[Posted 7:00 AM ET]
The Iraq Debate
Back on 12/30/06, in looking at the year ahead I said of the Bush
administration’s defining event:
“Iraq will show solid improvement by July, but it may not be
enough to placate the American people as casualties continue to
mount.”
This ends up being close to the case, though I suspect Americans,
through their representatives in Washington, are going to give
the White House and the “surge” more time after listening to the
long-awaited presentations of both General David Petraeus and
U.S. Ambassador Ryan Crocker this coming week.
I am long on record as supporting the war from day one, but at
the same time harshly criticized an AWOL President Bush
during the critical period from mid-2003 to mid-2004 when the
insurgency took hold. I recognized by late summer of ’03 that
we desperately needed more troops to secure the country and in
succeeding years detailed how the president was ill-served by a
Pentagon bureaucracy that produced some of the worst wartime
leaders this nation has seen.
I supported Sen. John McCain in the early days of the ’08
presidential campaign largely because I agreed with the surge in
troops in Iraq at a time when McCain was its biggest supporter. I
saw the surge as our last gasp, yet a shot worth taking.
But over the last 3-4 months some of you have commented to me
that I’ve seemed pretty silent as the political debate heated up. I
just didn’t feel a need to comment every week when my motto
after all is “wait 24 hours.” It was reasonable to give Gen.
Petraeus time to make it work, and it’s appropriate that Petraeus
now brief Congress and the people on whether it deserves our
continuing patience. It does, by all indications.
But supporters of the war need to admit mistakes were made. Of
course our president would like to ignore the past, and I’ve
written I no longer would dwell myself on the conduct of the
war, especially in the first two years, because we needed to look
ahead.
And as the White House touts “bottom-up” progress (we were
supposed to be seeing “top-down” by now) in some parts of Iraq,
and as the Iraqi Army seems increasingly capable of holding
gains, one also has to admit the casualties (about 80 U.S.
servicemen each of July and August) are still far more than any
American can be comfortable with, let alone the tremendous
civilian loss of life and the millions of Iraqis already displaced.
Additionally, none of the above begins to address the unending
failures of the Iraqi government; the failure after over four years
to deliver essential services, the massive corruption, and the utter
failure to get the Iraqi parliament to agree on a single item of real
substance.
Many of us want to ‘stay the course’ a bit longer, but to what
end? How much more time does the Iraqi government get? Gen.
Petraeus himself expresses his dismay on this front in a letter to
the troops on Friday.
Most of all, some of us are just crying for our president to be a
true leader…not of the Republican Party, but of all the American
people. It’s still amazing, for example, that Bush has asked
nothing of us, other than to shop and buy homes many couldn’t
afford. Someday I’ll get into another topic that disturbs me…the
increasing disconnect between the people and the military.
For now, Peggy Noonan, in her Wall Street Journal op-ed last
weekend, nails it.
“What is needed is simply maturity, a vow to look to – to care
about – America’s interests in the long term, a commitment to
look at the facts as they are and try to come to conclusions. This
may require in some cases a certain throwing off of
preconceptions, previous statements and former stands. It would
certainly require the mature ability to come to agreement with
those you otherwise hate, and the guts to summon the help of,
and admit you need the help of, the other side.
“Without this, we remain divided, and our division does nothing
to help Iraq, or ourselves.
“It would be good to see the president calming the waters.
Instead he ups the ante. Tuesday [8/28], speaking to the
American Legion, he heightened his language. Withdrawing
U.S. forces will leave the Middle East overrun by ‘forces of
radicalism and extremism’; the region would be ‘dramatically
transformed’ in a way that could ‘imperil’ both ‘the civilized
world’ and American security.
“Forgive me, but Americans who oppose the war do not here
understand the president to be saying: ‘Precipitous withdrawal
will create a vacuum that will be filled by killing that will tip the
world to darkness.’ That’s not what they hear. I think they
understand him to be saying, ‘I got you into this, I reaped the
early rewards, I rubbed your noses in it, and now you have to
save the situation.’
“His foes feel a tight-jawed bitterness. They believe it was his
job not to put America in a position in which its security is
imperiled; they resent his invitation to share responsibility for
outcomes of decisions they opposed. And they resent it
especially because he grants them nothing – no previous wisdom,
no good intent – beyond a few stray words here and there.
“And here’s the problem. The president’s warnings are realistic.
He’s right. At the end of the day we can’t just up and leave Iraq.
That would only make it worse. And it is not in the interests of
America or the world that it be allowed to get worse.
“Would it help if the president were graceful, humble, and asked
for help? Why, yes. Would it help if he credited those who
opposed him with not only good motives but actual wisdom?
Yes. And if he tried it, it would make news. It would really, as
his press aides say, break through the clutter.
“I don’t see how the president’s supporters can summon grace
from others when they so rarely show it themselves. And I don’t
see how anyone can think grace and generosity of spirit wouldn’t
help. They would. They always do in big debates. And they
would provide the kind of backdrop Gen. Petraeus deserves, the
kind in which his words can be heard.”
—
Wall Street…contagion
I can’t help but repeat something I wrote last week, after all the
talk on the airwaves as a result of Friday’s awful employment
report.
“(At) this point in time the Fed is largely irrelevant. The die was
cast long ago. No one can dispute contagion is spreading and I
reiterate, this is global. It’s just unfolding at different rates of
speed depending on where you are.”
The current market turmoil that began in earnest about six weeks
ago has always been about a global real estate bubble, first and
foremost. Of course there are all kinds of ancillary causes, such
as with derivatives for which no one has a clue what the value is,
but even here many of the instruments were based off of….you
guessed it…housing. So, yes, it’s about real estate and a simple
fact that I’ve been pounding home for years…..around the world,
far too many people have been stretching beyond their means.
It’s been about one word, “affordability.” In my travels I’ve seen
it, discussed it in pubs and bars with locals and ex-pats, and read
about it in countless newspapers.
No doubt, the Federal Reserve, under the guidance of former
chairman Alan Greenspan, played a huge role in creating the real
estate bubble by keeping money artificially cheap, but he had
help from his brethren bankers, from London to Tokyo. We
replaced the busted bubble in technology stocks with one in
bricks and mortar.
But what all did we learn that was new this week? Some
analysts took heart in the August retail sales figures from the
likes of Saks and Wal-Mart (rich man / poor man), but except for
the high-end merchants, the reports across-the-board were
largely nothing to write home about.
There was some decent news on the manufacturing and service
sector, as in the leading indices of same didn’t collapse below the
50 reading that connotes recession; but then you had an awful
construction report, further carnage in real estate in the form of a
pitiful pending sales figure, as well as record foreclosure filings
and near record default rates in key regions of the country; all
before the jobs report for August that showed the first decline in
four years, and, with downward revisions for June and July, a
three-month average of just 44,000. I mean to tell you, if our
economy is as good as the White House wants you to believe it
is, we should be creating about four times the current level, and
would need to do almost as much just to keep up with population
growth, for crying out loud.
And while some say August’s number could be revised upwards
in coming months, it could just as easily be lowered further. The
financial services industry, for example, lost 35,700 jobs in
August, the highest one-month total in 14 years, and the layoffs,
thanks to the crises in mortgage and investment banking, are just
beginning. Total mortgage sector job losses, by the way, are
now over 102,000 this year, and counting, including late word
Countrywide Financial is laying off a staggering 12,000, or 20%
of its work force over the coming months.
One of the dumbest statements that all too many economists
make these days is something like the following:
‘I don’t know what everyone is so concerned about. Housing is
only 4-5% of the total economy. So we’re in a little slump. The
rest of the picture looks great.’
But housing, broadly defined, represented not 4%, but about 40%
of the actual growth in the economy the last five years, and it
was 40% of total job creation. Yet administration shills are
trying to tell us housing’s impact is just a drop in the bucket?
Are they mainlining heroin from Afghanistan?
And switching gears, because it is truly going to be next week’s
main story, just what have Wall Street’s investment banks been
hiding? PIMCO’s Paul McCulley, in talking about the issue of
transparency, and lack thereof, says there are $1.3 trillion in
“shadow assets” on the books of the banks, so the question is at
what point do they finally put a value on the balance sheet and at
what price? The Street has been jerking us around for years on
this topic; for how much longer can they get away with it?
Not much, in answer to the last part, because for the first time the
banks understand that that which they lend out runs the risk of
never being paid back. This essentially is what is happening on
the commercial paper front, and this week’s buzzword, Libor; the
rate at which banks lend to one another short term. Such
interbank lending rates have been skyrocketing because no one
knows where the bodies are buried and if enough of them turn up
in one spot, one or more big banks could be, brace yourself,
insolvent! To paraphrase Church Lady, “Well wouldn’t that be
special.”
So this coming week we may, emphasize, may, begin to get a
clearer picture on the other side of the risk trade, assuming we
get a preannouncement or two. Of course I have to admit that
when earnings for the brokerage firms are finally released, I’ll
be quite the cynic no matter what the accompanying statements
say. It’s a dirty place, Wall Street; filled with unsavory characters
who would stab you in the back or drop you with a single shot to
the head in the blink of an eye.
Street Bytes
–The Dow Jones fell for the 6th time in 8 weeks, off 1.8% to
13113. Friday’s employment data led to a 250-point decline in
the index as investors began to focus on the fact that if the
economy begins to slide in earnest, what would happen to
earnings? It didn’t help that an economic bellwether such as
Harley-Davidson warned on future results. And with Wall
Street’s big guns supposedly having returned from their
vacations, there was nonetheless little news on all the leveraged
buyouts where financing remains uncertain.
–U.S. Treasury Yields
6-mo. 4.19% 2-yr. 3.90% 10-yr. 4.38% 30-yr. 4.69%
I may feel the Federal Reserve is irrelevant at this point in terms
of its ability to impact the economy, but the Fed still moves the
markets and the next meeting is Sept. 18. They’ve certainly had
more than ample excuses to lower interest rates sooner but chose
not to, thereby cementing the opinion that even when they do act,
it will be too late. True, stocks may rally for a few hours, or
days, but that would be it.
Harvard economist Martin Feldstein spoke last weekend to the
same group Chairman Bernanke addressed on Friday, Aug. 31,
and Feldstein said the “economy faces a very serious downturn”
thanks to the housing crisis. Fewer home-equity loans and
refinancings, for starters, will have a deleterious impact on the
consumer, he offered up.
But the Fed’s latest survey of regional activity concluded that
outside of real estate, the financial turmoil we are experiencing
will have a limited impact on the overall economy. You can be
sure there are a bunch of folks working overtime this weekend in
a rush to rewrite this.
–Alan Greenspan said this week that “The human race has never
found a way to confront bubbles.” He’s a funny guy, that
Greenspan. It’s book tour time!
–The Organization for Economic Cooperation and Development,
a group consisting of the 30 richest countries, concluded in a
report that “Downside risks have become more ominous.”
Bingo.
–Tax revenues of all sorts, both state and local, are drying up in
those regions most heavily reliant on the housing bubble; such as
in Florida.
–Energy: U.S. News & World Report’s Mort Zuckerman had a
good summary of the oil picture in the Sept. 10 issue. Following
is an excerpt:
“We are in a new world order. The balance of power has shifted
between the fuel-guzzling West and the oil-rich producing
countries. They have increasing leverage over us, with political,
economic, and military consequences. We are literally over a
barrel.
“Here’s how the chips fall. After World War II, the oil world
was dominated by the ‘Seven Sisters,’ the name given to the oil
companies controlling Middle East oil. These have shrunk to
four: Chevron, British Petroleum, Exxon Mobil, and Royal
Dutch Shell. They have been pushed aside by seven state-owned
national companies, Seven Brothers, if you like: Saudi Arabia’s
Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran,
Venezuela’s PDVSA, Brazil’s Petrobras, and Petronas of
Malaysia. The Seven Brothers control almost a third of the
world’s oil and gas production and more than a third of its total
oil and gas reserves. By contrast, the survivors of the Seven
Sisters control only about 10 percent of output and hold just 3
percent of the reserves. The Brothers are the rule makers; the
international oil companies the rule takers. It is not going to
change. In the next 40 years, 90 percent of new supplies,
according to the International Energy Agency, will come from
developing countries. Thirty years ago, 40 percent came from
the industrialized nations.”
And consider this, regarding the pace of new discovery keeping
up with demand. In 1964, “we discovered 48 billion barrels and
consumed approximately 12 billion….in 2005, we found 5
billion to 6 billion barrels and consumed 30 billion barrels.”
With rising demand from China and India, “The world has to
discover a new Saudi Arabia-size oil supplier every five years to
meet this demand.”
Zuckerman concludes:
“We are facing a world of higher prices and increasingly tighter
supplies, creating a growing gap between worldwide demand and
worldwide production, at a time when non-OPEC energy
production is peaking within a few years. Eventually, this will
make us even more dependent on OPEC – with all of what that
means. We also can’t seem to develop an appropriate energy
policy that by definition will take years to implement, so that
delays are only postponing the higher costs to the next
generation.
“It is we who are placing our own country over a barrel now.”
–Staying with energy, state-owned Gaz de France is merging
with Suez to create Europe’s largest buyer and seller of natural
gas; a deal that flies in the face of the European Union’s goal of
opening up competition in the energy sector. With the merger,
the natural gas sector will now be dominated in Europe by just a
handful of players including Russia’s Gazprom, E.on of
Germany, and Eni of Italy. Because of this there is less incentive
for needed investments.
–Meanwhile, OPEC meets on Sept. 11 and is not expected to
raise its production quota, currently 25.845 million barrels a day.
OPEC’s president, who is from the UAE, said markets are
“adequately supplied.” The outgoing director of the International
Energy Agency opined “I fear that OPEC has set implicitly a
new target price of about $70 a barrel.”
–Even Toyota’s auto sales dropped in August, down 2.8%, while
Ford’s fell 14% and Chrysler’s 6%. But GM’s rose 6% (thanks
to excessive discounting), Nissan’s were up 6% and Honda’s
nearly 5%.
–You may want to begin breaking the news to your children now
rather than have them suffer a total meltdown in December, but
with Mattel’s latest recall of Chinese-made toys, its third, there
will be virtually zero toys available this Christmas. Zippo.
Nada. Which means it’s back to home-made toys. Wash out
some beer bottles, for example, and give the gift of glass bowling
pins, which is what I might be giving my brother this year.
Of course on the PR front, this is yet another big blow for China,
which can’t be happy seeing some toy companies prominently
advertise “Made in America,” or anywhere but China. And on
September 19 the House of Representatives will be holding a
hearing on product safety, further highlighting the issue.
–Hell hath no fury like a techie scorned. Apple Computer’s
Steve Jobs learned this lesson when his company stupidly cut the
price of the iPhone by $200 after charging $599 for it upon its
introduction just two months ago.
Apple Nation, particularly those who waited for hours in line
when the product was first brought to market, was in an uproar
and within days, Jobs was forced to apologize and offer early
iPhone buyers $100 in store credit.
“Our early customers trusted us, and we must live up to that trust
with our actions in moments like these,” Jobs wrote in a letter on
the company’s Web site. But as a blogger told the New York
Times, “They hyped the iPhone for six months and built up our
expectations, and then they grabbed our extra $200 and ran,”
though the same fellow was pleased to learn of the store credit.
–The SEC is focusing on investment fraud targeting the elderly,
having brought more than 40 cases in recent years, including one
where older Americans were sold fraudulent time shares in
Cancun, Mexico. Life in prison without parole for any dirtballs
convicted of such crimes, I say. That would put an immediate
stop to it.
–Follow-up to last week’s story that the World Health
Organization is worried about new or existing global threats; the
WHO confirmed five human bird flu cases in Vietnam, four of
them fatal. Since 2003 there have been 100 infections in
Vietnam with 46 fatalities. The H5N1 virus is still simmering
and, globally, has killed 199.
Another virus, chikungunya, has been confirmed in 160 cases in
northern Italy. This is a tropical mosquito borne disease that
results in high fever and severe joint pain. One death was
reported. The issue here is that it was a “world first” outside the
tropics. While this is in no way as alarming as bird flu, there is
no vaccine against chikungunya.
Lastly, on the honeybee front, which impacts pollination and
agriculture, scientists believe they have found the cause of a
devastating syndrome that has destroyed 50% to 90% of the
hives in the U.S. According to the journal Science, it may be
linked to Israeli acute paralysis virus. So now beekeepers can at
least work on adopting genetically resistant stock.
–Taiwan has a serious problem regarding its economy. The
number of visitors, both for commerce and tourism, is drying up
as China continues to open up its borders to tourists and business
travelers. This has become an important political issue as well as
the vehemently anti-China current leadership goes up against the
opposition pro-China party ahead of presidential elections next
March. As an Asian think tank put it, “Failure to broaden
economic ties with the mainland will relegate Taiwan to one of
Asia’s growth laggards.”
–The debate in Congress over how to tax “carried interest,” the
profits hedge fund and private-equity types make on their
investments, is absurd. Of course it should be at the 35 percent
ordinary income rate, not the current 15 percent because it is
treated as capital gains. It’s performance-based compensation
for management services, period, and should be taxed as such.
As the Washington Post offered in an editorial:
“If you’re lobbying to keep a tax break, rich white guys making
astronomical sums by investing other people’s money aren’t the
most sympathetic clients – especially when they’re paying taxes
at a lower rate than firefighters and teachers. So the private-
equity and hedge fund industry has come up with a cynical new
approach, arguing that raising their taxes would hurt women- and
minority-owned firms and dampen investment in needy urban
areas.”
Bullspittle.
–In the latest survey of 401(k) participation rates, this one from
the Vanguard Group, less than two-thirds of those eligible
actually do, which dovetails with an earlier Fidelity study that
showed 57% sign up. Both figures are essentially unchanged
from 2000.
So I say again, the government airs public service
announcements for items such as anti-smoking campaigns, but I
have never seen one, a single one, on urging Americans to
contribute to their IRA or 401(k). That’s just a failure of
leadership in both parties.
–I had a meeting in New York on Thursday with the CFO of the
China biodiesel company I’ve been investing in. Nothing to add
on that front, incidentally, as it’s “quiet time.” But we spent a lot
of time talking about real estate and the difference between rich
and poor in our respective countries.
So on Friday I see in the Journal that former Major League
Baseball player Matt Williams and his wife decided to put their
not-yet-completed custom home in the Phoenix area on the
market for $12.7 million. It seems the couple decided the
“15,495-square-foot house would be too big for them,” Ms.
Williams says. Seems to me they might have a point. Try 11
bathrooms and a seven-car garage, for starters. Pop goes the
bubble.
Foreign Affairs
Iran: In a move that warranted far more attention than it received,
which was virtually zero, long-time political figure Hashemi
Rafsanjani, the man I was urging the United States have direct
discussions with in an end-run of President Mahmoud
Ahmadinejad, was elected as chairman of the critical Assembly
of Experts, placing Rafsanjani in direct conflict with the man
who defeated him in 2005.
Rafsanjani has a checkered past, no doubt, and he’s been
implicated in some acts of terror, but he has emerged as a
moderate in comparison to the wacko head of state, and, again,
he’s someone the White House should have been long talking to.
Rafsanjani remains a supporter of Iran’s nuclear program, but
he’s also smart enough (and he’s one of the wealthiest men in the
nation through his business dealings) to know that Iran is
throwing away its prime economic asset…its energy resources.
Therein, I’ve long argued, lies the seeds of a great compromise
…. massive Western support for a peaceful nuclear program if
Iran dismantles its weapons facilities, thus preserving its chief
asset, oil, from which to draw future revenues, and buying Iran
time to diversify its economy, something Rafsanjani has long
advocated.
Of course I was making this argument last year. Today it’s
probably too late. This week Supreme Leader Ayatollah Ali
Khamenei pledged that Iran would never yield to Western
pressure over its nuclear program, and that it would outsmart
“drunken and arrogant” Western opponents in the standoff. For
his part, President Ahmadinejad said Iran had achieved its goal
of 3,000 centrifuges, a level at which all experts agree Iran could
produce enough enriched uranium for a bomb within 12 months.
And speaking of Iran’s weapons program, there is no more
dangerous man in this regard than the head of the International
Atomic Energy Agency, Mohamed ElBaradei. As the
Washington Post editorialized on Wednesday, El Baradei “has
made it clear he considers himself above his position as a UN
civil servant.”
“Rather than carry out the policy of the Security Council or the
IAEA board, for which he nominally works, Mr. ElBaradei
behaves as if he were independent of them, free to ignore their
decisions and to use his agency to thwart their leading members
– above all the United States….
“Three times in little more than a year the Security Council has
passed legally binding resolutions ordering Iran to end its
enrichment program; two of them have had relatively weak
sanctions attached. Never mind that, says Mr. ElBaradei: He’s
decided that the world should simply accept Iran’s enrichment
capacity and that sanctions are the wrong response. His frequent
public statements to this effect have been harmful, but now he’s
gone further. Last month, the IAEA struck its own deal with the
Iranian regime, aimed not at the enrichment but at a separate set
of unresolved questions about Iran’s nuclear activities.
According to the agency, Tehran agreed to a timetable for
clearing up these matters by the end of this year….
“By the time the IAEA and Iran are done talking about past
questions, Iran will almost certainly have enough working
centrifuges to produce a bomb within a year.”
North Korea: Pyongyang said it would finally reveal…really…
the extent of its nuclear activities by year end. Of course Lil’
Kim said the same thing back in February. Immediately, though,
the North added the U.S. had agreed to lift all economic
sanctions and take the nation off the list of countries that sponsor
terrorism, to which the U.S. and its chief negotiator Christopher
Hill said, ‘we didn’t agree to do that stuff yet.’
When it comes to the key players in the region and the ongoing
six-party talks, though, Japan and North Korea wrapped up two
days of discussions on normalizing diplomatic relations and once
again hit a wall on the issue of abductions of Japanese citizens in
the 1970s and 80s.
Also on Friday, President Bush and South Korean President Roh
had what was described as “a testy exchange” with regards to the
North.
Roh asked Bush, in front of the cameras, to be “clearer” about
his position on an official end to the Korean War, and Bush
responded: “I can’t make it any more clear….We look forward to
the day when we can end the Korean War. That will happen
when Kim Jong il verifiably gets rid of his weapons programs
and his weapons.”
Lastly, Kim agreed to allow inspectors from the U.S., Russia and
China to view the Yongbyon facility this coming week. The
statements out of Russia and China will be particularly
interesting.
China: Where to begin? In the past ten days we’ve learned that
China has been hacking into the German Chancellery, UK
government offices, and the Pentagon…all denied by Beijing.
The U.S. is particularly concerned because of its systems
vulnerability on the defense end with the heavy reliance on
satellites. The Pentagon admitted China caused some damage
with a June cyber-attack.
[The National Security Council is also concerned over the
extensive use of BlackBerries among White House staff, by the
way.]
Separately, President Hu Jintao warned Taiwan not to make any
attempt to break away from the mainland, saying China was
“resolutely opposed” to Taipei’s planned referendum on the issue
next March. Alarmingly, the People’s Liberation Army held
surprise exercises this week featuring beach landings.
On the product quality front, at the APEC meeting in Sydney, Hu
pledged to improve safety in his talks with President Bush, while
signing a number of natural resource deals with Australia,
including an enormous contract to buy liquefied natural gas.
Hu also threw in two giant pandas for Adelaide’s zoo.
In Beijing’s ongoing crackdown on corruption, ahead of the key
Communist Party gathering in October, a senior parliamentarian
was executed after he blew up his mistress…literally. They say
it was a pretty ugly scene, actually. Numerous officials have
been imprisoned, or worse, for using their power and influence
for sex.
Lastly, regarding the party congress, authorities are concerned
about massive protests, including by Falun Gong and various
separatists groups.
Germany: We had another reminder of what we are up against
with the arrest of three terror suspects in Germany, two home
grown, for plotting a series of catastrophic attacks on Frankfurt
airport, the U.S. base at Ramstein, and various soft targets
frequented by Americans and Westerners. The suspects already
had in their possession 1,500 lbs. of chemicals and presented “an
imminent threat” according to German authorities. Evidently the
U.S. tipped their counterparts off after listening in on chatter
between Pakistan and Germany.
Israel / Syria: Syrian officials said its defense forces opened fire
on Israeli warplanes that had invaded its airspace, but Israel, as
of this writing, has not commented. In June 2006, Israel flew
over the summer residence of President Bashar Assad. Each
time Israel flies such operations, including over Lebanon, it is
violating international law.
As the Daily Star of Lebanon editorialized:
“The fondest wish of many Israelis is to be accepted by their
neighbors, but that cannot happen unless and until their
government starts behaving itself. In the absence of acceptable
comportment by the Jewish state, the Syrian regime would be
well advised to tread very carefully lest it provide a pretext for
the latest in a long line of blows to regional stability.”
Afghanistan: British Prime Minister Gordon Brown and Foreign
Secretary David Miliband are warning the U.S. that because of
Washington’s fixation on Iraq, the real front line in the war on
terror is being lost…Afghanistan. The British are most
concerned that NATO is losing the battle for the hearts and
minds, including “what Britain regards as Washington’s
indulgent attitude towards Hamid Karzai, the Afghan president,
who is accused of tolerating, even conniving with, widespread
corruption inside his government,” as reported by Tom Baldwin
and Richard Beeston of the London Times.
Russia: The UK’s air force scrambled yet again to intercept
eight Russian military planes flying in airspace controlled by
NATO, this after Vladimir Putin reasserted Russia’s Cold War-
era policy of flying bombers on long-range patrols. Norway’s air
force also tailed the Russian aircraft for a spell.
Serbia / Kosovo: Serbia’s state secretary for Kosovo said Serbia
was prepared to take military action should Kosovo’s Albanian-
dominated government declare independence. The United
Nations has a Dec. 10 deadline for talks on the issue, after which
the U.S. could unilaterally recognize Kosovo. I’ve maintained
this is a sleeper issue; not one that tanks the financial markets,
but one that can impact European cooperation in theaters such as
Afghanistan if resources are diverted back to the Balkans to keep
the peace. Vladimir Putin, on the other hand, would seemingly
welcome the instability. Whether the Kremlin acts to head off
trouble and convince its ally, Serbia, to behave, will be quite
telling in judging the Russian threat over the next decade.
Algeria: A suicide bomber killed 15 when he detonated his bomb
belt in a crowd awaiting a visit by the Algerian president. What
this reminds me of is the fact the world has somehow escaped a
high-profile assassination that could plunge the region, from
North Africa to Pakistan, into total chaos. This particular
bomber was discovered by the crowd 15 minutes before
President Bouteflika was to pass, whereupon he set off the
explosives.
Switzerland: The nationalist Swiss People’s Party, the country’s
largest, has proposed a deportation policy that some say evokes
Nazi-era practices. Under the plan, entire families could be
expelled if the children are convicted of a serious crime,
including benefits fraud. The party is in the process of collecting
enough signatures to force a referendum. The president of the
People’s Party told the AP, “We believe that parents are
responsible for bringing up their children. If they can’t do it
properly, they will have to bear the consequences.” The party
claims foreigners – who now make up 20 percent of
Switzerland’s population – are four times more likely to commit
crimes than Swiss nationals.
Austria: The above is part of a disturbing trend in Europe,
including Russia, most obviously. In Austria four soldiers were
charged with exchanging Hitler salutes on a video appearing on
YouTube. Here this is not a minor deal. The men face up to 10
years in prison if found guilty.
Zimbabwe: In the old days, when your children refused to eat
their veggies you’d say something like “There are kids starving
in China.” Today, remind them the entire nation of Zimbabwe is
starving, which will in turn elicit the response, “Where the heck
is Zimbabwe?” At which point you whip out the family map and
show them.
Zimbabwe, we learned this week, is out of food. Finally, perhaps
the people will storm the presidential palace and string up Robert
Mugabe, as should have been done years ago.
Random Musings
–I think the editorial board of the Wall Street Journal best
summed up the presidential candidacy of Fred Thompson, who
finally announced this week.
“The biggest question he has to answer is, Why President
Thompson? So far he hasn’t provided one, other than he’s none
of the other candidates. But voters will want more than that, and
it would behoove Mr. Thompson to think big in terms of
campaign themes.
“Mr. Giuliani is not only Mr. 9/11 but also the mayor who
cleaned up a supposedly ‘ungovernable’ city and is tough enough
to take on our enemies abroad. Mr. Romney is the manager who
built a company, saved the Olympics and can bring the same
skills to Washington. Mr. Thompson, meanwhile, has said he
wants to fix a federal government ‘that can’t seem to get the
most basic responsibilities right for its citizens.’
“True, but folksy populism by itself won’t be enough.”
–Democratic Party fund-raiser Norman Hsu skipped bail in
California, but then was arrested in Colorado after he got sick on
the train he was fleeing on (clever mode of transportation, I must
say); admitting himself to a hospital where he was found out.
This fellow is going to haunt chief beneficiary Hillary Clinton
and the other Democrats throughout the campaign.
–Reminder…22 of the 34 senate seats up for grabs in 2008 are
currently held by Republicans, which is the biggest reason why
the elephants want Larry Craig to just go away.
–Commentator George Will on outgoing Attorney General
Alberto Gonzales.
“(Gonzales) could not even leave high office without advertising
his unfitness for it. As he habitually has done, he reminded the
nation that he has ‘lived the American Dream,’ which he
evidently thinks is epitomized by his success in attaching himself
to a politician not known for demanding quality in assistants.
Gonzales then demonstrated how uncomprehending he is of
essential American values. He said: ‘Even my worst days as
attorney general have been better than my father’s best days.’
“Well. His father married and had eight children – nine
wonderful days, days even better, one would have thought, than
any of the days his son spent floundering at the Justice
Department. Furthermore, Gonzales’s father had the fulfillment
of a lifetime spent providing for his family. But what is any of
that, Gonzales implies, compared with the satisfaction of
occupying, however unsatisfactorily, a high office? This implicit
disparagement of his father’s life of responsibility and self-
sufficiency turns conservatism inside out. It is going to take
conservatism a while to recuperate from becoming associated
with such people.” [Newsweek]
–Yet again, I read another important piece on ‘global warming’
and ‘climate change,’ this time an op-ed in the Washington Post
by former secretary of state George Schultz, and the word
“pollution” was nowhere to be found. Or maybe I’m the only
one in the world who still finds this unbelievable.
But I’ve gotta tell you…when I was flying over some of China’s
dirty rivers last spring, I wasn’t thinking about the earth’s
temperature rising one degree. I was wondering how the hell the
people are going to survive with their entire water (and food)
supply having been poisoned.
–My favorite economist, Robert Samuelson, commented on the
recent government report on poverty, Samuelson believing we
continue to miss the big picture.
“The standard story is that poverty is stuck; superficially, the
statistics support that. The poverty rate measures the share of
Americans below the official poverty line, which in 2006 was
$20,614 for a four-person household. Last year, the poverty rate
was 12.3 percent, down slightly from 12.6 percent in 2005 but
higher than the recent low, 11.3 percent in 2000….So the
conventional wisdom seems amply corroborated.
“It isn’t. Look again at the numbers. In 2006, there were 36.5
million people in poverty. That’s the figure that translates into
the 12.3 percent poverty rate. In 1990, the population was
smaller, and there were 33.6 million people in poverty, a rate of
13.5 percent. The increase from 1990 to 2006 was 2.9 million
people. Hispanics accounted for all of the gain….
“Why is it important to get this story straight?
“One reason is truthfulness. It’s usually held that we’ve made
little, if any, progress against poverty. That’s simply untrue.
Among non-Hispanic whites, the poverty rate may be
approaching some irreducible minimum: people whose personal
habits, poor skills, family relations or bad luck condemn them to
a marginal existence. Among blacks, the poverty rate remains
abysmally high, but it has dropped sharply since the 1980s….
“We shouldn’t think that our massive efforts to mitigate poverty
have had no effect. Immigration hides our grudging progress.
“A second reason is that immigration affects government policy.
By default, our present policy is to import poor people. This
imposes strains on local schools, public services and health care.
From 2000 to 2006, 41 percent of the increase in people without
health insurance occurred among Hispanics. Paradoxically,
many Hispanics are advancing quite rapidly. But assimilation –
which should be our goal – will be frustrated if we keep adding
to the pool of poor. Newcomers will compete with earlier
arrivals. In my view, though some economists disagree,
competition from low-skilled Hispanics also hurts low-skilled
blacks.
“We need an immigration policy that makes sense. My oft-stated
belief is that legal immigration should favor the high-skilled over
the low-skilled. They will assimilate quickest and aid the
economy the most.”
–In his first video in three years, Osama bin Laden looked like a
man who had been living in a cave while on a diet of lichen.
Interestingly, the U.S. intercepted the video before it was
released on Islamic Web sites normally used by al-Qaeda.
–From the Los Angeles Times:
“Four people were shot – leaving two in critical condition – west
of downtown L.A. today in what police described as a gang-
related attack.
“The shooting occurred at 2:16 p.m. in an alley off Dillon Street
near Beverly Boulevard. Two suspects drove up to a group of
men in the alley and asked ‘where are you from,’ police said.
One of the victims replied ‘nowhere,’ prompting a suspect to
open fire.”
This is yet another reason, sports fans, why humans will never
attain top status on the all-species list. [Other species, when
confronted with a similar situation, just bang heads or peck at
each other.]
–And among the human race, New Jersey politicians are the
lowest of the low. Here in my state, more than 100 public
officials have been convicted on federal corruption charges in
just the last five years. [Others, including former Newark mayor
Sharpe James, are awaiting trial.] This week, another 11 from
towns across the Garden State were arrested for taking bribes in
awarding contracts.
–When it comes to Kate and Gerry McCann…remember…wait
24 hours.
–Lastly, we note the passing of the great tenor Luciano
Pavarotti, 71. I’ve been to my fair share of operas over the years,
but I’m not a fan. Pavarotti, though, was different.
It was back on July 20, 1996, that I took my parents to Giants
Stadium to see The Three Tenors. It was packed, as was that
entire historic concert tour, and it’s amazing to look back on this
and reflect that Pavarotti, almost solely, and with all due respect
to Domingo and Carreras, brought opera to the masses.
Consider this. How many in the history of mankind have
enriched and moved hundreds of millions, if not billions, as he
did? How many brought a smile to the face, or a tear, out of the
sheer beauty of what he offered?
Rest in peace, Pavarotti. A grateful world thanks you.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $709…breakout!
Oil, $76.70
Returns for the week 9/3-9/7
Dow Jones -1.8% [13113]
S&P 500 -1.4% [1453]
S&P MidCap -1.1%
Russell 2000 -2.2%
Nasdaq -1.2% [2565]
Returns for the period 1/1/07-9/7/07
Dow Jones +5.2%
S&P 500 +2.5%
S&P MidCap +6.1%
Russell 2000 -1.5%
Nasdaq +6.2%
Bulls 42.9
Bears 37.4 [unchanged again…Source: Chartcraft / Investors
Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
