[Posted 7:00 AM ET]
I read a piece in the March 2008 issue of The Atlantic by
Christopher B. Leinberger titled “The Next Slum?….The
subprime crisis is just the tip of the iceberg. Fundamental
changes in American life may turn today’s McMansions into
tomorrow’s tenements.” Following is the opening to this
depressing story.
“Strange days are upon the residents of many a suburban cul-de-
sac. Once-tidy yards have become overgrown, as the houses
they front have gone vacant. Signs of physical and social
disorder are spreading.
“At Windy Ridge, a recently built starter-home development
seven miles northwest of Charlotte, North Carolina, 81 of the
community’s 132 small, vinyl-sided houses were in foreclosure
as of late last year. Vandals have kicked in doors and stripped
the copper wire from vacant houses; drug users and homeless
people have furtively moved in. In December, after a stray bullet
blasted through her son’s bedroom and into her own, Laurie
Talbot, who’d moved to Windy Ridge from New York in 2005,
told The Charlotte Observer, ‘I thought I’d bought a home in
Pleasantville. I never imagined in my wildest dreams that stuff
like this would happen.’”
Last week I wrote of my trip to Las Vegas and the housing
market there, warning that while there will appear to be some big
bargains, especially at auction, you have to understand two
things: “your surrounding area may be blighted and don’t expect
the value to suddenly shoot up.” I can’t help but repeat this
warning again. Be careful in moving into any new neighborhood
these days. Phil W. just forwarded a story from Friday’s
Charlotte Observer addressing this very issue a second time down
there; serious trouble with new developments built by Beazer
Homes, currently under federal investigation.
Do your homework and be wary of new construction. I think this
last point will prove to be yet another well-publicized scandal.
Generally speaking, the quality is abysmal compared to what
most of us grew up in.
Now that I’ve probably just ticked off a few of you with this last
remark, this past week represented another classic example of the
need not to get swept up in the day-to-day movements in the
equity markets but instead stay focused on the Big Picture. No
sooner had some experts called the end to the bear market, which
is essentially what we’ve been in, even if not officially, when a
whole new round of credit issues, almost all of which have their
genesis in the housing bubble, came to the fore and stocks ended
up giving back most of what had been big gains.
It didn’t help that on Thursday, Federal Reserve Chairman Ben
Bernanke told Congress, “The outlook for the economy has
worsened in recent months, and the downside risks to growth
have increased. To date, the largest economic effects of the
financial turmoil appear to have been on the housing market,
which, as you know, has deteriorated significantly over the past
two years or so.”
You’ve gotta love this comment. “As you know…” Well you
didn’t, Benny Boy, until 300 million other Americans did.
Bernanke didn’t know housing “has deteriorated significantly
over the past two years or so” until about December.
Earlier in the week the equally clueless Treasury Secretary Hank
Paulson told G-7 finance ministers that while “current financial
turmoil is serious and persisting,” he still expected the U.S.
would avoid recession. Then at the same congressional
appearance as Bernanke, Paulson added “The U.S. economy is
fundamentally strong, diverse and resilient, yet after years of
unsustainable home price appreciation, our economy is
undergoing a significant and necessary housing correction.”
No doubt, Mr. Secretary, the correction is significant and
necessary, but it’s rather disingenuous for the likes of you to
speak of “years of unsustainable home price appreciation” when
you, as former head of Goldman Sachs, were among those
leading the charge, the better to pad those Christmas bonuses.
But that’s just the opinion of a cynic who spent 16 years on Wall
Street himself.
Also, we keep hearing from the shills that our economy is
“fundamentally strong.” Am I missing something? Is an
economy built on world record levels of debt, from the consumer
to the national government, fundamentally strong? One would
think it’s the opposite, but then I didn’t study economics at
Princeton like one of our esteemed federal officials.
This week the credit crisis spread further as the troubled bond
insurer sector faced ruin. New York insurance superintendent
Eric Dinallo proposed a break-up of their business models in
order to first and foremost shore up municipal bondholders and
issuers. But this also means the other side of the bond insurers’
business, insurance and derivatives contracts, could generate
huge losses for the investment banks and others exposed to these
products. The goal is to separate the healthy from the sick, like a
Third World clinic dealing with Ebola. This will all shake out in
the next few days, with one bond insurer, FGIC, already seeking
remedy on Friday.
But then you have a new issue to contend with, the auction
securities market; some $330 billion in short-term paper where
government entities and providers of school loans raise debt. It
has virtually shut down, pushing the cost of doing business sky
high. Long-time Wall Street buddy Mark R. told me on
Thursday of how this market segment is impacting leveraged
closed-end bond funds and sure enough, page C1 of Friday’s
Journal addressed just that issue. Bottom line, many investors in
these products are either going to see their dividends slashed
and/or they may not be able to exit when they want to.
So is it any wonder that an esteemed mogul such as Mortimer
Zuckerman, publisher of U.S. News & World Report, writes:
“Quite simply, this financial crisis is the worst since the panic
that led to the Great Depression. As a result, the recession may
well be deeper and/or longer than any since the end of WWII.
No one knows where the bottom is. That is why the level of
confidence in both consumers and producers has declined – and
must be restored if the financial fiasco is not to turn into a crisis
for the broader economy.”
Back to housing, the six-county Southern California region
registered a record low in home sales for January, with 1 in 4
properties that were sold having been foreclosed on, thus putting
further pressure on prices. The median home price here is at its
lowest since January 2005. Nationally, the median sales price
was down 5.8% for the fourth quarter vs. the last three months of
2006, while Goldman Sachs economist Jan Hatzius reiterated
home prices will drop 22% between 2006 and 2009, with 15
million households experiencing negative equity, thus making
refinancing impossible, let alone taking out a home equity loan.
Together, refinancing and home equity LOCs totaled $466
billion in 2006, according to Fannie Mae. Rocket fuel that is no
longer available for our “fundamentally strong” economy.
And in keeping with my global real estate bubble theme, I do
have to point out that while both the U.K. and Australia have
record low unemployment, as reported in each just this week,
housing affordability has never been lower. Last week I also
told you of the exorbitant amounts of credit-card debt in
Australia and this week we learned that in the U.K., credit-card
debt for the month of December was 25% higher than the same
month in ’06. Staggering.
So continue to keep your eye on the prize, friends; capital
preservation.
Street Bytes
–Shares early in the week were helped by a better than expected
retail sales number for January, but by week’s end reality had set
in, particularly in the case of a horrible reading on consumer
confidence, the lowest in 16 years for the Michigan sentiment
survey. And notice how little press the economic stimulus
package received despite being signed into law the other day.
For the week the Dow Jones and S&P 500 each rose 1.4%, while
Nasdaq picked up 0.7%.
–U.S. Treasury Yields
6-mo. 2.07% 2-yr. 1.91% 10-yr. 3.77% 30-yr. 4.58%
The recent trend of a steepening yield curve, lower rates on the
short end and higher ones further out, continued as the bond
market is convinced the Fed has to once again lower the short-
term funds rate, with Chairman Bernanke saying as much this
week, but at the same time inflation pressures are impacting the
long end controlled by the bond vigilantes.
Inflation is rising worldwide, of this there is little doubt,
particularly in places like the aforementioned U.K. and Australia,
which in turn is further exacerbating the housing situation in
those countries, and on Friday our Labor Dept. reported that
import prices soared 1.7% in January, up 3.6% the past 12
months if you strip out petroleum, the highest rate since Oct.
2005.
–The Jordanian government announced some fuel costs will rise
76% as it is forced to slash subsidies. To try and alleviate the
pain, though, salaries for public-sector employees, civilians and
the military are being increased retroactive to Jan. 1. This is a
classic example of the problems faced in virtually all emerging
nations these days where governments have been forced to
heavily subsidize energy prices or the country simply would
cease to function amidst total anarchy. But at a certain point,
even government has to seek relief and take its chances with a
restive citizenry.
–Venezuela threatened to suspend shipments of oil to Exxon
Mobil in retaliation for Exxon’s legal maneuvering to protect its
assets in four western ventures there; yet the latest example of
the issues faced by Big Oil in dealing with growing nationalism
over the control of energy resources.
–The IPO market on Wall Street is the worst since after the crash
in 1987. Last year investment banks took home $11 billion in
fees. Remember this as you contemplate sticking your toe into
this sector.
–Swiss banking giant UBS reported a staggering $11 billion loss
for the quarter, including $13.7 billion in additional subprime-
related writedowns, bringing its cumulative total in this regard to
$18 billion. Remember when Ben Bernanke said the total
subprime mess would only cost $50 billion?
–Inflation watch, part deux: Platinum hit a record price in excess
of $2,000 an ounce, though it’s as much about ongoing power
shortages in South Africa, where much of it is mined, than actual
physical demand. Corn is now over $5.00 a bushel. And as
folks around the world are stealing building products such as
copper wiring for their scrap value, even my home town of
Summit, N.J., is being victimized as idiots have decided to steal
aluminum risers from the bleachers at the football stadium. Are
there no workhouses? Are there no prisons?
–Private-equity firm Cerberus Capital Management LP, which
acquired a 51% stake in GMAC (the financing arm of General
Motors) from GM in 2006 for $7.4 billion, now says it faces
“substantial difficulty” in GMAC if credit markets don’t
improve. Ergo, since the same markets are unlikely to over the
immediate term, Cerberus and GMAC have some issues to
contend with. Last year GMAC lost $2.3 billion on the heels of
bad home and auto loans.
–Speaking of GM, the other day CEO Rick Wagoner was on
CNBC after the automaker announced its earnings of 8 cents a
share, well above expectations for a loss of 54 cents. But hold
on… what’s this? A $1.6 billion tax credit no one knew about?
Gee, CEO Rick, what was the impact of that on the bottom line?
Wagoner said he didn’t know what the figure was.
I just found this incredible. The CEO is going on the air, touting
a huge turnaround that wasn’t there, and he didn’t know the per
share impact of the tax credit. So the Street was left scrambling
and as it turned out it was indeed as simple as dividing the
number of shares outstanding into $1.6 billion. But talk about
disingenuous. Nice going, Wagoner.
For the year, GM ended up losing $38.7 billion, the largest loss
for an automaker since the outfit that made Fred Flintstone’s car
lost out to Henry Ford and the Model T.
GM also announced a new round of early retirement and buyout
offers for all 74,000 members of the UAW at GM facilities in the
U.S., in the hopes of replacing them with lower-paid workers,
but there were doubts the company’s targets would be met. The
cash payments of $45,000 to $140,000 may look attractive to
some, but you can run through that kind of money in a heartbeat.
And on a related matter, auto-parts supplier Delphi Corp. is
having problems financing its $6.1 billion plan to pull itself out
of bankruptcy because of the state of the credit market. As the
Wall Street Journal reported, “Delphi’s chief lenders, J.P.
Morgan Chase & Co. and Citigroup Inc.’s Citigroup Global
Markets are having difficulties syndicating the loan to other
lenders.”
Delphi initially was looking for $4.45 billion in loans at rates up
to 9.5%. One distressed-debt investor who passed on the Delphi
debt told the Journal, “(Those were attractive terms) last summer,
but it’s a nonstarter now. The deal is not going well, and GM’s
in a bad spot unless some of the equity sponsors step in.”
I also saw where many of the automakers are now offering 84-
month car loans. That is beyond absurd, especially when a car
loses half its value after just 36 months in most cases. What’s
the incentive to continue to make the payments?
–AIG, the world’s largest insurer by assets, suddenly found a
“material weakness” in how it valued its credit-default swap
portfolio…like by $4.9 billion in October and November,
according to the auditors. All together now… “These guys don’t
know what they own.”
–Yahoo’s board rejected Microsoft’s $44.6 billion offer, saying
it undervalued the company. Google, once mulling a joint
venture with Yahoo, lost interest, while News Corp.’s Fox
Interactive Media could merge with Yahoo, though while such a
move would create a display-ad giant, it would lack the search
scale of a Microsoft-Yahoo combination.
–Dow Jones & Co. announced it was pushing Altria Group and
Honeywell out the door and replacing them in the 30-name Dow
Jones Industrial Average with Bank of America and Chevron,
effective Feb. 19. Excluding thinly traded Berkshire Hathaway,
the two new entries are the biggest U.S. companies by market
capitalization that aren’t already in the Dow. The move was
partly forced by the fact Altria was about to split off its
international operations. As for Honeywell, it is the smallest in
the Dow 30 in terms of revenue and earnings, plus industrial
companies in general are not as prominent in the overall
economy as finance and energy these days.
–Inflation watch, part trois: The cost of a first-class stamp is
rising a penny to 42 cents in May.
–New York Mayor Michael Bloomberg on the economic
stimulus package.
“They want to send out a check to everybody to stimulate the
economy. I suppose it won’t hurt…but it’s in many senses like
giving a drink to an alcoholic. The government’s been doing
exactly that. It’s been spending money it doesn’t have….This
country has a balance sheet that’s starting to look more and more
like a Third World country.”
Bloomberg was later criticized for comparing alcoholics to cash-
strapped Americans, but I agree with the mayor.
–You want an example of a real stimulus program? Try
Continental Airlines, which this month is issuing profit-sharing
checks to its employees in an average amount of $3,500. That’s
capitalism at its finest.
–Inflation watch, part quatre: The cost of my lunch on Thai
Thursday has risen 7 percent. Separately, no Salmon Sundays
these days as conservationsalmon.com is out of the fish until
June/July (at least you know it’s real…and not farmed in China)
and I suspect the cost will go up then by at least 10 percent.
–New York developer Harry Macklowe purchased seven
Manhattan skyscrapers from Equity Office Properties Trust just
one year ago for $7 billion. Now he is in default.
–Driving around the area last week, I couldn’t believe the
number of homes for sale given the time of year. That is not a
positive. Josh P., who hails from out San Diego way, just told
me one of his neighbors has had his house on sale for exactly one
year, even after cutting the price three times. $2.8 million down
to $2.2 million. Everything’s relative, friends….
–Such as this one. Rocker Ozzy Osbourne and wife Sharon cut
the sales price on their Malibu home $3 million the past two
years, to $11mm from $14mm, but have now taken it off the
market. It’s available for a long-term lease, however…$37,500 a
month. $33,500 and I’d consider it, depending on the neighbors.
[Wall Street Journal]
–During their joint congressional testimony, Treasury Sec.
Paulson at one point said that despite all the problems in the
mortgage market, “93% of Americans were making their
payments on time.” This is nothing to crow about, but when
given the chance, Fed Chairman Bernanke snippily corrected
Paulson and said the percentage delinquent “was closer to 2%.”
So on Friday, the nation’s largest mortgage lender, Countrywide,
said its January delinquencies rose to 7.47% of unpaid principal
balances from 7.20% in December. Now I’m no Alfred E.
Einstein, as Archie Bunker might have said, but it seems to me
Sec. Paulson was right and the ever-haughty Bernanke proved
once again he was clueless.
–Inflation watch, part cinq: This is not a misprint. Inflation in
Zimbabwe is now running at a 66,212% clip according to
government figures. I believe the last I reported was around
26,000%.
–In yet another sign of a punk economy, all eleven casinos in
Atlantic City reported a year-over-year decline in January
income for the first time ever and it’s not all due to competition
from Pennsylvania’s slots.
–My portfolio: I wasn’t going to talk about my China biodiesel
play again until there was real news, but I do have to admit I
purchased a little more this week. I’ll learn over the coming 12
months whether this investment was worth it, but for those of
you playing along at home, just a reminder. Since Sept. 24 this
company has had two, 2-day spurts in the share price…one from
$1.15 to $2.25, the other from $2.10 to $2.80. I’m determined
not to miss the next one, assuming it’s from the $2.10 level
rather than $1.15.
[Note: 7:30 am…normally I wouldn”t add commentary after posting
my column, but I”m obligated to tell you I just read a not too
flattering piece on the biodiesel company”s auditor, also used by
other Chinese companies. I will comment on this next week but for
now understand two things. I”ve been to the plant, this is a real
operation, and they just received financing for a massive expansion.]
–Check out my “Wall Street History” column for a good recap
on how some ‘got it’ and others didn’t when it comes to the
housing crisis.
Foreign Affairs
Hizbullah/Lebanon/Israel: One of the world’s most wanted
terrorists, Hizbullah’s Imad Mughniyeh, was assassinated in
Damascus, probably by Israel, in what is viewed by most as a
severe blow to the terror organization. One analyst told the
Jerusalem Post, “The fact that the killers managed to reach such
an important figure should sound an alarm bell in Hizbullah. This
means that Hizbullah’s top brass has been infiltrated by the
Israelis and Americans.”
Of course we may never know what really happened but for now
Israel and its interests abroad are for good reason on the highest
state of alert as Hizbullah leader Sheikh Hassan Nasrallah said,
“(Israel) has crossed the borders. With this murder, its timing,
location and method – Zionists, if you want this kind of open
war, let the whole world listen: Let this war be open.”
Nasrallah himself had to deliver the eulogy by videotape as he is
a longstanding target of assassination as well. “Mughniyeh’s
blood will lead to the elimination of Israel.” What is not known
is whether the death ends up being a recruiting call for thousands
to join Hizbullah.
Last week I wrote of how uneasy I was over a demonstration
planned for Thursday to mark the 3rd anniversary of the
assassination of former Lebanese prime minister Rafik Hariri.
Ironically, the funeral for Mughniyeh in Beirut was held the
same day but the Army did a good job of keeping the two groups
of supporters apart, plus those mourning Hariri stopped their
anti-Syrian protest a half hour before the Mughniyeh funeral out
of respect.
[If you aren’t familiar with Mughniyeh’s history, he was accused
of carrying out the suicide bombings of the U.S. Marines
barracks in Beirut, along with attacks against Israeli interests in
Buenos Aires among others.]
Iraq: The parliament finally made some real progress on political
reconciliation in approving a 2008 budget, granting limited
amnesty to thousands of detainees and clearing the way for
provincial elections. It’s a start but deep divisions remain
between the Kurds, Shia and Sunnis, best reflected by the fact the
three pieces of legislation had to be bundled together or else they
wouldn’t have passed separately. Meanwhile Russia wrote off
$12 billion in Iraqi debt in clearing the way for the Kremlin to
gain more access to oil projects.
The Washington Post, in praising the work of Defense Secretary
Robert Gates, editorialized:
“Thanks to Mr. Gates’ readiness to adjust (on the level of troops,
acceding to Gen. Petraeus’ recommendation), it’s more likely
that President Bush’s successor will inherit an Iraq that is
moving slowly toward stability rather than spiraling into chaos.
So it’s worth asking why Democratic presidential candidates
Barack Obama and Hillary Rodham Clinton remain so unwilling
to alter their outdated and dogmatic views about the war. Both
issued statements Monday denouncing Mr. Gates’ statement and
the proposed pause in withdrawals; both stubbornly refuse to
acknowledge that the changed situation in Iraq requires a
rethinking of their plans for the rapid withdrawal of all U.S.
combat troops. As Mr. Gates has recognized, to mechanically
yank U.S. forces from Iraq according to a timetable inspired by
American domestic politics, just when the troops appear to be
succeeding, would be foolhardy as well as dangerous.”
As reported by the London Times, it also appears al-Qaeda in
Iraq is in a state of panic, according to a letter seized last
October, contents of which were just released. One al-Qaeda
leader described how his force in Anbar shrank from 600 to
fewer than 20 owing to the Awakening movement where more
than 80,000 Sunnis have joined groups designed to help eject al-
Qaeda from the west and northern Iraq.
Pakistan: Critical vote on Monday, to say the least, as we all wait
to see to what extent the results are rigged, if President
Musharraf can survive, and what level of violence there is.
Separately, there was an encouraging poll the other day,
conducted by the U.S.-based Terror Free Tomorrow
organization, that revealed only 24% of Pakistanis approved of
Osama bin Laden last month, compared to a 46% approval rating
last August. Backing for al-Qaeda, overall, fell to 18% from
33%. But the same survey showed 58% suspected Musharraf
had a hand in the Bhutto assassination, while only 7% thought al-
Qaeda or the Taliban were behind it.
Iran: For the better part of two years now I have been urging the
Bush administration to end-run President Ahmadinejad and talk
to his chief rival, former president Rafsanjani. This week
Thomas Erdbrink of the Washington Post reported that with
Iran’s upcoming March 14 parliamentary vote, it is clear
Ahmadinejad and his supporters are “sweeping aside” the old
guard, represented by the likes of Supreme Leader Ayatollah Ali
Khamenei and Rafsanjani.
Erdbrink:
“If the clerics have a chance at regaining the political
prominence they enjoyed in the years following the 1979
revolution, analysts say, it will be under the leadership of former
president Ali Akbar Hashemi Rafsanjani…
“During Rafsanjani’s two terms in the 1990s, his faction
controlled several important executive and economic institutions
in Iran, among them the Oil Ministry. He helped bring cleric
Mohammad Khatami to power as his successor in 1997.
“Khatami’s supporters, known here as reformists, included many
onetime revolutionaries, such as former students who came to
regret their 1979 takeover of the U.S. Embassy in Tehran…
Rafsanjani’s political allies teamed with the reformists and
together they began arguing that Islamic law is dynamic and
adaptable. They also favored reestablishing relations with the
United States through compromise and proposed minor
democratic reforms.”
Now the reformists are either being pressured not to run in the
parliamentary elections or are being excluded from the candidate
list outright. One newspaper editor told Erdbrink that there is
little likelihood the cleric-politicians who gained power after the
revolution will rebuild their standing. “They are not a part of the
decision-making process anymore,” said Iraj Jamshidi. “I don’t
see any chance of a comeback.”
Should this prove to be the case, and with Iran ever closer to
gaining the bomb, it will be one of the giant black marks on the
legacy of George W. Bush. Ahmadinejad was vulnerable, but
Bush’s incredibly unimaginative foreign policy team, despite its
recent success in Iraq, blew it. Meanwhile, Ahmadinejad is
heading to Iraq on March 2, the first such visit by an Iranian
leader since the 1979 revolution.
China: One thing is clear. The chief foreign policy goal for
China this year is to have a successful Beijing Olympics and this
week the government took a hit amidst a new chorus of boos
concerning its alliance with Sudan. Director Steven Spielberg
quit as artistic adviser for the Games, saying “My conscience
will not allow me to continue with business as usual. At this
point, my time and energy must be spent not on Olympic
ceremonies, but on doing all I can to help bring an end to the
unspeakable crimes against humanity that continue to be
committed in Darfur.” Nine Nobel laureates signed a letter also
urging a change in China’s policy.
But the Chinese are fighting back and the people are incredulous
that Darfur has become such a big issue when it’s their moment
to shine on the world stage. They are also upset over charges
some Chinese nationals are alleged to have been involved in
stealing classified military secrets, as the U.S. government
indicted a Pentagon employee who is accused of passing on
material related to the space shuttle that was then forwarded to
China.
On a different matter, the government is beginning to estimate
the damage from the storms, an initial cost of $15 billion
(tourism revenues over the Lunar New Year holiday off a
projected 70%), with 90,000 square miles of farm products
destroyed (look out food inflation) and 1/10th of the forests
damaged (90% in the hardest hit regions).
Here’s something I didn’t know. Trees take up only 18% of the
mainland, while the average worldwide is 31%. Yet another
reason why China has such a disastrous pollution problem.
And then there is Taiwan. Wendell Minnick of Defense News
had a story on the development of Taiwan’s new land attack
cruise missile. Vice Defense Minister Ko Chen-heng said:
“I won’t deny there’s a development plan…The range cannot be
publicized, but they aren’t intended to strike civilian targets such
as in Shanghai or Hong Kong.
“Since China lacks capability to cruise across the Taiwan Strait
for a landing operation, China intends to fire missiles in the
political and economic nerve centers of Taiwan to cause social
paralysis, thereby forcing the U.S. to surrender.”
Ko notes, however, that the U.S. government has been pressuring
Taiwan to halt development of the weapon and then he adds:
“China has boosted its capabilities to prevent intervention by the
U.S. military in times of emergency. Taiwan must wait for the
arrival of U.S. troops to fight together. Therefore, it is essential
to secure capabilities to make counterattacks on China’s missile
and radar bases as well as runways for military aircraft in order
to buy time to delay China’s invasion of Taiwan.”
One problem, Mr. Ko. The United States is not coming to the
defense of your good people (the best in the world that I’ve ever
met). That’s the ultimate tragedy of it all.
Russia: Once again, state-run Gazprom threatened to shut off the
natural gas supply to Ukraine, though it was averted at the last
minute as Ukraine agreed to start paying $1.5 billion owed
Gazprom, while the latter is reported to have agreed to freeze the
price of gas exports to Ukraine at last year’s level. Russia
supplies nearly 75% of Ukraine’s gas, but 80% of all Gazprom
shipments to Europe travel over Ukrainian territory.
In his last news conference as president, Vladimir Putin said he
would hold the office of prime minister as long as Dmitry
Medvedev remains president (8 years then, for starters). Ergo,
Vlad the Great will be puppet-master.
Putin touted his economic successes, which we all know are due
solely to soaring energy prices and he also issued now standard
warnings that NATO better watch its encroachment, as well as
saying recognition of Kosovo’s independence (expected any day
now) would be “not moral and not legal.” [To this end, Serbian
Prime Minister Kostunica issued his own warning to the people,
saying Serbia would not allow itself to be humiliated.] Putin, in
scolding the U.S. and many EU countries that are set to
recognize Kosovo’s independence, said “Are you not ashamed in
Europe of the double standards you are applying to settle
problems?” in comparing the status of Kosovo to separatist
conflicts in parts of the former Soviet Union such as Abkhazia,
South Ossetia and Trans-Dniester.
Back to Ukraine, Putin warned that if it joined NATO, Russia
would “face (the) need to take retaliatory action.” And Vlad
announced he would grace an upcoming NATO summit in
Bucharest in April with his presence.
Lastly, at a NATO security summit the other day in Munich,
Ralph Peters of the New York Post related a comment by South
Carolina Sen. Lindsey Graham, in attendance, who when
questioned about Russian Deputy Prime Minister Ivanov’s
complaints about NATO said, “If Russia feels surrounded by
states that subscribe to democracy and the rule of law, it should
feel lucky.”
Turkey: Parliament voted to lift a decades-old ban on Islamic
head scarves at Turkey’s universities. The secular establishment
was upset, but the vote was overwhelming in favor.
North Korea: The South has hard evidence Pyongyang is
diverting rice aid to the military, not that this should come as a
shock to anyone. It just puts more pressure on the government in
Seoul for having no checks on the $billions it has been sending
across the border.
Australia: Prime Minister Kevin Rudd issued an apology to the
Aborigines for the tens of thousands that were forcibly removed
from their families as children.
“We apologize for the laws and policies of successive
parliaments and governments that have inflicted profound grief,
suffering and loss on these our fellow Australians.”
The Aborigines, however, are not satisfied and want
compensation.
Random Musings
–As Barack Obama rock and rolled this past week, winning from
Washington state to Washington, D.C., North and South, East
and West, even the Caribbean, it seems pretty clear to this scribe
it’s over, unless you can convince me Hillary takes Ohio and
Texas with 65 percent of the vote. And when it’s over on the
Democratic side, just imagine the conversations between Bill and
Hillary, because clearly the tide turned when Bill couldn’t stop
foaming at the mouth like a rabid dog, reminding many of us that
while the 1990s weren’t all bad, it wasn’t necessarily because of
him and why the heck would we want the guy back?
But last week I shined the spotlight on John McCain and this
week it’s Obama’s turn, with a little Hillary thrown in.
Case in point, again, Iraq. Jim Hoagland / Washington Post.
“Obama’s effort to impeach Clinton’s credibility through a
backward-looking debate on Iraq – pitting her 2002 vote vs. his
2002 speech – has not been decisive because he has yet to show
that the difference will lead to an authentically different approach
to getting U.S. combat troops out of Iraq.
“Yes, Obama has promised to withdraw all combat troops within
16 months. Clinton promises to begin withdrawals within 60
days of her inauguration. Most significant, each has promised a
hedge: to keep unspecified numbers of soldiers behind to fight
terrorists or train Iraqis and, in Clinton’s case, to protect the
Kurds and deter Iranian aggression.
“But neither has been pressed in debates or news conferences as
to how these residual troops would be left behind. It strains
credibility to think that the Iraqis would – after being told that
they are not worth protecting or working with – allow U.S.
troops to stay on and hunt al-Qaeda & Co. or protect the huge
U.S. Embassy in Baghdad. What carrots do the two Democrats
propose to keep this permanently dissed ally on board instead of
making any U.S. retreat a hell on Earth?”
–The November 2007 issue of Smithsonian had a book excerpt
from the late David Halberstam’s “The Coldest Winter,” a story
of the Korean War and the heroic U.S. Gen. Matthew B.
Ridgway. To wit:
“(Ridgway) was aware that he was in charge of the most
previous kind of national resource – the lives of young men who
were dear to their parents. ‘All lives on a battlefield are equal,’
he once said, ‘and a dead rifleman is as great a loss in the eyes of
God as a dead General. The dignity which attaches to the
individual is the basis of Western Civilization, and this fact
should be remembered by every Commander.’”
I thought of this in reading a piece by Harvard Law Professor
William J. Stuntz in the Feb. 18, 2008 issue of The Weekly
Standard wherein Stuntz writes of Iraq:
“Republicans may be slow to accept defeat, but Democrats seem
to have trouble accepting victory. It is no longer possible to say
with a straight face that the war in Iraq is as good as lost, or that
the ‘surge’ is a flop. David Petraeus has proved to be a 21st-
century Matthew Ridgway: the general who took over American
forces in Korea after the Chinese had taken Seoul and swept
down the peninsula. Ridgway retook Seoul, pushed Chinese and
North Korean forces back to the 38th parallel, and salvaged a
partial victory from what had looked like certain defeat. Petraeus
has done as much, in more difficult circumstances. Yet Obama
and Clinton compete to see who condemned the war soonest and
who can promise to withdraw American soldiers the fastest.”
Stuntz continues: “They’re missing the point. The war can and
should be won even if it shouldn’t have been fought in the first
place – because we’re not in the first place; choices must be
made from where one stands today, not some imaginary place of
the speaker’s choosing. And the promise of speedy withdrawal
tells those who fight American soldiers: Hold on a little longer;
those you fight will soon leave the field. A more destructive
message can scarcely be imagined.”
–Back to Obama specifically, I watched his speech in Madison,
Wis., Tuesday evening. Now understand that I believe an
Obama-McCain race would be truly exciting and the American
people would be presented a stark choice, which is all we can
hope for. I agree with reader Chris C. who said that in many
respects it should be an inspiring race.
But I do have to note the opinion of the Wall Street Journal’s
Daniel Henninger in analyzing Obama’s message.
“Listen closely to that Tuesday night Wisconsin speech.
Unhinge yourself from the mesmerizing voice. What one hears
is a message that is largely negative, illustrated with anecdotes of
unremitting bleakness. Heavy with class warfare, it is a speech
that could have been delivered by a Democrat in 1968, or even
1928.
“Here is the edited version, stripped of the flying surfboard:
“ ‘Our road will not be easy…the cynics…where lobbyists write
check after check and Exxon turns record profits…That’s what
happens when lobbyists set the agenda…It’s a game where trade
deals like Nafta ship jobs overseas and force parents to compete
with their teenagers to work for minimum wage at Wal-Mart…
It’s a game…CEO bonuses…while another mother goes without
health care for her sick child…We can’t keep driving a wider and
wider gap between the few who are rich and the rest who
struggle to keep pace…even if they’re not rich…’
“Here’s his America: ‘lies awake at night wondering how he’s
going to pay the bills…she works the night shift after a full day
of college and still can’t afford health care for a sister who’s ill…
the senior I met who lost his pension when the company he gave
his life to went bankrupt…the teacher who works at Dunkin’
Donuts after school just to make ends meet…I was not born into
money or status…I’ve fought to bring jobs to the jobless in the
shadow of a shuttered steel plant….to make sure people weren’t
denied their rights because of what they looked like or where
they came from…Now we carry our message to farms and
factories.’
“It ends: ‘We can cast off our doubts and fears and cynicism
because our dream will not be deferred; our future will not be
denied; and our time for change has come.’
“I am not saying all of this is false. But it is a depressing
message to ride all the way to the White House….
“The arc of the McCain speech is upward, positive. Pointedly, he
says we are not history’s ‘victims.’ Barack relentlessly pushes
victimology.
“For Sen. Obama the military and national security is a world of
catastrophic welded to Iraq and filled with maimed soldiers. Mr.
McCain locates these same difficult subjects inside the whole of
American military achievement. It nets out as a more positive
message. Recall that Ronald Reagan’s signature optimism, when
it first appeared, was laughed at by political pros. Optimism won
elections.”
Henninger’s conclusion is “Everything in life has a top – stocks,
football teams and political phenoms, as (Sen. Clinton) well
knows. Though down, Hillary ought to suck it up for Ohio and
Texas and hope the Obama wave starts to break. On current
course, it will.”
Charles Krauthammer / Washington Post
“ABC’s Jake Tapper notes the ‘Helter-Skelter’ cultish qualities
of ‘Obama worshipers,’ what Joel Stein of the Los Angeles
Times calls ‘the Cult of Obama.’ Obama’s Super Tuesday
victory speech was a classic of the genre. Its effect was electric,
eliciting a rhythmic fervor in the audience – to such rhetorical
nonsense as ‘We are the ones we’ve been waiting for. [Cheers,
applause.] We are the change that we seek.’
“That was too much for Time’s Joel Klein. ‘There was
something just a wee bit creepy about the mass messianism,’ he
wrote. ‘The message is becoming dangerously self-referential.
The Obama campaign all too often is about how wonderful the
Obama campaign is.’….
“Democrats are worried that the Obama spell will break between
the time of his nomination and the time of the election, and deny
them the White House. My guess is that he can maintain the
spell just past Inauguration Day. After which will come the
awakening. It will be rude.”
–Economist Robert Samuelson / Newsweek
“The truth is that most Americans don’t seem bothered [Ed.
about issues such as the looming entitlements crisis or how to
fund elimination of the alternative minimum tax.] That’s why
politicians in both parties devote so little effort to addressing
government spending or the deficits. As a society, we seem to
have made a choice. It is to not control government. Note how
our debates proceed. Almost every new spending plan or tax cut
is simply piled atop previous spending programs or tax cuts.
Democrats have spent seven years denouncing Bush’s tax cuts
but are willing to repeal only the cuts benefiting those at the tip
of the income scale, above $250,000. Perhaps three quarters of
the tax cuts would remain. When Republicans created the
Medicare drug benefit (2007 cost: $41 billion), it was simply
added onto existing benefits.
“What we get is government by accretion. Government acquires
more and more functions, because no one dares strip away any of
the existing functions. People, states, localities and industries
think they have a moral entitlement to their tax breaks, benefit
checks, subsidies and spending programs. No one’s Social
Security or Medicare benefit can be reduced or modified, even if
the recipient is wealthy and the cost is undesirably high.
Outmoded or ineffective programs cannot be ended. There is an
unstated presumption that the gradual growth of government is
unthreatening to the economy, and although this was arguably
true in the past, it may be less so in the future. As the population
ages, taxes, budget deficits or both will rise. The increases could
be substantial. The fact that we are not debating the possible
consequences is a cop-out – but it is a cop-out in which the broad
American public is conspicuously complicit.”
–Did you see Tina Turner Sunday night on the Grammys? Can
you believe the next day she performed at Gazprom’s 15th
birthday party at the Kremlin? Deep Purple also performed and I
loved this account from the Moscow Times.
“[Appearing before an audience that included Vladimir Putin and
president-in-waiting Dmitry Medvedev (Gazprom chairman)]
Deep Purple came on following the second intermission. As they
belted out some of their 1960s and 1970s classics, including their
signature hit ‘Smoke on the Water,’ the audience, mostly made
up of middle-aged managers from Gazprom’s Moscow
headquarters, sat impassively in suits and ties, with only the odd
shake of the head to indicate they were listening.”
Yup, more and more this place is looking like your father’s
Russia.
–If you believe Roger Clemens is telling the truth, you also
probably believe Ron Paul has a shot at the Republican
nomination. Just a little opinion from the New York Times’
Harvey Araton.
“Beyond the painful lesson in civics and government, what was
learned over the last few weeks and especially here Wednesday
is that Clemens is capable of throwing the jagged edge of a
broken bat at just about anyone. Metaphorically speaking, at his
wife and supposed close friend, if need be.
“Think about it: in the interests of sparing the Clemens legend
and attempting to save himself from forever being remembered
as another synthetic warrior, Clemens seemed to have no
problem having his wife ratted out as a one-time user of human
growth hormone, first to Andy Pettitte and then to the world….
“And so it went in Room 2154, where Clemens, defiant when
allowed to ramble, flummoxed and evasive when committee
members pushed back, played every emotional card he could.
Above all, he cast himself as the great American success story
and patriot, who proudly wore the uniform of Team U.S.A. in the
World Baseball Classic, who dutifully spoke to the troops in
Qatar, Kuwait and Afghanistan, who did everything but liberate
Kabul from the Taliban.
“But who, in the final apolitical analysis, didn’t have anything
resembling a convincing argument for why anyone should
believe that McNamee had invented a great fiction about
Clemens after telling the truth about Chuck Knoblauch, Pettitte
and, yes, himself.”
–Back in 1969, the trustees for the estate of J.R.R. Tolkien
signed a contract with United Artists for the film rights to ‘The
Hobbit’ and ‘The Lord of the Rings’ trilogy. Then New Line
Cinema inherited the rights to make the movies in 1998. So now
Tolkien’s heirs are suing the film studio that released the trilogy
claiming that the company has not paid them a penny from the
$6 billion the films have brought in.
I just find this hard to believe. Not one penny?! Well, I had to
ask Gollum, who suggested the heirs demand “What’s it got in
its pocketses?”
–The Pentagon is going to attempt to shoot down the wayward
spy satellite that would otherwise crash into the ocean in early
March; at least the odds greatly favor it falling harmlessly into
some body of water on the planet. But might as well shoot it
down and get some target practice, I always say.
Now to be fair the satellite contains the toxic rocket fuel
hydrazine, but, still, this seems a bit extreme. Then again, if the
satellite hit the Kremlin or the Olympic Stadium in Beijing, we’d
probably have a pretty big problem.
–From the Washington Post, “Researchers have discovered two
planets in a solar system 5,000 light-years away that appear to be
structured in significant ways like our own.” Heaven help them.
–Hillary Clinton had some solid health tips on “60 Minutes” last
Sunday. Wash your hands frequently and eat hot peppers. For
the latter I substitute Tabasco sauce, the world’s single greatest
product.
–The television and screen writers went back to work. I imagine
it was tough getting the brain cranked up, not that I’ve ever had
such a break myself.
“It was a dark and stormy night…..”
–Finally, StocksandNews is now nine-years-old. I thought it
would last three. Thanks for coming along on the ride.
—
Pray for the men and women of our armed forces. We also pray
for the victims of Northern Illinois University and their families.
God bless America.
—
Gold closed at $906
Oil, $95.49
Returns for the week 2/11-2/15
Dow Jones +1.4% [12348]
S&P 500 +1.4% [1349]
S&P MidCap +0.2%
Russell 2000 +0.4%
Nasdaq +0.7% [2321]
Returns for the period 1/1/08-2/15/08
Dow Jones -6.9%
S&P 500 -8.1%
S&P MidCap -7.3%
Russell 2000 -8.4%
Nasdaq -12.5%
Bulls 36.7
Bears 35.6 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
