[Posted 7:00 AM ET]
Seeee youuuuu….in Sep-temm-berrr….
These days it seems it’s all about ‘buying time.’ In Iraq,
President Bush and General David Petraeus are attempting to buy
time until the Iraqi government gets its act together. In Iran, the
mullahs are buying time in their ongoing efforts to develop
nuclear weapons while skirting further UN sanctions. And in the
U.S. financial markets, the Federal Reserve by its recent actions
is looking to buy enough time to allow the markets to regain their
composure in the midst of dangerous crosscurrents.
This week I find it necessary to lead off with Iraq. With CNBC
on all day, it strikes me how not one analyst who comes on the
air ever talks about geopolitics when forecasting the market’s
direction. Granted, over long stretches Wall Street has often
ignored the hot spots, and perhaps for good reason, but when you
hear strategists talk about everyone on the Street returning from
vacation come September and with a now critical Fed meeting
lined up for Sept. 18, it’s kind of funny that the number one issue
when it comes to political discussion, Iraq, is also coming to a
head next month, yet no one gives a damn.
It wasn’t a good week for President Bush on this front, that’s for
sure, as a key Republican senator, John Warner, called for a
symbolic troop withdrawal by Christmas to send a message to
the Iraqi government that the U.S. commitment isn’t open-ended.
While Warner is only talking 5,000 soldiers, he is an influential
figure on Capitol Hill and his call definitely goes against what
President Bush and General Petraeus are calling for in letting the
surge continue in order to buy more time.
But it all comes down to the performance of the Iraqi
government itself and there is nothing of a positive nature the
administration can point to on this front. Nothing. In fact, this
week I believe it got much worse thanks to President Bush’s not
so veiled criticism of Iraqi Prime Minister Maliki that was
echoed by other U.S. officials, including Ambassador Ryan
Crocker. What was most worrisome here was that Maliki turned
around and warned the United States that Iraq “can find friends
elsewhere,” i.e., Iran and Syria. “No one has the right to place
timetables on the Iraqi government. It was elected by our
people,” he said.
Bush backtracked some the next day but the damage was done.
If Maliki isn’t replaced by the parliament, I am beginning to
believe the prime minister could really stab us in the back in his
dealings with his neighbors, more so than he’s already
undoubtedly done. Maliki doesn’t have a leg to stand on, but
that’s not the issue. He needs to go, but can he be counted on to
go quietly?
As for Bush, Warner’s opinion isn’t his only problem. Outgoing
chairman of the Joint Chiefs of Staff, Gen. Peter Pace, is
reportedly going to advise President Bush to reduce the level of
U.S. forces by half in 2008; the Joint Chiefs’ prime concern these
days, it would seem, being the inability of the United States to
respond to other threats due to the overly stretched Iraqi
commitment.
On the ground it was another distressing week as a 2nd provincial
governor was killed in the south amidst a battle between Shiite
factions for control; this as Britain prepares to leave the region in
what the U.S. is warning UK officials will be a “humiliating”
retreat.
But then you had President Bush’s speech to the Veterans of
Foreign Wars, wherein he invoked Vietnam as a reason why the
U.S. must stay the course in Iraq or risk a similar bloodbath.
Even many of the Democratic presidential candidates recognize
the dangers if and when the U.S. leaves, but Bush’s stretching of
history, especially that of Cambodia during the Vietnam era, was
appalling. I couldn’t agree more with historian Robert Dallek
who said that the slaughter committed by the Khmer Rouge “was
a consequence of our having gone into Cambodia and
destabilized that country.” Iraq analyst Anthony Cordesman
added, “(We) got a history lesson that would have embarrassed a
first year undergraduate.” [New York Times / Financial Times]
I also can’t help but note another comment of the president’s,
where he cited that since the surge began, 1,500 al-Qaeda
operatives had been killed or captured every month since
January. Quite a change from when former Secretary of Defense
Donald Rumsfeld and Vice President Cheney were talking of
being down to a few “dead-enders,” don’t you think?
No doubt, Iraq has become a central front in the war on terror;
but part of the debate, as it is in analyzing Bush’s speech this
week, is about cause and effect.
But in looking at the coming congressional clash in September,
columnist George Will broke it down in his op-ed this week.
“When Gen. David Petraeus delivers his report on the war, his
D.C. audience will include two important factions. Perhaps
nothing he can responsibly say will sway either, so September
will reinforce animosities.
“One faction – essentially, congressional Democrats – is heavily
invested in the belief, fervently held by the party’s base of
donors and activists, that prolonging U.S. involvement can have
no benefit commensurate with the costs. The war, this faction
says, is lost because even its repeatedly and radically revised
objective – a stable society under a tolerable regime – is beyond
America’s military capability and nation-building competence,
and is politically impossible given the limits of American
patience.
“The other faction, equal in anger and certitude, argues, not for
the first time (remember Iraqi voters’ purple fingers, the Iraqi
constitution, the capture of Saddam, the killing of Zarqawi, etc.),
that the tide has turned. How febrile is this faction? Recently it
became euphoric because of a New York Times column by two
Brookings Institution scholars, who reported:
“ ‘We are finally getting somewhere’ (‘at least in military
terms’), the troops’ ‘morale is high,’ ‘civilian fatality rates are
down roughly a third since the surge began’ and there’s ‘the
potential to produce not necessarily ‘victory’ but ‘sustainable
stability.’
“But the scholars also said:
“ ‘The situation in Iraq remains grave,’ fatalities ‘remain very
high,’ ‘the dependability of Iraqi security forces over the long
term remains a question mark,’ ‘the Iraqi National Police’ are
‘mostly a disaster,’ ‘Iraqi politicians of all stripes continue to
dawdle and maneuver for position,’ it is unclear how much
longer we can ‘wear down our forces in this mission’ or how
much longer Americans should ‘keep fighting and dying to build
a new Iraq while Iraqi leaders fail to do their part,’ and ‘once we
begin to downsize…Iraqi security forces may splinter along
ethnic and religious lines.’”
Back to buying time, another example is Iran. President
Mahmoud Ahmadinejad must be an adherent of former North
Carolina basketball coach Dean Smith and his ‘four corners
offense,’ a stall tactic that Ahmadinejad is working to perfection
thus far. Their nuclear weapons program has continued
unimpeded, save perhaps some defective spare parts, for years
now. The first two rounds of UN sanctions, while effective in
their own way, still haven’t forced Iran to back down and now
the U.S. is pinning its hopes on a renewed diplomatic effort in
the Security Council early September.
But as the Washington Post editorialized the other day in
discussing troubling signs coming out of Europe:
“What’s puzzling are the murmurs of disapproval from European
diplomats and others who say they favor using diplomacy and
economic pressure, rather than military action, to rein in Iran. So
far, the diplomacy and sanctions haven’t been working: Iran has
been unresponsive to extensive European deal-making efforts
and hasn’t taken up a year-old U.S. offer of across-the-board
negotiations in exchange for stopping its uranium enrichment.
The sanctions have been too weak to cause the regime serious
discomfort, and tougher measures are being blocked in the UN
Security Council by China and Russia.”
All this while the level of Iranian-sponsored bomb attacks on
U.S. troops in Iraq soars.
Now I understand at this point why Wall Street and most
Americans have closed off Iraq as an issue impacting their
personal well-being. Our leader in the White House, after all,
never asked us to sacrifice in any shape or form. But when Iran
tests its first nuclear missile, that will be a wake-up call of
cataclysmic proportions.
Wall Street
“It’s true that some panics pass without consequence. But there
are times – think October 1929 – when the tremors on Wall
Street anticipate a more widespread economic storm. Given the
tremendous run-up of debt in recent years, there’s a good chance
that today’s credit crunch will turn out to be more than just a
wisp of cloud in an otherwise blue sky.”
–Market historian Edward Chancellor, Washington Post, 8/19/07
Continuing:
“There are times…when credit booms have more profound
consequences. Research suggests that severe financial crises
tend to follow the rapid expansion of credit. The longer the
credit boom endures, the more severe the hangover.
Furthermore, because real estate is not liquid and the process of
foreclosing on defaulted mortgage loans is time-consuming (as
well as politically problematic), the economic downturns that
follow property booms tend to be deeper and to last longer.”
And this:
“There’s a good chance that the current panic will give way to a
full-blown economic crisis. That’s because the credit boom has
been going on for five frenetic years and virtually everyone has
become involved, either directly or indirectly. An increasing
number of businesses, from motorcycle retailers to cellphone
operators, are finding their sales affected by the subprime
debacle….Household spending continues to exceed income by a
large margin. If credit stops flowing to consumers, the economy
is bound to suffer.”
There was some absurd talk on the airwaves concerning the
market this week. Then again there is every week, especially if
you’re like me and you actually take a stand. Anything to the
contrary thus becomes absurd, even as others are saying the same
of you! It takes two sides to make a market, as they say.
But I loved how the markets stabilized this week, thankfully, and
suddenly the chorus cried out, ‘The worst is over. Long live the
bull market. The heck with facts.’
And there was another mantra, especially among some CNBC
anchors. ‘How can anyone predict the next recession?’ I
can….I’ve said for quite a while now it’s 2008. There! I’ve said
it again. [Apologies to Bobby Vinton.]
Edward Chancellor addressed some of the issues I’ve been
concerned with on the real estate front, but I liked a note I
received from Josh P., an internal memo from a managing
partner at a well-known investment shop (that includes private-
equity and hedge fund operations).
“Last week, I spent some time in the ‘Inland Empire’ of
California on a due diligence trip to survey the actual damage.
As many of you already know, 55% of all subprime loans were
made in California and Florida. The inland empire of California
can be described as the central valley that extends from the
southern part of the state all the way to the northern part, at least
one-hour inland from the coast. Let me start by saying it is
MUCH WORSE than even I thought it could be. I met with
various mortgage lenders, originators, economists, and capital
markets professionals. The overriding theme that I got from
them was that ‘Everyone committed fraud and everyone is
responsible for the problem.’ They told me that they believe that
90% of all subprime loans contained some kind of fraud. Either
borrowers lied about their incomes or mortgage brokers fudged
numbers on the applications to make them pass muster. They
also said that of the borrower frauds, 50% of applicants
overstated their incomes by MORE THAN 50%!!! As Charles
Kindleberger so aptly put it in his book ‘Manias, Panics, and
Crashes’:
“ ‘The implosion of an asset price bubble always leads to the
discovery of frauds and swindles. The supply of corruption
increases much like the supply of credit. Soon after a recession
appears (and) in the absence of more credit, the fraud sprouts
from the woodwork like mushrooms in a soggy forest.’
“In California today, home prices are down between 25%-40% in
the central valley. From San Bernardino to Stockton, they are in
free-fall and their physical condition is actually worse than their
price decline. The borrowers are locked out of the financing
market and there is no logical buyer for these homes outside of
the original borrower. The foreclosure wave will hit these
neighborhoods like the Asian Tsunami.”
In an interview for the Financial Times, chief economist John
Lipsky of the IMF said that “the market crisis had three main
components: first, a repricing of credit risk; second, a testing of
the newer parts of the asset-backed securities market – in
particular collateralized debt obligations and collateralized loan
obligations (derivatives backed by pools of credits) that have not
yet been tested under strain; third, increased fear of counterparty
risk, caused by inadequate transparency on the part of banks as to
the extent of their true contingent liabilities.”
“ ‘Lack of transparency can create doubts that translate into
market volatility. We are finding that in some cases regulated
financial institutions are carrying off-balance-sheet risks that
have indirect implications for those institutions.”
Ah yes, pricing and transparency. A number of you passed on a
piece by Jonathan Weil of Bloomberg (Trader George of
Strategic Energy Research gets first credit) that we all found
remarkable.
“There’s the kind of earnings investors can take to the bank.
And then there’s the kind the bank can show to investors.
“Word to Wells Fargo & Co. investors: Beware the second
kind.”
Mr. Weil notes that in reporting net income of $2.28 billion for
the second quarter, there was a footnote citing “Level 3” gains.
“Without these, the financial-services company’s earnings would
have declined.”
Weil: “So what are Level 3 gains? Pretty much whatever
companies want them to be.”
It all has to do with the Financial Accounting Standards Board,
which last year approved a hierarchy for measuring “fair values”
of assets and liabilities.
“Under Statement 157, (Level 3) means fair value is measured
using ‘unobservable inputs.’ While companies can’t actually see
the changes in the fair values of their assets and liabilities,
they’re allowed to book them through earnings anyway, based on
their own subjective assumptions. Call this mark-to-make-
believe.”
Brilliant, Mr. Weil. Jonathan quotes Jack Ciesielski, publisher of
the Analyst’s Accounting Observer research service in
Baltimore.
“If you see a big chunk of earnings coming from revaluations
involving Level 3 inputs, your antennae should go up. It’s akin
to voodoo.”
Ah yes…how does the song go?
That old black magic has me in its spell, that old black magic
that you weave so well.
Nice job, Wells Fargo.
But before I wrap this segment up, some quick thoughts on my
Iowa trip last week; specifically, my conversations with farmers
at the State Fair last Saturday. What an opportunity, though I’m
sure I was the only one among 90,000-100,000 there that day that
saw it this way….as in I was the only one walking around the
swine and cattle exhibition areas interviewing farmers.
First, not that I’m saying anything you didn’t already know, but
has there ever been any doubt who the best people in America
are, excepting of course those serving in our military, many of
whom come from farm country themselves?
Back over 8 years ago, I hooked up with an Oklahoma Panhandle
farm family and cut a deal with Eugene and Karolee. I’ll help
you if you help me. Their end of the bargain was to allow me to
call and visit them so I could keep in touch with the farm
community in my own way. I’ve been out to see them twice and
we exchange letters and calls a few times a year. Eugene always
asks, “You keeping up on your learning of the business?”
Well here’s what I’ve learned recently. Iowa, thanks to ethanol
and high corn prices, has been experiencing a boom. Land prices
are soaring and income is solid, even for the classic family farm.
But in my discussions last week, I was most interested whether
or not they understood the impact of the credit crunch on their
businesses, which you all know are as highly leveraged as any in
America. Most of them seem to. That new high-tech equipment
doesn’t come cheap, to cite one example, and no matter how
solid your banking relationships are, banks can only do so much
if the crisis lingers, and/or the harvest doesn’t come in as
expected. [Which is why I saw the Midwest flooding and
thought, oh no…that’s hundreds of thousands of acres ruined.]
Bottom line, America’s farmers are always overextended…it’s
the nature of the business.
So, overall, what is your editor still focused on? Summarizing:
Housing is the #1 asset for most individuals and its suffering,
plus in the case of a large portion of America subject to
resets, the bulk of which don’t hit until next January through
May. We’re just getting started, in other words. Defaults and
foreclosures will continue to rise and it is a certainty consumer
spending will suffer.
Housing has also been a key driver of economic growth, some
40% plus of it the past five years or so when looking at all
related industries, and you’ve noticed the layoff notices,
particularly in the mortgage origination and securitization arenas,
are piling up. [Lehman Brothers, Accredited Home Lenders,
Capital One, SunTrust and HSBC; to name a few.]
And I get a kick out of every expert who still fails to bring up a
point I’ve made from day one. Whenever we find a bottom in
the real estate market, then it’s stagnation city! Real estate
values will not, repeat, not, just suddenly zip back up. As I wrote
in forecasting 2007 last December, to have what had been your
piggybank lo these many years just stagnate, while all your other
costs are rising, incidentally, most importantly your property
taxes, does not make for a happy consumer.
The other big issue remains affordability. Housing today, even
with recent declines in most major markets, is still not affordable
for many and now your credit window is closed in terms of
accommodating bankers.
You’ve learned one thing here at StocksandNews. I don’t
swing to and fro with every little movement in equity prices like
a chimp in an old-style zoo with nothing but a tire to play with.
We have experienced one of the great bubbles in the history of
mankind, around the world, and the whole unwinding,
deleveraging process is merely in its infancy.
Street Bytes
–It was a solid bounceback week as the markets took comfort in
better economic news, such as Friday’s reports on July durable
goods and housing starts, as well as a semblance of order in the
cash/commercial paper market after Monday’s uncertainty on the
Treasury front. The Dow Jones regained 2.3% to close at 13378,
while the S&P 500 added the same and Nasdaq rose 2.8% to
2576. [No, the housing figure was not representative of a long-
term trend.]
But the market is now saying it expects the Fed to cut interest
rates in September. If the Fed doesn’t, however, more tears will
be shed.
–U.S. Treasury Yields
6-mo. 4.31% 2-yr. 4.30% 10-yr. 4.62% 30-yr. 4.89%
Talk about chaos, that was the situation early on with one- and
three-month Treasury Bills. The yield on the one-month hit
1.30% and 2.50% for three-months as everyone panicked like it
was 1987 as the commercial paper market seized up; particularly
money market funds holding the lower-rated crapola, as Archie
Bunker would have said. [Archie and Edith put 20% down, by
the way.] But by week’s end, things were largely back to
normal…or at least the normal of about ten days earlier.
Former Federal Reserve Board member Wayne Angell weighed
in for a Journal op-ed.
“The FOMC (Federal Reserve Open Market Committee) has…
misread monetary policy as erring on the side of ease, while
being over confident that employment growth would produce an
orderly end to the house price correction. The FOMC did not
want to be deterred from its hawkish stance on inflation by an
end to the housing boom. Somehow the FOMC failed to
recognize that its forecast of a smooth correction of house prices
did not match up with reality.
“The problem is far more than a subprime loan freeze up. The
FOMC must lower the target Fed funds rate sufficiently to
reduce the yield on Treasuries.”
In other words, as Angell goes on to say, this tinkering with the
discount window doesn’t cut it.
–For the record, foreclosures are up 93% nationwide over the
past year. Overall loan delinquencies, including on mortgages,
are at their highest level since 1990. Saturday’s Wall Street
Journal talks about all the condo projects going under as people
walk away from their contracts.
–Bank of America infused Countrywide Financial with $2
billion in cash, after which an appreciative Countrywide CEO
Angelo Mozilo said “I don’t see a light here…confidence has to
return (before we hit a bottom).” Housing will have a negative
impact on psyches and will eventually lead us into recession, he
added. What was comical is that CFC shares traded as high as
$26 (still off from their recent high of $45), but after everyone
digested the news the stock closed at $21.
–PIMCO’s Bill Gross was ridiculed for his idea that the federal
government should bail out an estimated two million
homeowners. I received as much e-mail on this when it first hit
as any other topic of the past few years. Needless to say, 100%
thought he was nuts. I’ve worked with him, however, and I
know where he’s coming from……….but goodness gracious this
was indeed an incredibly stupid idea.
–Iran’s sacked oil minister warned of an energy crisis in his
nation, not that we didn’t already know this. Domestic
consumption, despite recent restrictions, continues to cut into
future revenues, with Iran having to import gasoline because it
doesn’t have the refinery capacity.
But what’s significant is that even the Iranian parliament’s
research center is now issuing warnings. “It seems that for at
least the next ten years there will not be any extra gas for
export.” [Agence France Presse]
Two reasons to care about this: 1) With Iran being OPEC’s 2nd-
biggest producer, this obviously impacts the global
supply/demand picture, and, 2) Voices of dissent are becoming
more numerous in Iran. [At the same time the government is
increasingly cracking down on them.]
–For a CAT 5 hurricane, Dean was an incredibly responsible
storm in opting to skirt major population bases as well as the
critical Cantarell oil field in the Gulf of Mexico (Bay of
Campeche). It’s easy to forget the U.S. imports more oil from
Mexico than from the Saudis and Cantarell accounts for a full
60% of Mexico’s production. [Cantarell’s overall production
also continues to decline for you Peak Oil adherents.]
–The subprime mortgage mess spread to three of Asia’s biggest
banks, including the Bank of China which reported a $11.25
billion exposure to the sector. Analysts had no clue it was
anywhere near this level.
–Bloomberg News had another piece on Spain’s housing bubble,
a topic I’ve written of for years. The overbuilding that has taken
place is unbelievable and all manner of investors and banks is
beginning to pay the price, let alone homeowners.
But wait, there’s more! Foreclosures in Britain are at an 8-year
high, up 30% over the past 12 months. Personal bankruptcies are
also at an all-time level, “spurred largely by a crushing increase
in mortgage debt.” [International Herald Tribune]
Yup, it’s a global bubble, sports fans.
–You want some good news…even if it’s from Germany? Since
reunification 18 years ago, the German government has spent
about $2.6 trillion on the former East Germany for infrastructure
projects and items such as unemployment benefits and pensions.
Well now for the first time the government’s budget is in the
black.
–And back to China, shares on the Hong Kong exchange
rocketed higher after the mainland government said individual
investors could begin to trade directly in Hong Kong-listed
securities. Heretofore, Beijing has been concerned about capital
flows across the border but with foreign exchange reserves in
excess of $1.3 trillion, with a ‘t’, this isn’t too big of an issue…to
say the least.
–Japan shut its largest nuclear power plant indefinitely following
the recent earthquake and now the country faces electricity
shortages, especially during heatwaves like the one it has been
experiencing. Some utilities have been asking large industrial
customers to cut back for the first time in 17 years.
–Despite Wall Street’s problems, bonuses will still be huge
according to Options Group, a consulting firm. They are
estimating they will drop by only 5 percent from last year’s
record levels. Then again, this assumes you still have a job.
Suddenly, executive search firms are receiving a lot of resumes
from the hedge fund crowd, as well as private-equity firms that
have begun cutting back.
–Here’s a business item from The Weekly Standard, an article
by Eli Lehrer on Florida’s looming insurance crisis.
Analyst J. Robert McClure notes that as the state hopes to skirt a
major catastrophe on the hurricane front this year, “Our
insurance situation is like one of those kitchen timers you wind
up. In a while, it’s going to ring, and Florida will be in quite a
mess.”
As Lehrer writes, “The state has basically offered lower property
insurance rates to residents, by assuming enormous financial
risks itself. If a truly major storm happens, the legislature has
authorized the sale of nearly $30 billion in bonds to cover its
exposure. Any way you slice it, that’s almost three times as
large as the $11 billion California issue that stands as history’s
largest municipal debt sale. That’s where the risk of bankruptcy
comes in: If it can’t raise enough money through the sale of
bonds to pay for hurricane damages, the state won’t be able to
pay the claims it’s on the hook for.”
And while Lehrer wrote this for the August 20/August 27 issue
of TWS, he didn’t have a chance to take into account the impact
of the credit crisis on such an offering as well.
–According to the IRS, the average income in 2005 was
$55,238, still nearly 1 percent less than in 2000, after adjusting
for inflation. This is a little deceiving, as nearly half of
Americans reported incomes of less than $30,000 and two-thirds
make less than $50,000. The divide between the haves and have-
nots continues to widen, whether some Republicans want to
admit it or not.
–Monster Worldwide finally admitted cyber thieves stole data on
at least 1.3 million job seekers, though it insists the data was on a
single rogue server and contained just names, addresses, phone
numbers and e-mail addresses.
–Toy maker Mattel sued adult entertainer China Barbie for using
their doll’s name on her pornographic website. [Don’t go there
….you’ll pick up a virus!]
–Barron’s cover story for its Aug. 20 issue featured CNBC’s Jim
Cramer and how his stock picks have underperformed, not that
you didn’t already know this. He’s too easy a target, frankly, and
I won’t waste any space on him. EXCEPT…I was surprised
Barron’s, or other criticisms recently, didn’t mention that in early
June, Jim was pounding the table on buying Countrywide
Financial July 45 calls! [The stock was around $38 at this point.]
A slight miss…as we say in the trade.
–This will make you feel old…the Big Mac sandwich turned 40.
“Two all-beef patties, special sauce, lettuce, cheese, pickles,
onions on a sesame-seed bun.”
Foreign Affairs
Pakistan: The Supreme Court ruled that former prime minister
Nawaz Sharif can return home after years in exile, a big blow to
President Musharraf who overthrew Sharif in 1999. Sharif said
he would do so immediately to seek office in upcoming
elections. But the Court’s ruling could hurt another former prime
minister, Benazir Bhutto, who was seeking a power-sharing
arrangement with Musharraf. Sharif will be viewed more
favorably because he has never held secret talks with the
increasingly unpopular Musharraf, as opposed to Bhutto’s
efforts.
Turkey: Islamist Foreign Minister Abdullah Gul will become
president in the third round of voting that takes place on August
28, it would appear. Prime Minister Erdogan has called on the
military to stay out of politics
Russia: After resuming long range bomber flights the other day,
Britain was forced to scramble its fighter jets to shadow a
Russian bomber heading for the UK. Earlier, Russia claims it
flew over (or near) the U.S. base on Guam where it engaged
American fighter jets in an exchange of pleasantries. Of course
this is all part of President Vladimir Putin’s plan to reassert
Russian hegemony. An editorial in the current issue of Defense
News best summed it up.
“The longer Vladimir Putin stays in office, the faster Russia
appears to be sliding back to its Soviet ways.
“The process of increasingly resorting to bombast, militarist
bullying, occasional outright fabrications and even assassination
has been under way for the past several years. Over the past
several weeks, the transformation has been completed.
“First, Russia surreptitiously and outrageously claimed the entire
North Pole as its own, pledging to exploit its natural resources,
then Putin said Russian bombers would resume regular patrols
abandoned 15 years ago.
“If the stakes weren’t so serious, all this posturing would be
laughable.
“Russians say the moves aim to boost the popularity of Putin’s
political party with voters who regard such antics as signs of
Moscow’s growing strength rather than its foolishness.
“Perhaps, but Putin’s party is riding high and his heir Sergei
Ivanov leads for the top job.
“Rather, as Russia grows wealthier on its oil and gas riches, it
painfully recalls how in post-Cold War poverty it was ignored by
the West – and Washington in particular.
“From Russia’s perspective, since 2001 the United States and
NATO have been on its historic turf, allowing Putin to exploit
Russians’ suspicion of outsiders. So when the Czech Republic
and Poland decided to host missile defense sites against future
Iranian missile attack, Moscow saw a threat serious enough to
break a successful post-Cold War arms control accord.
“It’s much harder to ignore a country when its bombers are
constantly trying to penetrate your airspace or shadow your
military exercises, or worse, cut off your gas supplies or crash
your Internet grid.
“Former Soviet republics with the temerity to disobey Russia
have felt Moscow’s sting as a warning to others. During a
dispute over pricing, Ukraine spent a few days in the middle of
winter without gas, sending chills across a Western Europe that
in the peaceful 1990s grew dependent on Russian energy. The
message; obey or spend some nights in the cold.
“Then there was the mysterious and gruesome radioactive death
of a former KGB agent in London, and earlier this year there was
the two-week devastation of Estonia’s computer networks.
Russia has denied complicity in both incidents, but Western
governments say the evidence is overwhelming.
“In an increasingly global economy where Russian money
resides in American and British banks and its oil and human and
resource capital flow worldwide, such hamfisted tactics are
dangerous….
“It’s (likely) that Moscow’s change in tone goes beyond saber-
rattling. After the Cold War, Russia saw its influence hit rock
bottom. If you can’t get attention as a partner, then perhaps you
can do so as a consistent irritant. If Russia grows more open,
democratic and globally constructive, no problem. But if, as
appears sadly the case, it seeks more attention as a spoiler, then
the global community has no choice but to increasingly isolate a
nation that has yet to recover from a millennium of serfdom and
totalitarianism. The choice is the Kremlin’s.”
The above analysis is yet another reason why I think 2008 is
going to be quite a year, friends.
China: I just received my September/October issue of Foreign
Affairs and haven’t had a chance to read it, but with all I’ve
written on the pollution issue in China, I see that Elizabeth
Economy has written a big essay for the journal titled “China’s
Coming Environmental Crash.”
Here is her opening comment:
“China’s environmental problems are mounting. Water pollution
and water scarcity are burdening the economy, rising levels of air
pollution are endangering the health of millions of Chinese, and
much of the country’s land is rapidly turning into desert. China
has become a world leader in air and water pollution and land
degradation and a top contributor to some of the world’s most
vexing global environmental problems, such as the illegal timber
trade, marine pollution, and climate change. As China’s
pollution woes increase, so, too, do the risks to its economy,
public health, social stability, and international reputation. As
Pan Yue, a vice minister of China’s State Environmental
Protection Administration warned in 2005, ‘The (economic)
miracle will end soon because the environment can no longer
keep pace.’”
[I’ll have more in my upcoming ‘Hot Spots’ column.]
Canada: President Bush and Canadian Prime Minister Stephen
Harper failed to agree on the status of the Northwest Passage
when they got together this week. The U.S. contends it is an
“international passageway,” while Canada says, ‘No way, it’s
ours.’ The territory is still too cold for me, frankly. It’s kind of
like my 60 degree rule for golf.
Random Musings
–So I’m sitting in the hotel bar in Des Moines Saturday night
when a bunch of photographers following the presidential
candidates strolled in. They were sitting next to me and I
couldn’t help but overhear their conversation which was pretty
funny. Their big issue was they have limited capacity in terms of
footage to send back to the networks to use in their coverage of
the various campaigns so what do they omit? I found one guy’s
observation most amusing. “If a candidate drops their pork
sandwich and then picks it up and eats it, we’ve got to have
that!”
But then pollster Frank Luntz appeared and I introduced myself,
saying how impressed I was by Senator Joe Biden’s speech at the
State Fair; whereupon Luntz began riddling me with questions,
such as “What exactly moved you? I’m a word man….I need
words!” Funny guy…and a real pro.
But I have to note that just because I said some complimentary
things about Biden last week doesn’t mean I’m supporting the
man. I don’t know what the heck I’ll do when I go into the booth
in 15 months. Maybe I’ll bring a good book and a six-pack.
–It appears New York Mayor Michael Bloomberg has decided
not to run because he can’t win, according to various reports.
But the Deutsche Bank tower fire that claimed two firefighters’
lives would have done him in anyway. As the investigation
deepens, it’s apparent the New York City Fire Department totally
failed in its responsibility to supervise the site. A whistleblower
has come forward, telling the New York Daily News, “The
firefighters…didn’t stand a chance. They walked into a
deathtrap, a booby trap a year or more in the making.”
There were just a ton of safety violations, such as in contractors
smoking heavily amidst live power lines. Subcontractor John
Galt Corp. is most responsible, but at the same time the FDNY
failed to fix a broken standpipe from which water was to have
been drawn. Plus FDNY commanders, according to the New
York Post, “had no plan of attack for fighting a fire in the
building.”
The problem for Bloomberg is that it’s his fire commissioner that
is now taking the most heat and the mayor hasn’t exactly said the
right things in the days following the disaster. Two gut-
wrenching funerals didn’t help his image, either.
And on a broader issue, going back to my rant on the
Minneapolis bridge collapse, Manhattan Borough President Scott
Stringer said of the Deutsche Bank building disaster “We should
have been able to figure this out.” Stringer also expressed the
sentiments of the likes of yours truly in adding “We built the
Empire State Building, the Twin Towers,” why couldn’t we take
this one down? “It’s becoming an international disgrace.”
On so many issues these days, as I noted a few weeks ago, it’s
nothing but one failure after another in America, including the
failed rescue attempt of the miners in Utah; which I conclude
with below.
–A Harris Poll of U.S. adults finds that 57% “do not like
learning about political issues in other countries.” Which means
57% of Americans are idiots.
–From a story by the Los Angeles Times’ Richard Serrano:
“Violent crime along the U.S.-Mexico border, which has long
plagued the scrubby, often desolate stretch, is increasingly
spilling northward into the cities of the American Southwest.
“In Phoenix, deputies are working the unsolved case of 13 border
crossers who were kidnapped and executed in the desert. In
Dallas, nearly two dozen high school students have died in the
last two years from overdoses of a $2-a-hit Mexican fad drug
called ‘cheese heroin.’”
–Arthur Bremer, the man who shot Alabama Gov. George
Wallace during the 1972 presidential campaign, is slated to walk
out of prison in December. Wallace’s son and his family have
forgiven him, but Bremer never expressed any remorse. He’s
only 57.
–NBC News had a story on “Eco-hangars” that are made of
recyclable/biodegradable material and I’m thinking, ‘Is everyone
so lazy they can’t take their used hangars back to the dry
cleaner?’ C’mon, people.
–Vendors in Thailand have been selling meat of the deadly
puffer fish by dying it to look like salmon. The result has been
the death of 15 people over the past three years. Separately, I’ve
been shocked to see my local A&P begin to carry farmed fish
from China again. Or maybe it’s still last year’s supply.
–Charles K. passed along the story of “yattle” breeding in
Loudoun County, VA. A yattle is a cross between our noble
friend the yak and cows. Those breeding the creature hope it
becomes the rage for the health-conscious segment of our
society. Yattle meat is said to be a little tough, but it’s low in
cholesterol!
However, one breeder told the Washington Post’s Jonathan
Mummolo that he chose yak over alpacas and bison because yak
are stupid. That’s a bad rap.
–Roger Boynes of the London Times had a story on moose and
the battle in Norway over the high population of them there. It
seems that scientists have determined that “During a single
year…a full-grown moose expels – from both ends – the
methane equivalent of 2,100kg of carbon dioxide emissions.
That is said to be as destructive for the atmosphere as the
emissions released by 13,000km (8,000 miles) of car travel.”
It seems that moose normally eat twigs in the winter, but with
less snow these days they have access to wild blueberries.
“The result has been fatter moose that are more likely to break
wind. Moreover, better-fed, the moose have started to reproduce
more quickly and herds are swelling.”
So next time you’re in a crowded room and everyone is
scrunching up their noses, the culprit may be standing outside. I
also have to add no one ever made these kinds of claims when it
comes to yak.
–Israeli Prime Minister Ehud Olmert has banned cellphones in
cabinet meetings. Good for him. Actually, Israel has had a
problem with leaks; as in during one cabinet session, a minister
was talking on his phone while the head of Shin Bet was
discussing sensitive security issues. The BBC reported that it has
been fairly common for “senior Israeli officials to call reporters
and leave their mobile phone running during meetings, so
journalists can hear what is going on.” Super.
–Newsweek had a piece on mental health problems on our
nation’s campuses. For example, “one in five MIT
undergraduates undergoes counseling at some point.” I’m sorry,
this is more than a bit troubling; not that the college years aren’t
stressful for a variety of reasons.
But it reminds me of a bit in Bill Maher’s recent HBO concert, as
he speaks to our overmedicated society. Paraphrasing:
“Stress is in nature, for crying out loud. Ever look at a squirrel?
It’s a nervous wreck!”
–Here is what I’m looking for as a sign of the apocalypse; our
youth continuing to wear Michael Vick jerseys and the message
that would send. In all seriousness, I can guarantee there will be
a story on this in the next six months. It’s going to be the ‘In’
thing to do in the ‘hood; at least that’s my bet, sadly.
[Then again, ESPN is reporting Friday night that Vick may have
turned ‘snitch.’ That would squelch my theory.]
–This story that Mother Teresa spent her last 50 years struggling
with her faith is one of the bigger non-stories I’ve ever seen.
Authors of a new book have revealed letters she wrote (that she
wanted destroyed), that speak to her “pain…I have no Faith.”
Who wouldn’t feel this way on occasion, working amongst the
poor in Calcutta as she did? The other day here in New Jersey, at
a rehearsal dinner for a wedding being held the next day, the
maid of honor ran out to her car to roll up the windows as a
storm approached. She was struck and killed by lightning right
there in the parking lot. I’ve got to believe her family is
wrestling with a few issues these days.
My own issue is with the Catholic Church (of which I am a
member) for keeping these letters against Mother Teresa’s
wishes.
–Ronald Reagan biographer Lou Cannon commented on the
passing of Reagan image-maker Michael Deaver in an op-ed for
the Washington Post. I loved this anecdote.
“Late in 1986…after disclosures that Reagan had secretly
approved arms sales to Iran and that national security aides had
diverted some of the proceeds to the Nicaraguan contras, Reagan
fired the mastermind of this diversion and the national security
adviser who had known of it. He accepted the resignation of
CIA Director William Casey. But Reagan refused to fire his
chief of staff, Donald T. Regan, whom a board of inquiry would
later say bore ‘primary responsibility for the chaos that
descended upon the White House’ after the Iran-contra
disclosures.
“Deaver confronted the president, urging him to rid himself of
Regan. They had the following exchange:
“Reagan: ‘I’ll be goddamned if I’ll throw somebody else out to
save my own ass.’
“Deaver: ‘It’s not your ass I’m talking about. You stood up on
the steps of the Capitol and took an oath to defend the
Constitution and this office. You’ve got to think of the country
first.’
“Reagan: ‘I’ve always thought of the country.’ He then threw
his pen so hard it bounced off the carpet.”
Deaver and Nancy Reagan eventually wore the president down
on Regan, you’ll recall.
Michael Deaver had many problems later, including with
alcoholism, and then he was swept up in an influence peddling
scandal. Deaver was stripped of his assets and went through a
tough stretch before he turned things around.
But as Lou Cannon, an admirer of Deaver’s, notes:
“Deaver’s wisdom – and his decency – were demonstrated in his
refusal to accept a pardon from President Reagan for his
transgressions. He thought a pardon might tarnish Reagan’s
image. That was something Deaver always protected, even at the
cost of his own.”
–Finally, I don’t often write about accidents or natural disasters,
they are just that, unless it’s part of a broader story about our
failures (Minneapolis or Katrina, for example). In keeping with
this policy, I haven’t commented on the Utah mine disaster but
I’ve thought a lot about it. It’s a tragedy on so many different
levels.
At first I kind of liked mine owner Bob Murray. Yes, he was
brash but I thought that was probably the kind of leadership that
was needed to keep spirits up and the rescue effort in place.
But then it was one failure after another, and everyone’s
personality, all parties, began to change and the mood darkened
ten-fold. The bitterness and anger spread after the tragic rescue
operation resulted in three more deaths, with owner Murray
conceding he had finally lost hope a few days later and that the
mountain would be closed forever.
I was talking to my brother about this and how you can imagine
the town of Huntington being torn apart, with tensions at a fever
pitch, fueled by drugs and alcohol in some instances amidst the
crushing feelings of despair. Aside from the lives of their friends
that were lost, the survivors can’t help but think of the mountain
and their future. It’s their livelihood, after all, and most of them
are already living paycheck to paycheck. Now it’s been taken
away, at least for a long time. There is no more depressing
situation than this.
But you also keep thinking of the rescuers. As in 9/11, there are
no greater heroes. So my brother reminded me of a line from a
book by Norman MacLean titled “Young Men and Fire,” about
the 1949 Mann Gulch Fire in Montana that killed a dozen
Smokejumpers. Officials had to make a decision then as to
whether to continue fighting the fire or try and rescue any
survivors. The head official said they were going in after them,
even though no one could have possibly survived, as my brother
related. MacLean wrote:
“It is like that in the woods and even in the wide world generally
…One of the finest things men and women do is rescue men and
women, even when they know they are rescuing the dead.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $677
Oil, $71.13
Returns for the week 8/20-8/24
Dow Jones +2.3% [13378]
S&P 500 +2.3% [1479]
S&P MidCap +3.1%
Russell 2000 +1.6%
Nasdaq +2.8%
Returns for the period 1/1/07-8/24/07
Dow Jones +7.3%
S&P 500 +4.3%
S&P MidCap +7.5%
Russell 2000 +1.4%
Nasdaq +6.7%
Bulls 40.6
Bears 37.4 [Source: Chartcraft / Investors Intelligence…was
53.9/18.0 just four weeks earlier…the indicator has actually been
working pretty well lately.]
Have a great week. I appreciate your support.
Brian Trumbore
