[Posted 7:00 AM ET]
Wall Street
As I expected, I received some heat for my comment that we
have to do everything to get out from our energy crisis, including
to drill, drill, drill. So I thank the New York Times’ Ben Stein
and the Wall Street Journal’s Gerald Seib for backing up my
position days later.
Ben Stein:
“What are we going to do? If there were another oil embargo,
we would be in real trouble. If Mexico fell into chaos, if
Venezuela stopped sending us oil, there would be extreme
hardship.
“Beyond that, what if we are close to peak oil – that point at
which we have pumped out more than half the oil on the planet?
What if supply slips and demand continues to skyrocket, as they
are already doing, and these trends continue indefinitely? What
if the world has a bitter fight over its remaining oil? Even if this
battle is fought with money and not guns, we are at a
disadvantage with our pitiful currency and our budget and trade
deficits.
“In my humble view, we are now in a short-term oil bubble. It
will pass and correct, as bubbles do. And speculators will make
millions, whichever way it goes. But the long run is terrifying.
If we are at or past peak oil, if oil states stop or even hesitate to
send us the juice, if Canada decides not to fill our needs [Ed.
Stein is referring to Canada’s fierce environmental movement
that is whipping up a frenzy over the oil sands], we are in
overwhelming trouble.
“So, what to do? First, we do not kill the geese – the big oil
companies – that lay the golden eggs. We encourage them and
cheer them on to get more oil. They need incentives, not
hammer blows.
“But most of all, we treat this as a true crisis. As my pal Glenn
Beck, the conservative commentator, says, we need a new moon-
shot mentality here. We need to turn coal into oil into gasoline,
to use nuclear power wherever we can, and to brush aside the
concerns of the beautiful people who live on coastal pastures
(like me). And we need to drill on the continental shelf, even
near where movie stars live. This must be done, on an
emergency basis. If we keep acting as if the landscape were
more important than human life, we will make ourselves the serfs
of the oil producers and eventually reduce our country to poverty
and anarchy.”
Gerald Seib had a message for the presidential candidates.
“Remind Americans that the country has been here before – and
that the experience tells us the nation isn’t helpless in the face of
rising energy prices. A combination of market forces and smart,
selective government action can help America spin out of an
energy crisis and lessen its dependence on foreign oil.
“Doing so isn’t fast, easy or cost-free, of course, but the message
a smart would-be national leader can deliver is this: History
shows that Americans needn’t be hapless victims of the energy
gods.”
Seib notes that President Richard Nixon and Congress took two
steps during the first oil shock of 1973-74, “one to increase
energy supplies, the other to reduce demand – that produced
significant and long-lasting results. The first was to push
through the Alaska oil pipeline, which rapidly increased
domestic oil production. Within weeks of the Arab oil embargo,
President Nixon signed into law the Trans-Alaska Pipeline
Authorization Act, which authorized the completion of a pipeline
to carry crude from Alaska’s oil fields to port. Among other
things, the law turned aside legal challenges, primarily from
environmentalists, to completing the pipeline.
“The second step with lasting impact came months later, when
Congress passed a law creating Corporate Average Fuel
Efficiency standards, which required auto makers to produce
fleets that got better gas mileage….
“Daniel Yergin, chairman of consulting firm Cambridge Energy
Research Associates, says that in the years after the 1970s oil
shock, Alaskan production added two million barrels of crude oil
a day to U.S. oil supplies, while higher auto-efficiency standards
saved two million barrels a day in oil consumption: a net four-
million-barrel savings every day in America’s dependence on
imported oil. That was a significant contribution for a country
that, by 1990, was importing an average of 5.9 million barrels of
oil a day.”
Isn’t it amazing to think how little has been done in the last 35
years since we were first shocked into action? Isn’t it also
amazing, how successful the Alaska Pipeline has been, not just in
supplying us with critical oil, but also in zero serious collateral
damage? It can be done.
But again, we have to do everything. Some of you have the
impression the few stocks I own are representative of Big Oil.
While I did very well investing in oil stocks from 1999-2004, I
have stupidly been largely out of the sector since then. But
today, among the seven decent sized equity positions that I
currently own are a California-based solar play, a geothermal
company, and an outfit specializing in lithium batteries for the
auto industry. So, yes, I’m putting my money where my mouth
is. [My large China play has shifted from biodiesel to specialty
chemicals due to rising materials costs, but could easily shift
back down the road.]
The danger, though, is that over the next year or two, oil, due to
reduced short-term demand, takes a header below $100 and then
many of the alternative energy projects go by the wayside as
critical subsidies or tax breaks dry up. Then the next oil shock
hits and we’re right back in the soup.
Longer-term, say ten years out, we’ll be amazed at how far
we’ve come if we take the right steps today. Short- to
intermediate-term, though, I reiterate, we can not hope to just
skate by with pollyannish thoughts. Except on the conservation
front. Isn’t it pitiful that our government hasn’t put out a public
service announcement encouraging us to conserve energy? Al
Gore has his global warming tag teams, why aren’t we doing the
same when it comes to fuel consumption?
One other Big Picture thought on the current overall economic
environment, courtesy of Pulitzer Prize-winning business
journalist Steven Pearlstein of the Washington Post.
“(It’s) not just (about) residential real estate (these days). The
same factors that were behind the housing bubble were also at
work, to varying degrees, in the auto bubble, the commercial real
estate bubble, the travel bubble, the college tuition bubble, the
retail bubble, the Web 2.0 bubble and most recently the
commodities bubble. Unlike housing, which began losing steam
two years ago, these other sectors have just begun the painful
process of repricing and finding a new balance between supply
and demand….
“Is all this the end of the world? For the richest country on the
planet, certainly not. But it does represent the end of a decade or
more during which Americans were permitted and even
encouraged by the rest of the world – and by their own leaders –
to live way beyond their means. As a result, the United States
has gone from being the largest creditor nation to the world’s
largest debtor. For the first time since the early 1980s,
Americans will have to endure several years of uncomfortably
slow growth and uncomfortably high inflation as the U.S.
economy regains its balance and creates a foundation for more
solid and sustainable growth.”
I respectfully disagree with Mr. Pearlstein on his inflation take
and I need to repeat something I wrote last time, 5/24.
“I believe inflation will moderate for one simple fact. The global
economy is about to flip, just as we have done in the U.S.”
While I don’t like to buttress my case with a mere one or two
weeks’ numbers, if you can show me anything positive that came
out of Europe the past few days then your interpretation is far
different from mine because whether it was Germany, France,
Spain or Britain, there is weakening consumer confidence,
housing and jobs data. As I told you would be the case years
ago, Spain’s housing market is absolutely crashing, while in the
U.K. you now see rather familiar headlines, such as this one from
the London Times.
“Negative equity fears soar after record slump in house prices.”
But European consumer confidence is sliding rapidly primarily
because of the energy picture. I don’t want to make more of it
than is warranted, but by week’s end the protests were spreading
across the continent. I said last week “we’ve reached the tipping
point” when it comes to $130 oil (even as measured in euros) and
that appears to be the case. Disaster? No. I’m sticking with my
new term, the Big Moderation. But should this come to pass, it
won’t be good for corporate profits versus expectations.
Other tidbits:
$130 oil and $4.00 a gallon gasoline sure represents a tipping
point when it comes to demand. In March, admittedly long
before $130/$4, for the first time since 1979, gasoline demand in
the U.S. dropped in the month, off 4%. One wonders then what
April and May’s numbers will bring.
On the inflation front, proponents of same could point to Dow
Chemical and its 20% price increases due to soaring energy.
CEO Andrew Liveris said this was “putting a strain on the entire
value chain.” [Liveris also blasted Washington for its lack of
action.]
And on the housing front, the latest S&P/Case-Shiller home
index for the first quarter showed housing prices declined 14
percent, with Las Vegas leading the way with a 26 percent
collapse. [A separate, California specific index showed that
state’s median home price for April to have fallen 32 percent.]
The only bright spot is that in some of the more depressed
markets, foreclosure sales are helping to clear inventory, though
this remains at 10-11 month levels.
Lastly, a revision to first quarter GDP showed the economy grew
at a 0.9 percent clip rather than the first estimate of 0.6. So that
means we’ve now had consecutive quarters of 0.6 (Q4) and 0.9
growth which is not recession by the classic definition of two
negative quarters of GDP in a row. I’m not about to say I was
wrong, though, on my recession forecast for 2008.
No, instead I agree with Merrill Lynch economist David
Rosenberg, who keeps pointing to both housing and the
consumer as reasons for concern. Consumption will decline,
though I think Rosenberg is too sanguine on the capital spending
front. He does, however, feel that inflation will moderate as I do.
Street Bytes
–Stocks rebounded, with the Dow Jones adding 1.3% to 12638,
the S&P 500, 1.8%, and Nasdaq 3.2% to 2522. Dell’s solid
earnings were a positive, as was oil’s $4.50 drop on the week.
–U.S. Treasury Yields
6-mo. 2.01% 2-yr. 2.64% 10-yr. 4.06% 30-yr. 4.72%
Dallas Federal Reserve Bank President Richard Fisher, a voting
member of the Fed’s open market committee, predicted a
“frightful storm” ahead for the U.S. economy and that he expects
“a change of course in monetary policy to occur sooner rather
than later, even in the face of an anemic economic scenario,” if
inflation expectations continue to worsen. [Alex Peacocke /
Investment News]
Fisher needn’t be frightened. Concerned, yes. But the bond
market took his comments seriously and rates rose. A 10-year
over 4.00%, with a 30-year fixed mortgage heading back to
6.25%, won’t help housing.
–As I prepare for summer and heavy use of the air conditioner,
I’m reminded of the comment my solar company CEO made on
his last conference call. “People are going to freak out when
they see their electric bills.” And I just saw my local utility is
seeking a 20 percent increase for next winter due to rising natural
gas prices.
–The Commodity Futures Trading Commission has launched an
investigation into potential oil-market manipulation as it expands
its surveillance of energy markets. Good. There is no doubt, in
the eyes of your editor, that there has indeed been some
manipulation, much to the detriment of the rest of us schleps. I
also believe there is a difference between manipulation and
speculation. Too often these terms are melded together. There is
nothing wrong with speculation. There is often something very
wrong, however, with manipulation.
–Oil fell more than $4 on Thursday even after the latest report
on inventories showed a whopping drop of 8.9 million barrels for
the week ended May 23. “Illogical,” offered Spock. It turns out
the drop was partially attributed to a one-time shipping delay, but
traders were also betting that the above mentioned shortfall in
demand is becoming entrenched. That said, wake me when oil,
still $127, is back below $115 and gasoline futures (which closed
at $3.40 again) around $2.80 before I get too excited.
–Some of us are hoping that coal gasification, sequestration,
what have you…clean coal…takes off. We certainly have a lot
of the dirty stuff around. But, as Matthew Wald points out in the
New York Times, progress on this front has been frustratingly
slow, even as heavy hitters like GE and Schlumberger team up.
A while back I invested in a small company involved in the
process of carbon capture, lost money on it, and it’s still off 50%
from where I sold it. Keep your hopes up, though. There are
legitimate projects in the planning stages, and with big backers
such as Duke Energy.
–China is suffering from severe coal shortages, with stocks in
some provinces down to 3 days when seven days is viewed as a
critical level. Aside from earthquake-related issues, high oil
prices have boosted coal demand from utilities around the world,
escalating tightness in the market.
–Such as in Germany, where coal use is soaring. Here and
elsewhere on the continent, 40 major coal-fired power stations
across Europe are on the boards for the next five years, while
Germany is looking to build 27 of their own by 2020. Power
companies say the new plants are highly efficient, but claims
they are shutting down old, dirty plants are happening at a snail’s
pace, as noted by Kim Murphy of the L.A. Times. And while
today’s filters remove the dirty particulates, carbon dioxide is an
unavoidable byproduct.
So much for the war on global warming, as rising oil prices
speed the growth of greenhouse-gas emissions by encouraging
the use of cheaper, dirtier coal.
–Somewhat related to the above, and our overall leading
discussion, Jeanette N. passed along a piece on the rush to secure
natural gas in parts of Pennsylvania, especially the northeastern
region. Chesapeake Energy and Cabot Oil & Gas are among
those signing up individual homeowners to secure rights to what
are thought to be some of the biggest reserves in the country.
Hope you make a small fortune on your vacation property,
Jeanette.
–The airline industry continues to be in a state of turmoil with
oil and jet fuel costs as high as they are. Many routes are simply
no longer profitable and, worldwide, airlines are forced to
eliminate them. Qantas, for one, is typical of the situation,
reducing capacity by 5 percent as well as laying off staff and
freezing executive pay.
–But wait…there’s more. Crain’s New York Business notes that
the borough of Queens is pretty typical of regions surrounding
big airports these days. Queens is home to both JFK and La
Guardia and more than 60,000 jobs are directly related to
aviation. “When the airlines go into a tailspin, the borough gets
slammed….For every 1,000 job cuts in air transportation, the
borough loses another 470 jobs in ancillary industries – from
restaurants and hotels to supply companies to fleet services.” Of
course such a hit would do a further number on the already
battered housing sector in Queens.
–This is tragic…foreclosures in U.S. towns where soldiers live
are increasing at a pace almost four times the national average,
according to data compiled by research firm RealtyTrac, most of
the impacted families having taken out subprime mortgages. As
an advocate for veterans told Bloomberg News, “No one asked
them for their credit score when we asked them to fight for us.”
–Ford is looking to cut 2,000 white-collar jobs in the U.S., which
will obviously further kill the Detroit/Dearborn-area real estate
market, as in the case of Queens. Meanwhile, GM said about
19,000 workers have accepted its buyout or early-retirement
offers, cutting its hourly work force by about 24 percent.
–Dell Computer, in issuing its solid earnings report, said it
expects two-thirds of its sales to come from outside the U.S. in
five years. International revenue already exceeds domestic for
the first time. Dell is also in the process of reducing head count
by 8,900, though Asia will see job growth.
–Sales at Sears’ stores fell a whopping 10 percent in the first
quarter versus a year ago, while Kmart’s declined 7 percent, as
parent Sears Holding Corp. reported a $56 million loss when the
Street expected a profit.
–The name Bear Stearns has gone the way of Drexel and Kidder,
as shareholders formally approved the sale to JPMorgan Chase.
Chairman Jimmy Cayne said, “I just want to personally
apologize for what has happened. We just ran into our own
hurricane.” Whatever. The investment bank was reckless and
about 9,000 of Bear’s 14,000 employees are without jobs today.
Plus, seeing as the same workers had much of their net worth tied
up in Bear stock, which was $150 a year ago before JPM swept it
up at $10, all 14,000 are devastated in one form or another. A
comment scrawled at the top of a caricature of Cayne that sat
outside Bear’s headquarters summed it up. “You screwed us,
Jimmy.”
–Edward Wyatt had a piece in the Times on Oprah Winfrey’s
declining audience, off 7 percent this year, its third straight year
of decline. The circulation of O, her magazine, has also fallen by
more than 10 percent in the last three years.
Recently, there is little doubt her endorsement of Barack Obama
has alienated some of her base, middle-aged white women, who
have been supporting Hillary Clinton.
–Scam artist Kirk Wright, who took in up to $150 million from
thousands of clients, including many high profile NFL players,
committed suicide in jail after being convicted last week. Wright
faced up to 710 years in prison and a $16 million fine, on top of
an earlier $20 million judgment against him.
–We note the passing of the King of Spuds, J.R. Simplot, 99.
The Idaho entrepreneur made his mark by finding new ways to
bring potatoes to market, which led to the perfect frozen fry,
accelerating the growth of the fast-food industry. In 1965, J.R.
capitalized on his business relationship with Ray Kroc, founder
of McDonald’s, to become the main supplier of potatoes to the
chain. “That’s what made me,” Simplot once said. Wendy’s,
Burger King and Jack in the Box soon followed by purchasing
fries from him as well. In 1980, the Idaho native made another
killing with an early investment in semiconductor company
Micron Technology. [Claudia Luther / L.A. Times]
–Congratulations to an old friend of mine from both high school
and college, Todd Gibbons, who was just named CFO of Bank of
New York Mellon Corp.
–Lastly, there’s only one description of actress Sharon Stone that
fits these days, that being ‘idiot.’ Stone, who models for
Christian Dior, suggested the Sichuan earthquake was retribution
for China’s policies in Tibet and that it was the result of “karma.”
Dior had to backpedal, with eleven stores in Beijing, for starters.
Stone should be blackballed from the film industry.
Foreign Affairs
Iraq: As former Lt. Col. Ralph Peters writes in his New York
Post op-ed this week, “It’s today’s reality that matters.”
Personally, I was a supporter of the war, who then began
expressing misgivings by the fall of 2003 as I blasted President
Bush for being “AWOL.” But here are the realities that will be
noted in the time leading up to our election. The month of May
could be the least deadly one of the war for U.S. forces, 18
having died as of Friday. [Feb. 2004 saw 21 deaths.] Attacks
are way down and the Iraqi Army is beginning to step up. Shia
cleric Moqtada al-Sadr’s truce has been a big reason for the
reduced violence, though at the same time he is urging his
followers to continue to protest any U.S.-Iraqi security pact for
an extended American presence.
For his part, Prime Minister Nouri al-Maliki appears to be
making some progress on the political front, though the leading
Sunni faction in government is still blocking major initiatives
over fears it will lose out in any final agreements on power
sharing and dividing up the oil revenues.
Meanwhile, al-Qaeda is clearly on the run and across the
country, Iraqis are increasingly optimistic about their future.
This war has been an unmitigated disaster on so many levels and
what frustrates those of us who have supported it from the
beginning is that it didn’t have to be.
But that also doesn’t mean we cut and run, as Sen. Obama and
the Democrats prefer; not when we are finally showing real
progress.
Iran: The International Atomic Energy Agency issued an update
on Tehran’s nuclear weapons and called Iran’s ongoing failure to
answer many of the IAEA’s questions “a matter of serious
concern.”
Editorial / Washington Post
“On Monday, some six months after the expiration of the
deadline (for coming clean), the IAEA issued a report saying, in
essence, that Iran had not acted in good faith and was engaging
in delaying tactics….Moreover, while the IAEA has been
cooling its heels, the government of Mahmoud Ahmadinejad has
been installing two new and more advanced sets of centrifuges at
the Natanz uranium enrichment facility, without providing
required notification….
“So will (IAEA Director General Mohamed) ElBaradei now
support tough new punitive measures by the U.N. Security
Council? We expect not.”
Editorial / Wall Street Journal
[In criticizing Sec. of State Condoleezza Rice]
“Where do we go from here? If this really were Groundhog Day,
we would at least learn something from the previous, persistent
failures….But Iranian leaders have had six years to develop their
nuclear programs since they were exposed in 2002, and the
progress they have made has been formidable.
“That period has also included years of negotiations with Europe
and Russia, in which the Iranians have been offered
progressively more generous incentives to suspend their
enrichment. It hasn’t happened. Nor will it ever as long as the
worst the international community can do is impose a set of weak
sanctions while offering ever-sweeter incentives for Iran to
behave. Even assuming there’s a package the West could offer
Iran that it would accept, the logic of the current diplomacy gives
the mullahs every incentive to continue to play for time.
“As for the U.S., Secretary Rice’s threat of still-more sanctions
will be seen in Tehran for the diplomatic evasion it is. The last
set of sanctions took months to pass and were watered down to
nothing much. The Administration would do better to withdraw
from this international charade and consider means by which the
mullahs might be persuaded that their regime’s survival is better
assured by not having nuclear weapons. A month-long naval
blockade of Iran’s imports of refined gasoline – which accounts
for nearly half of its domestic consumption – could clarify for the
Iranians just how unacceptable their nuclear program is to the
civilized world.”
Separately, Iran’s new parliamentary Speaker, Ali Larijani, the
former chief nuclear negotiator and a man perceived to be more
of a moderate, said of the IAEA report, “If they (the IAEA)
continue along this path, the new parliament will intervene in the
case and set a new line for cooperation with the IAEA.”
Funny, isn’t it? Iran has refused to live up to various U.N.
resolutions and now threatens a U.N. organization, the IAEA,
with retaliation. It’s why I am more certain than ever that Israel
will launch a preemptive strike on Iran’s known nuclear facilities
by year end. Only now, the U.S. may physically participate
itself, rather than just being involved in the planning stage.
Israel: Of course Israelis have other issues on their minds these
days, the chief being the fate of Prime Minister Ehud Olmert
amidst the ongoing corruption investigation. This week an
American businessman, Morris Talansky, testified in an Israeli
court that he gave Olmert $150,000 in cash-stuffed envelopes
over a 15-year period. Olmert vowed not to resign unless he is
indicted, though Defense Minister Ehud Barak and Foreign
Minister Tzipi Livni both called for Olmert to step down, Livni
being the most likely immediate successor, while Barak controls
the Labor Party’s participation in the Olmert/Kadima coalition
government.
It’s possible Olmert didn’t actually break any laws, though 70
percent of Israelis believe he is not telling the truth, but he will
have to step down regardless and face a party primary, first,
before a new general election, it would appear as I go to post;
though on Sunday, a Kadima party confab will shed more light
on the situation.
One thing is for sure, any peace talks with the Palestinians are on
hold until there is a resolution of this matter. The crisis in
government should not, however, impede potential action against
Iran.
Lebanon: Finally, Gen. Michel Suleiman was elected as the new,
consensus president, thus bringing about some semblance of
“normalcy,” probably until next year’s parliamentary elections
that promise to be more than a bit divisive.
For six months, Lebanon suffered under the power vacuum, but
in his inaugural address, Suleiman called for balanced relations
with Syria, while declaring “I thank the United States…seeing
that it seems to have been convinced that Lebanon is not the
appropriate place for its New Middle East plan,” referring to
comments made by Sec. of State Rice during Lebanon’s 2006
war with Israel as part of the “birth pangs of the New Middle
East.”
For his part, Hizbullah leader Nasrallah said, “We face two
dreams, a Lebanese and an American dream. The Lebanese
dream is about a quiet summer while the American one speaks of
a hot summer.” Nasrallah will never give up his weapons, despite
two U.N. resolutions calling on him to do so, and Suleiman is not
about to force the issue.
Regarding the Doha agreement that led to the political settlement
in Lebanon, the Daily Star’s Rami Khouri commented:
“The U.S. was not fully defeated, but it was fought to a draw.
Recent events put into concrete political form the most powerful
force that has defined the Middle East in recent decades: the
willingness of individuals, political movements and some
governments to openly defy, challenge, resist and occasionally
fight the United States, Israel and their Arab and other allies….
befuddled Condoleezza Rice, who should take care not to fall off
her exercise bicycle.
“The U.S. is a slow learner in the Middle East, where the terrain
is strange to it, the body language bizarre, the fierce power of
historical memory incomprehensible, and the negotiating
techniques other-worldly. But the U.S. is not stupid. It learns
over time that if you retread a flat tire over and over again, and it
keeps going flat on you, perhaps it’s time to buy a new tire if you
hope to move forward….
“The remarkable manifestation of how the U.S. has marginalized
itself is the conduct of the Israeli government. The U.S. has
pushed the Israelis hard to do two things in the past two years: to
not negotiate with Syria and to not engage Hamas. What has
Israel done? It has been wisely negotiating with Syria via
Turkey, and engaging Hamas on a truce deal through the
mediation of Egypt. Hold on, Condi, this gets even worse.
“It is no big deal in Washington when nearly 500 million Arabs,
Iranians and Turks ignore and defy the U.S. But when Israel –
the only democracy in the Middle East, America’s eternal ally,
and the bastion of the epic modern struggle against fascism,
totalitarianism, Nazism, communism and terrorism – ignores the
United States, that is newsworthy.
“So we now have a rare moment in the Middle East: Iran,
Turkey, all the Arabs, Hizbullah, Hamas and Israel all share one
and only one common trait: They routinely ignore the advice,
and the occasional threats, they get from Washington.
Condoleezza Rice was correct in summer 2006 when she said we
are witnessing the birth pangs of a new Middle East. But the
new regional configuration is very different from what she had in
mind and tried to bring into being with multiple wars in Iraq,
Afghanistan, Palestine, Somalia, and Lebanon, and threats
against Iran and Syria. The new rules of the political game in the
Middle East are now being written by the key players in the
Middle East, which should be welcomed.”
China: Amidst severe aftershocks, further landslides, fears of
dam collapses and more death, Premier Wen Jiabao pledged
authorities would work to restore “normal life” within three
months for the millions impacted by the Sichuan earthquake. It’s
an incredibly difficult undertaking.
But this was an historic week on the diplomatic front, and a very
busy one to boot for President Hu Jintao in particular as he met
with various leaders in the region, first and foremost being the
head of Taiwan’s ruling party on Wednesday, the highest level
contact since the two sides split in 1949 after the civil war. Hu
said:
“Based on the past exchanges and communications between the
two parties, and under the new situation, I hope we can promote
cross-strait relations, exchange our opinions and look to the
future, and push forward peaceful cross-strait development.”
It represented a dramatic easing in tensions between China and
Taiwan, as the two agreed to restart bilateral talks, with direct
flights between the two a first target, along with the promotion of
trade and tourism. Again, China could, though, make an even
more meaningful gesture and that would be to remove at least
some of the missiles targeting Taiwan.
Earlier, President Hu had met with Russian President Dmitry
Medvedev, in the latter’s first foreign policy foray since taking
office. Both Russia and China blasted the U.S. missile defense
shield, while new South Korean President Lee Myung-bak also
took his first trip to Beijing for a meeting with Hu. Lee,
however, has serious issues at home with a 29 percent approval
rating, owing in no small part to allowing U.S. beef imports to
flow again.
Lastly, and related to China and the ‘dark side,’ U.S. authorities
are investigating whether Chinese officials secretly copied
Commerce Secretary Carlos Gutierrez’s laptop computer during
a December trip to China, using the information (which could
have been downloaded in minutes) to then hack into Commerce
computers. This occurred when Gutierrez, for reasons unknown,
left the laptop unattended. It would, however, be highly unusual
for a high-level government official to carry classified data on a
laptop for an overseas trip. Since Gutierrez’s screw-up, the U.S.
Computer Emergency Readiness Team “rushed to the Commerce
Department on at least three occasions to respond to serious
attempts at data break-ins,” officials told the Associated Press.
Russia: While Medvedev was in China, new Prime Minister
Vladimir Putin was being feted in France, so, just who is in
charge in Russia when it comes to foreign policy? Well, that’s
easy to answer. Even should Medvedev be the face at the
upcoming G8 summit, Putin will remain the puppet-master.
But someone better be minding the store back home because 67
percent of Russians identify inflation as the most urgent issue
facing the country today. Inflation hit 11.9 percent in 2007 and
there are some estimates calling for 15 percent in ’08. Nothing
will undo both Putin and Medvedev’s popularity faster than
failure to tackle this head on. Sky-high domestic spending, on
wages and infrastructure, for example, is fueling the price rises
but as long as the oil revenues continue to flow in, the
government is going to spend them.
One other issue continues to simmer…that being relations with
Georgia. This week the U.N. confirmed that a Russian Air Force
jet shot down a Georgian spy plane last month, a fact the
Kremlin continues to deny.
South Africa: The continent’s leading newspaper, the
Johannesburg-based Sunday Times, called on South African
President Thabo Mbeki to resign over the anti-immigrant
violence in his country that has claimed over 50 lives.
“Throughout this crisis – arguably the most grave, dark and
repulsive moment in the life of our young nation – Mbeki has
demonstrated he no longer has the heart to lead. He has shown
himself to be not only uncaring but utterly incompetent.”
Zimbabwe: President Robert Mugabe, ahead of his June 27
runoff with Morgan Tsvangirai, compared U.S. Assistant
Secretary of State Jendayi Frazier to a hooker for suggesting
Tsvangirai won the March election.
“You saw this little American girl trotting around like a
prostitute celebrating that the MDC had won – a disgraceful act.”
Why we failed to take him out, I’ll never know.
Myanmar/Burma: The junta extended the house arrest of
opposition leader Aung San Suu Kyi for another six months.
Suu Kyi has been under house arrest or in prison for more than
12 of the last 18 years. At the same time, the generals continue
to refuse to allow cyclone aid from the U.S. military and other
nations. 134,000 are said to be dead or missing, with another 2.4
million on the verge of starvation.
Pakistan: In a bizarre development, former nuclear scientist
Abdul Khan has recanted his 4-year-old public admission to
running an international nuclear smuggling network without the
knowledge of Pakistani leaders, as reported by the London
Guardian. Now, Khan is saying the confession “was not of my
own free will.” This is potentially a big story, depending on the
government’s reaction.
Colombia: Great news. It was announced that FARC founder
and leader Manuel Marulanda died of a heart attack on March
26, though it was just confirmed this week. FARC, already in a
state of disarray, could crumble over the coming months. The
government has long had a fund to encourage rebels to surrender,
with guarantees of conditional liberty and amnesty, and
hundreds, if not thousands, are likely to hit the bid.
Mexico: In the first five months of the year, drug-related killings
are up 50 percent, with 1,378 having been gunned down,
according to Mexico’s attorney general. 450 law enforcement
officials are among the victims the last 1 ½ years, out of over
4,100.
Canada: Foreign Minister Maxime Bernier was forced to resign
after it emerged he had left classified documents in the apartment
of a former girlfriend with suspected ties to organized crime.
And what crime group are we talking about? Julie Couillard has
been linked to the Hells Angels.
Random Musings
–Newsweek’s Fareed Zakaria commented on the issue of
terrorism, and how the figures on the number of attacks,
worldwide, grossly distort the true picture because of Iraq, with
most studies including the deaths of Iraqi civilians as falling
under terrorism when it’s a war zone. A Simon Fraser
University report out of Canada refutes this, concluding that
when you take Iraq out, the number of terrorism-related incidents
is down big over the past five years.
“The Simon Fraser study notes that the decline in terrorism
appears to be caused by many factors, among them successful
counterterrorism operations in dozens of countries and infighting
among terror groups. But the most significant, in the study’s
view, is the ‘extraordinary drop in support for Islamist terror
organizations in the Muslim world over the past five years.’
“These are largely self-inflicted wounds. The more people are
exposed to the jihadists’ tactics and world view, the less they
support them. An ABC/BBC poll in Afghanistan in 2007
showed support for the jihadist militants in the country to be 1
percent. In Pakistan’s North-West Frontier province, where al-
Qaeda has bases, support for Osama bin Laden plummeted from
70 percent in August 2007 to 4 percent in January 2008. That
dramatic drop was probably a reaction to the assassination of
Benazir Bhutto, but it points to a general trend in Pakistan over
the past five years. With every new terrorist attack, public
support for jihad falls. ‘This pattern is repeated in country after
country in the Muslim world,’ writes (study director Prof.
Andrew) Mack. ‘Its strategic implications are critically
important because historical evidence suggests that terrorist
campaigns that lose public support will sooner or later be
abandoned or defeated.’….
“Why have you not heard about studies like this…released at the
United Nations and widely discussed in many countries around
the world – from Canada to Australia? Because it does not fit
into the narrative of fear that we have all accepted far too easily.”
–Along the lines of the above, law professor Thane Rosenbaum
had an op-ed in the Wall Street Journal on how President Bush
deserves credit for keeping America safe, post-9/11, concluding:
“Americans, admittedly, have short time horizons and, perhaps,
even shorter attention spans. Our collective memory has
historically been poor. But had there been another terrorist
attack or, even worse, a dozen more in cities all over America – a
fear that would not have been exaggerated on 9/12 – would we
have allowed ourselves the luxury of quarreling over legally
suspect counterterrorism measures, even though such internal
debates are credits to our liberal democracy and constitutional
freedoms?
“Terrorism is now largely off the table in the minds of most
Americans.
“But in gearing up to elect a new president, we are left to wonder
how, in spite of numerous failed policies and poor judgment,
President Bush’s greatest achievement was denied to him by
people who ungratefully availed themselves of the protection that
his administration provided.”
These types of pieces always unnerve me. President Bush’s
dismal approval ratings, once sky high, are where they are today
because of Iraq and his pitiful performance on this front, until he
selected Gen. David Petraeus to lead a renewed effort to stabilize
the situation. This is not an environment in which we should be
gloating. Historians will have ample time to judge the full Bush
record.
–While I personally don’t believe former press secretary Scott
McClellan’s book is that big a deal because it doesn’t change my
own opinions in the least, particularly that of the president
himself, there is no doubt the book provides more than ample
fodder for future Obama campaign ads.
For the record, McClellan wrote of the “political propaganda
campaign” in the lead-up to the Iraq War, aimed at
“manipulating opinion” (which is always the case, Scott), but of
Bush specifically, McClellan writes of his “lack of
inquisitiveness” and how Bush was out of touch, but “plenty
smart enough to be president.”
Secretary of State Rice, in responding to McClellan, who blasted
her performance as well, said:
“The threat from Saddam Hussein was well understood. You can
agree or disagree about the decision to liberate Iraq in 2003, but I
would really ask that if you…believe he was not a threat to the
international community, then why in the world were you
allowing the Iraqi people to suffer under the terms of oil-for-
food.”
McClellan isn’t the only former administration official to
question efforts to manipulate public opinion, however. Former
undersecretary of defense Douglas Feith wrote in a Journal op-
ed:
“Before the war, administration officials said that success would
mean an Iraq that no longer threatened important U.S. interests –
that did not support terrorism, aspire to WMD, threaten its
neighbors, or conduct mass murder. But from the fall of 2003
on, the president defined success as stable democracy in Iraq.
“This was a public affairs decision that has had enormous
strategic consequences for American support for the war. The
new formula fails to connect the Iraq war directly to U.S.
interests. It causes many Americans to question why we should
be investing so much blood and treasure for Iraqis. And many
Americans doubt that the new aim is realistic – that stable
democracy can be achieved in Iraq in the foreseeable future.
“To fight a long war, the president has to ensure he can preserve
public and congressional support for the effort. It is not an
overstatement to say that the president’s shift in rhetoric nearly
cost the U.S. the war. Victory or defeat can hinge on the
president’s words as much as on the military plans of his
generals or the actions of their troops on the ground.”
–Saturday’s Democratic Party Rules Committee meeting will
decide the disposition of Florida and Michigan. With 367
delegates at stake, Hillary Clinton is hoping to give her campaign
renewed credibility among the superdelegates.
–From the Washington Post’s Perry Bacon Jr. “Obama has not
emphasized any signature domestic issue, or signaled that he
would take his party in a specific direction on policy, as Bill
Clinton did with his ‘New Democrat’ proposals in 1992 that
emphasized welfare reform or as George W. Bush did with his
‘compassionate conservatism’ in 2000, when he called on
Republicans to focus more on issues such as education.” In other
words, Obama “has not dissented from party orthodoxy,” as a
former Clinton advisor put it. So much for being an agent of
change.
–In a bit of good news for Sen. John McCain, a survey of
California voters conducted by the Los Angeles Times/KTLA
shows that he takes 38 percent of Latinos against Barack Obama,
substantially higher than the proportion won by George W. Bush
in his two presidential campaigns. Meanwhile, McCain didn’t
want to be seen in public with Bush as the president headlined
a number of fundraisers that McCain attended in private homes.
–In keeping with my theme that it’s not global warming we
should be concerned with but rather global pollution, the New
York Times’ Nicholas D. Kristof wrote the following from
Baidu, China, last Sunday.
“China’s biggest health disaster isn’t the terrible Sichuan
earthquake this month. It’s the air.
“The quake killed at least 55,000 people, generating a response
that has been heartwarming and inspiring….Yet with little
notice, somewhere between 300,000 and 400,000 Chinese die
prematurely every year from the effects of outdoor air pollution,
according to studies by Chinese and international agencies alike.
“In short, roughly as many Chinese die every two months from
the air as were killed in the earthquake. And the problem is
becoming international: just as Californians can find Chinese-
made shoes in their stores, they can now find Chinese-made haze
in their skies.”
–Wake Forest is the first top 30 school in the annual U.S. News
& World Report college rankings to no longer require applicants
to take the SAT and ACT exams, boosting a movement to lessen
the importance of standardized tests. I doubt I would have gotten
into Wake without my respectable SAT scores. It’s not like they
would have cared I played poker every weekend while in high
school and bet on football games during lunch break.
–Finally, the best news story of the week was the successful
landing of the Phoenix spacecraft on Mars after a 10-month, 422
million-mile voyage. I’m assuming most of you, like me, would
love seeing a Martian peer into the camera lens at some point,
but I liked what reader Chris C. wrote. It would be even better if
it breathed into the lens, fogging it up, and then whipped out a
cloth to clean the glass. Here’s to NASA for a job spectacularly
well done.
—
Pray for the men and women of the armed forces.
God bless America.
—
Gold closed at $891
Oil, $127.56
Returns for the week 5/26-5/30
Dow Jones +1.3% [12638]
S&P 500 +1.8% [1400]
S&P MidCap +2.7%
Russell 2000 +3.3%
Nasdaq +3.2% [2522]
Returns for the period 1/1/08-5/30/08
Dow Jones -4.7%
S&P 500 -4.6%
S&P MidCap +2.8%
Russell 2000 -2.3%
Nasdaq -4.9%
Bulls 37.9
Bears 32.2 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
And thank you, Ted and Kelly (of Turner Corp. in Osterville,
Mass.), for the Cape Cod Red Beer…yes, there’s a vacation in
every pint.
Brian Trumbore
