%
Russell 2000 +8.2%
Nasdaq +10.4%
Bulls 49.4
Bears 18.0* [Source: Chartcraft / Investors Intelligence]
*I never include the remainder, which represents those newsletter
writers looking for a ‘correction,’ but this week’s figure in that
category, 32.6, is abnormally high. As I’ve pointed out many
times, though, these numbers aren’t nearly as important as they
were 10 or 20 years ago, but for now, remember it’s a contrarian
indicator and you’re looking for extremes. For example, when
the bull figure hit 45.5 on Mar. 13, 2007, that represented a good
time to buy as the S&P 500 was at 1377.
**At some point over the coming days, I’m going to be tweaking
the home page. It’s all about “search optimization,” sports fans.
I’m also changing the title of one of the links to rectify one of the
dumbest moves I ever made in my life.
Have a great week. I appreciate your support.
Brian Trumbore
