[Posted 7:00 AM ET]
Wall Street
On an inflation-adjusted basis, the median family income is less
today than it was in 2000, so it should be little surprise that a new
USA Today poll found 54% of those surveyed say their standard
of living is no better today than five years ago. Or, as the Pew
Research Center concluded, “Fewer Americans now than at any
time in the last half century believe they’re moving forward in
life.” That’s scary.
I bring this up because the bulls out there maintain that the U.S.
is not in recession since official growth figures haven’t yet gone
negative, but a vast majority of Americans certainly understand
differently. It’s a recession. That doesn’t mean, however, it will
evolve into a severe one, but I’ve maintained we’ll be in the
muck for a long spell.
Part of the reason why I’m not ready to jump into the Depression
camp, however (aside from the fact it’s a reckless word to use
when you’re in the prediction game, as I sometimes am), is
because I believe the inflation rate, globally, will moderate…as
part of what I’ve been calling recently the Big Moderation.
But how can I say this, with soaring energy and food prices and
with particularly troublesome inflation rates in the developing
world, chiefly Asia? Because the global economy has reached
the tipping point and is beginning to roll over, that’s why. Just
give me some time for this to play out, but before year end the
trend will be in.
Few agree with this stance, I grant you, chief being Federal
Reserve Chairman Ben Bernanke who said this week:
“The latest round of increases in energy prices has added to the
upside risks to inflation and inflation expectations. The Federal
Open Market Committee (which sets interest rates) will strongly
resist an erosion of longer-term inflation expectations, as an
unanchoring of those expectations would be destabilizing for
growth as well as for inflation.”
Morgan Stanley’s Stephen Roach (chairman of Morgan Stanley
Asia these days) had an opinion piece in the Financial Times on
stagflation being in the air: not the 1970s style, mind you, when
wage indexation was the mantra, but Roach warns price
pressures in the developing world, especially Asia, “are lurching
out of control.” I don’t entirely disagree with this as the facts
are what they are, but I just believe this bout of inflation we’re
all experiencing speeds the day of the Big Moderation. It’s about
supply and demand, not wages, and while everyone likes to talk
of how so many in the developing world are moving into the
middle class, with better diets, etc., I’ve been writing this year
that what you’ll see is a reversal, and that those graduating to rice
from insects will be back eating insects.
But there are two items that would force me into the spiraling
inflation camp. Creeping protectionism, that becomes a tsunami,
and a global harvest that proves to be far below expectations. On
this latter topic, the news out of America’s heartland is certainly
not good and you can expect the USDA to continue to ratchet
down forecasts amidst the flooding for both corn and soybeans,
but, globally, the picture is actually much improved, at least from
what I’m reading, so at worst perhaps the two balance each other
out.
In the meantime, again, give me some space for this theory of
mine to pan out before you storm the offices of StocksandNews.
As for energy and the prospects for a strike on Iran, as I’ve been
writing I see the impact as being swift, but short. There is no
way Iran can block the Straits of Hormuz, for example, beyond a
few days before their shore batteries are blasted to kingdom
come. Now if you tell me they’ll successfully strike key oil
facilities in Kuwait and Saudi Arabia in retaliation, that would
affect the timetable some. The good news, believe it or not,
would be that a disruption in the Gulf may finally get our
Congress and president to get off their butts and put together a
comprehensive energy program.
Meanwhile, looking at the U.S. specifically, the Fed’s survey of
regional economic activity, the Beige Book, continued to speak
of a consumer sector that was slowing amidst the food and
energy price shocks, while overall activity was “generally weak.”
Of course we already knew that but it’s a report that carries
weight at the Fed when they’re trying to come up with an interest
rate policy.
But when it comes to the consumer, retail sales for May actually
came in better than expected, thanks to the rebate checks, we’re
told, but call me a skeptic that this is a sign the worst is over. It
isn’t. Not by a long shot.
Because there is this little thing called housing, where
foreclosures in May were up another 7% over April, according to
RealtyTrac. Some, though, took heart in the fact the April
pending home sales data was up when it was expected to be
down, but this is because some are nibbling in distressed
markets. Good for them, but the decline in ‘prime’ mortgage
land is just starting.
Writing in the July/August issue of The Atlantic, economist
Robert Shiller has the following musings on housing, Professor
Shiller having been one of the first to warn of the real estate
bubble. Shiller talks of the dangers of “social contagion.”
“Like booms, many busts are magnified by group thinking. And
once busts become severe enough, they prompt changes in the
national mood that ramify well beyond economic affairs.
Benjamin M. Friedman, in his 2005 book, ‘The Moral
Consequences of Economic Growth,’ cites abundant historical
evidence that when economic prospects look bleak – especially
for long periods of time – intolerance, racism, and other
reactionary impulses flourish. [Ed. I’d add protectionism, more
broadly.] As more people experience hardship, trust between
them tends to diminish, and the social fabric itself seems to fray.
“If home prices keep dropping, more bailouts of banks and
broker-dealers likely will be necessary to prevent the paralysis of
the financial system and a severe loss of confidence in our
economy and economic institutions. And if we aim to stop
foreclosures, with all their ugly consequences, from spreading
further, many, many homeowners are going to need loan
refinancing – which will need to be provided or backed by the
government. Bailouts of investors and prospective bailouts of
unwise or unlucky home buyers have stirred a lot of controversy,
and indeed, financial bailouts are, for many reasons, unsavory.
But given the severity of the current financial seize-up, they are
needed – not to prop up Wall Street profits or housing prices, but
to prevent a fundamental loss of economic confidence and to
maintain a sense of social justice for those of modest means.
Losses of confidence and trust can mount with surprising speed,
and beyond a certain point they become very difficult to recover
from.
“We recently lived through two epidemics of excessive financial
optimism. I believe that we are close to a third epidemic, only
this one would spread irrational pessimism and mistrust – not
exuberance. If that happens, our economic problems will
become much worse than they need to be, and our social
problems will multiply. Only if we heed the lessons of the boom
can we keep the bust from causing lasting damage.”
Seeing as we have zero leadership in Washington these days, and
with opinion polls showing a rapid decline in confidence, maybe
I should be writing of Depression.
Street Bytes
–Stocks were basically unchanged on the week, despite the
turmoil in the financial sector and soaring interest rates. When it
comes to the banks, increasing attention is being paid to
mounting losses and delinquencies in the credit card and auto
loan segments, as well as losses on home equity loans.
–U.S. Treasury Yields
6-mo. 2.30% 2-yr. 3.03% 10-yr. 4.25% 30-yr. 4.79%
The bond market was incredulous that Ben Bernanke could
suggest that the possibility of an economic slowdown had
diminished while speaking of the risks of higher inflation.
Various officials also attempted to put a floor beneath the dollar,
acknowledging the inflationary aspects of a weak currency
amidst pressure from European officials whose countries are
continuing to get hammered on the export side as their own
goods are more expensive.
But in anticipating some kind of coordinated defense of the
dollar, as well as the prospect for Fed rate hikes down the road to
combat inflation, the bond market went bonkers, with the two-
year Treasury, yielding 2.41% as the week began, closing Friday
at 3.03%, a titanic move not seen in years. The yield on the key
10-year rose from 3.94% to 4.25%, not good for housing as
conventional mortgages are pegged off this rate.
Aside from my discussion above, though, there was some other
news on the inflation front that bond traders would tell you
warranted the price action, such as Friday’s release of the
consumer price index for May, up 0.6%, and now 4.2% year over
year. That’s more than a bit above the Fed’s comfort zone no
matter how you slice it. [And, no, I’m no longer going to talk
about the ‘core’ figure, up 0.2%, because it excludes food and
energy, the very focus of all Americans these days.]
–China’s inflation picture for May brightened slightly as the
number fell to 7.7% compared to April’s 8.3% annualized rate.
But the U.K. saw soaring producer prices in April.
–What an unbelievable week for Lehman Brothers. Following
the announcement of its first quarterly loss since going public in
1994, $2.8 billion as a result of $3 billion in mortgage-related
writedowns, CEO Richard Fuld, in a desperate attempt to stem
the crisis in confidence the rest of the Street was showing in
Lehman, a la the Bear Stearns collapse, demoted CFO Erin
Callan, the highest-ranking woman on Wall Street after just
seven months in the position, as well as the COO. The shares,
which traded at $82 just a year ago, finished the week at $26,
after a short-covering rally on Friday, as Lehman also scrambled
to raise another $6 billion in capital.
But Lehman still has some $29 billion in its commercial real
estate portfolio that is clearly at risk, and despite the investment
bank’s protests that it is not another Bear, who knows?
–Cleveland-based regional banking giant KeyCorp slashed its
dividend for the first time in 43 years, raised its expectations for
future writedowns and announced it will seek an additional $1.5
billion in capital. In response on Thursday, the shares
plummeted 24%. Key is being particularly hard hit because of
its financing of struggling home and commercial builders.
–Shares in Washington Mutual were among the other financials
that got crushed as a UBS analyst predicted Wamu faces an
additional $21 billion in writeoffs from mortgages and won’t see
meaningful profitability until 2010 or later.
–Regarding some of the data related to housing, John Dugan,
comptroller of the currency, which oversees national banks, said
in a speech on Wednesday that his agency had found “significant
limitations with the mortgage performance data reported by other
organizations and trade associations.”
“Virtually none of the data had been subjected to a rigorous
process to check for consistency and completeness – they were
typically responses to surveys that produced aggregate,
unverified results from individual firms. That lack of loan-level
validation raised real questions about the precision of the data.”
Dugan later told the Washington Post he was referring to
information provided by groups such as the Mortgage Bankers
Association, as well as calling into question the accuracy of the
reporting from Hope Now, an alliance of mortgage firms and
banks that was formed to help financially troubled holders of
subprime mortgages. I, for one, have purposefully ignored
anything related to Hope Now, as put forward enthusiastically by
the likes of Treasury Secretary Paulson, because I thought it was
a total pile of garbage. Mr. Dugan is confirming my belief.
Bottom line, the housing picture is far worse than we are being
led to believe.
–Russian President Dmitry Medvedev told a world economic
forum audience in St. Petersburg that growing “economic
egoism” had contributed to global problems, including food
inflation, singling out the United States for its role.
“Failure to take proper account of the risks by the biggest
financial companies in combination with an aggressive financial
policy by the world’s biggest economy led not only to corporate
losses.” Fair enough. Medvedev, echoing past calls by Vladimir
Putin, called for reform of financial institutions, but then sung
Russia’s praises in avoiding the problems of more developed
economies the past years, without citing the huge contribution
played by soaring crude oil in Russia’s finances.
–Historian Victor Davis Hanson / New York Post
“The debate in Congress over more refineries and nuclear-power
plants; drilling in the Arctic National Wildlife Refuge and off our
coasts; and developing oil shale, tar sands and liquid coal has
been a predictable soap opera: Grasping Republicans supposedly
wish to enrich energy companies, while idealistic Democrats
want only to protect the environment. But those stances, hatched
in the days of $1.50-a-gallon gas, should be revisited in light of
different moral considerations.
“One is fairness to the poor and middle class. Like it or not,
radical environmentalism appeals to an elite not all that worried
when gas prices rise or electricity rates go up – since fossil-
energy use goes down.
“But a paradox is that most environmentalists think of
themselves as egalitarians. So, instead of objecting to the view
of a derrick from the California hills above the Santa Barbara
coast, shouldn’t a liberal estate owner instead console himself
that the offshore pumping will help a nearby farm worker or
carpenter get to work without going broke?
“Another paradox: U.S. laws ensure a rig off Florida has far less
chance of springing a leak than one in the Persian Gulf. If
there’s really a shared ‘planet earth,’ aren’t we all its stewards?
By locking out energy exploration here, we’re encouraging it
everywhere else….
“Consider also how oil triggers a massive transfer of wealth
abroad that’s as illiberal as it’s dangerous. Energy-strapped
Americans, Europeans, Japanese, Chinese and Indians are
working day and night to give the world critical material goods,
ideas and services. Oil-rich Saudi Arabia, Venezuela, Russia and
Iran aren’t.
“At best, the transfer of wealth to most oil producers means a
Chinese worker working longer for less money while artificial
island resorts pop up in the Persian Gulf. At worst, that strapped
Chinese is also working harder for another Iranian centrifuge, al
Qaeda landmine or Saudi-funded madrassa.
“We should stop talking about suing the OPEC cartel, jawboning
the House of Saud to lower prices, blaming the oil companies or
adding yet another tax on gas prices. What we don’t need right
now are more pie-in-the-sky sermons about wind and solar
saving us all or about millions of new jobs in green technology
that can be almost instantly created.
“That all may be well and good in a generation. Here and now,
we still need to tap the abundant conventional energy we already
have in America. That means building, mining and drilling.”
Where Mr. Hanson is very wrong is in downplaying the role of
alternative energy sources. As I’ve been writing, we have to do
everything…everything…including providing proper incentives
for the likes of wind and solar. But Hanson is correct in saying
the United States is a hypocrite, bitching about the Saudis not
ratcheting up production when everything oily and gaseous is
right beneath our feet.
–On a related topic, extensions of tax credits for both the solar
and geothermal industries, in which I have decent sized equity
holdings, were once again defeated in Congress and it appears
these and other related projects will see their fate decided at the
end of the year. I’m furious.
–Saudi Oil Minister Ali al-Naimi said crude prices are
“unjustified” as the Saudis signaled they may start pumping from
a new field. They also called for an emergency meeting on June
22 that everyone and their brother appears set to attend, which
means no one will have a chance to talk and everyone will have
wasted a bunch of oil flying to the darn thing. The Saudis are,
however, legitimately concerned about the political and
economic effects of the oil shock and may indeed expand
production.
–Editorial / USA Today
“President Bush responded to Friday’s (June 6) barrage of bad
economic news – oil prices and unemployment soaring, the
dollar and Dow sinking – with yet another call for extending his
tax cuts. ‘In this period of economic uncertainty, the last thing
Americans need is a massive tax increase – so Congress needs to
send a clear message that the tax relief that we passed will be
made permanent,’ Bush said.
“This little act of political theater isn’t just misguided. It’s also
destructive. For one thing, Americans struggling to buy gasoline
and pay next month’s mortgage are unlikely to be focused on tax
cuts that might or might not expire in 2011. For another, these
cuts – absent matching reductions in spending that Bush has
never proposed – were irresponsible when enacted during Bush’s
first term, and they are even more irresponsible now that the
resulting deficits have added to the nation’s mountainous debt.
“Despite inheriting a budget surplus, Bush has not presented a
single balanced budget during his presidency, which coincided
with the top earnings years of the baby boom generation, a time
when the government should have been preparing for the coming
fiscal tsunami of the boomers’ retirement….
“At least McCain’s top domestic adviser, Douglas Holtz-Eakin,
appears to recognize that there’s more to economic policy than
cutting taxes. ‘Sadly,’ he told Bloomberg television on Friday,
‘it seems that is all President Bush understood in the economy.’”
–Continental Airlines is pulling out of 15 cities worldwide and
cutting flights at its hub airports as part of its attempt to combat
soaring jet fuel costs. Cleveland, for example, will see its seating
capacity reduced 13 percent, while among the cities being
dropped from Newark is Cologne, Germany (glad I went there
when I did last December).
Meanwhile, United Airlines and US Airways joined American in
announcing they will charge $15 for a first checked bag, with US
Airways also charging for soft drinks.
–Talks between Yahoo and Microsoft broke down for good, so
we’re led to believe, as Yahoo now aligns itself with Google to
employ Google’s superior technology to display ads on its own
Web site, with Yahoo claiming this could boost its revenues by
$800 million during the first 12 months of the partnership.
This all came about because Microsoft refused to revive its $33
per share offer of five months ago, focusing instead on acquiring
the search engine rather than the entire company itself. In the
end, shares in Yahoo tanked and investors are left to wonder just
how Yahoo management can be so stupid. Microsoft emerges a
loser as well. Google, the winner.
–Food fight alert…the IMF predicts the U.S. economy will grow
just 0.5% in 2008 and 0.6% in ’09, but the World Bank puts the
two figures at 1.1% and 1.9%, respectively.
–In rural India, women measure their lives by the four-hour walk
they take each day to fetch a few pails of water. But now in the
cities, Indians are beginning to experience equality in lack of
water. As reported by Amrit Dhillon in the South China
Morning Post, “Experts predict chronic shortages will turn cities
into ghost towns in a few decades, their inhabitants driven out by
dry taps.”
In New Delhi, for instance, where once there were riots over
power cuts, the next ones could be over water (aside from the
intermittent food riots of today). Already, homeowners in Delhi
have been digging bores in the grounds of their homes to offset
the unreliable municipal supply. These days they have to dig
deeper and deeper. A catastrophe could be just around the corner
and the government has no policy to deal with it.
–Back in the U.S., companies such as General Motors and UAL
are writing off billions of dollars in plant and equipment that are
no longer viable in an era of $130 oil. As noted by Bloomberg
News, “The destruction of wealth and capital will weigh on U.S.
growth for years to come.” Among the first casualties are
exurbs, emerging suburbs – the commuter towns lying beyond
cities and their traditional suburbs.
–China isn’t just faced with fuel shortages, but the mainland is
bracing for massive blackouts in its cities, causing serious
disruptions in industrial production, owing to an acute lack of
electricity. As for inevitable hikes in allowable prices for
gasoline and diesel, no one expects the government to raise the
limits until after the Olympics. Today prices are only about half
of international benchmarks.
–InBev, the world’s largest brewer, made an unsolicited $46.3
billion bid for Anheuser-Busch that would be the largest cash
takeover in history and combine Budweiser with InBev’s Stella
Artois and Bass brands. The deal would also be the third-biggest
U.S. company to be taken over by a foreign buyer.
But Anheuser-Busch, which owns 50% of Mexican brewer
Grupo Modelo, may now seek to merge the two, though this
faces obstacles on the Mexican end.
–Three Harvard Medical School doctors who helped pioneer the
use of psychiatric drugs by children failed to properly disclose at
least $3.2 million in payments from drugmakers, including
Johnson & Johnson and Eli Lilly, according to Senator Charles
Grassley (R-IA). The three filed yearly disclosure forms
showing they got a total of $120,000, but only when pressed
during an investigation looking into conflicts of interest did they
admit receiving far more.
–Hong Kong is dealing with its first bird flu outbreak in five
years.
–In another sign of just how severe the crisis is for print
journalism, the No. 3 weekly news magazine, U.S. News &
World Report, is going to a biweekly schedule next year, after
trimming its frequency to 46 issues in 2007 and 36 this year. Ad
pages at the Big Three, including Time and Newsweek, are down
23% to 32% with flat paid circulation at best.
–Hedge fund swindler Sam Israel faked his suicide the day
before he was to appear to begin serving a 20-year sentence and
is now a fugitive. One math professor who followed the case of
Israel, convicted of ripping off investors for $450 million in the
Bayou fund scandal, said “I’m going to bet he’s still lurking
around. He’s a phenomenal con artist.”
–So I saw the following headline and thought ‘they’ll be happy.’
“Burger King helped me beat addiction, Robert Downey Jr. says”
The “Iron Man” actor publicly thanked Burger King for also
helping him resurrect his career. You see Downey had an
epiphany in 2003 when he was driving a car piled with “tons of
dope,” he told a British tabloid. Downey decided to pull over for
a burger and everything changed.
“I have to thank Burger King. It was such a disgusting burger I
ordered. I had that, and this big soda, and I thought something
really bad was going to happen.” It was then he decided to toss
all of his drugs into the ocean and to clean up his act.
Like I said, I initially thought BK would be happy with the story,
but you can see they probably aren’t.
–My portfolio: I’ve been advocating an 80% cash / 20% stocks
position for over 1½ years now for beating the market (the S&P
500) and I’ve done so over that period. My own portfolio closely
resembled that allocation…that is until the past few months.
You see, behind the scenes I’m pumping money into this site, in
preparation for a relaunch end of July. By mid-September, I will
add a podcast and my guys at Web Epoch and I are going to do
some videos by Oct., if all goes according to our latest plan. All
of the moves are geared towards kicking everything up a notch,
to borrow from Emeril, particularly when it comes to new media
and links you see on most other sites these days. I can already
see that in 2009, I’m going to stay close to home because of the
demands this will create. The entire airline industry will have
gone bust by then, anyway, so it’s not like any of us will have a
lot of options, unless balloon travel takes off.
Foreign Affairs
Zimbabwe: Incredible. The Western world, specifically Britain
and the United States, appears powerless against a ruthless,
tinhorn dictator, Robert Mugabe, when we all know an 8- or 10-
man commando unit could have long taken the man out and
installed the nation’s rightful leader. This is not Vietnam. This
is not the Taliban. This is not the Tamil Tigers in Sri Lanka.
This is Zimbabwe, where a criminal gang, nothing more,
threatens the lives of four million already on the verge of
starvation. How is it, then, that we in the West can’t rid
ourselves of this son of Satan whose personal militia has little
more than clubs and knives.
As the country gears up for a June 27 run-off between the 84-
year-old tyrant and Morgan Tsvangirai, Mugabe’s thugs have
been forcing thousands of Tsvangirai supporters out of their
homes so they won’t be able to vote, and the so-called ‘war
veterans’ have been burning people alive, as documented by
numerous news agencies. Mugabe has also charged a senior
opposition leader with treason, punishable by death.
Simon Jenkins / London Times
“The human tragedies still being experienced in the Irrawaddy
delta (Burma) and in the deserts of Darfur are now unseen. They
have vanished from the world’s screens, as old news is not news.
Rulers in these countries have stopped the wellsprings of global
reaction at their source, that of publicity.
“We therefore hear no more about international forces being sent
to protect villagers or separate forces in Darfur, or to stop their
children being sold into slavery. We hear no more about
pressure on Burma to admit aid convoys….
“Without the oxygen of information, humanitarian sentiment
loses its anger and becomes just a dull ache. It can no longer
override considerations of state sovereignty and the natural
caution of diplomats and generals.
“Zimbabwe, however, is still news….
“People are uprooted, property confiscated, houses burnt, aid
workers banned, opponents of the regime killed or mutilated and
foreign diplomats arrested and their staff beaten. Tsvangirai is
under a rolling arrest….
“Where now are the fine words of the international community in
the Noble Nineties, boasting what Tony Blair called ‘the new
doctrine of humanitarian intervention’? He declared in 1998 to
rousing applause that the world order ‘could not turn its back’ on
flagrant ‘violations of human rights within other countries….
Success is the only exit strategy I am prepared to consider.’”
Back then Blair and Clinton were on the same page, as were
Bush and Blair a few years after. But look what’s happened?
Nothing. How can you be truly optimistic, with regards to your
own world view, when we can’t even help the people of
Zimbabwe and rid them of Robert Mugabe?
Iraq: For all the progress being made, thanks in no small part to
Prime Minister Maliki’s emergence as a solid leader, Maliki did
travel to Tehran for yet another meeting with Iranian leaders and
was told by Ayatollah Khamenei not to sign any agreement that
would keep U.S. troops in Iraq beyond 2008.
“The fact that a foreign element wants to interfere in the affairs
of Iraq and dominate the country progressively is the main
problem for the development and well-being of the Iraqis,”
Khamenei said.
Critical negotiations between the U.S. and Iraq are slated to be
wrapped up by the end of July and Maliki is balking at key
provisions, saying discussions had “reached a dead end.”
[Compounding matters, Moqtada al-Sadr called for a new
offensive against U.S. forces only.]
Because this is the Middle East, you have to look for different
kinds of signs as to where true loyalties might lie. Such as this
tidbit I saw in a report by Agence France-Presse.
“Television pictures showed the Shiite Iraqi premier wearing a
white shirt, without the necktie he had been wearing until now,
during his visit (to Tehran). Ties are still frowned on in the
Islamic Republic as a sign of Western imperialism.”
Iran: Speaking of this place, President Bush met with European
leaders in an attempt to craft a new round of sanctions against the
Iranian regime and its nuclear weapons program, mainly of a
financial nature as Iran feverishly shifts assets out of European
banks into Asian and Iranian ones. But there are some in Iran
who say no one should expect Asian banks to be any less
malleable in terms of the potential for blocking the removal of
funds.
For his part, Iranian President Mahmoud Ahmadinejad called
Bush a “wicked man” and reiterated Iran would not suspend its
uranium enrichment operations. [Saturday, the top EU diplomat
presented a package of benefits if Iran had second thoughts but
the government said the topic isn’t debatable.]
Appearing in Germany alongside Chancellor Angela Merkel,
Bush said “If enrichment stops, then (Iran’s) isolation will stop.”
But then, in response to a question on the possibility of a strike
either by the U.S. or Israel on the nuclear facilities, Bush offered,
“As I said before, all options are on the table.” To which Merkel
immediately replied, “We insist on a diplomatic effort.” So there
are some serious divisions remaining between the U.S. and some
of its key European allies on this issue, though obviously time is
running out. For all we know, Iran could easily shock the world
and test a bomb by year end, thus my ongoing prediction there
will indeed be a strike before then.
Israel: Meanwhile, the calls for Prime Minister Olmert to step
down have lessened a bit as the various parties jockey for early
elections, sometime in the fall it would appear. Defense Minister
Ehud Barak, one of the favorites to replace Olmert, has backed
off plans to launch a major offensive into Gaza to wipe out
Hamas, despite a new rash of missile attacks on Thursday;
calling instead for a ceasefire, as mediated by Egypt. But on the
broader issue of a peace agreement between Israel and Palestine,
Egyptian President Hosni Mubarak maintains that if Israel is “not
able to stop building in the settlements, we will not be able to
continue with negotiations.”
Afghanistan/Pakistan: The U.S. killed at least 11 Pakistani
soldiers in a border incident, with Pakistan’s prime minister
condemning the attack, but the U.S. produced videotape from a
drone proving they were in the right; that the Americans were
going after Taliban, also killed in the action, which then begs the
question, what were the Pakistanis doing intermingled with the
Taliban?
Then late Friday, we learned suspected Taliban launched an
attack against the main prison in Kandahar, killing 15 police
and freeing all the prisoners, including at least 200 Taliban
suspects.
Lebanon: French President Nicolas Sarkozy was the first major
Western leader to travel to Beirut following the Doha agreement
on a new government and Sarkozy stated that a key to any real
peace in the region, between Israel, Lebanon and Syria, at least,
is Israel’s continuing occupation of Shebaa Farms. Remember
when I used to say the same?
Editorial / Daily Star
“The implications of a solution are nothing less than startling.
First and foremost, the matter of Hizbullah’s arms would take on
a whole new light, presumably making it easier to integrate them
and the men who have wielded them into the arsenal of the state
– which would then become far more formidable. In addition,
such a development would also make it possible at last to
demarcate the entirety of Lebanon’s border with Syria, a key
sticking point in efforts to establish diplomatic relations between
Beirut and Damascus.
“Perhaps the best part of Sarkozy’s approach is that it has
resurrected one of slain Prime Minister Rafik Hariri’s tenets,
namely that Shebaa should not be decoupled from other regional
issues….
“What’s in it for Lebanon? Sarkozy’s having picked up this
particular ball means this country has an opportunity to
simultaneously regain occupied land and defuse internal
tensions….Any Lebanese government, of any composition, that
fails to see – and avidly pursue – the value in this will hear about
it.”
Saudi Arabia: I can’t say I’ve been a fan of Massachusetts
Democratic Congressman Edward Markey, but you should have
a hard time disagreeing with some of his thoughts on the current
U.S. / Saudi relationship, as expressed in an op-ed piece for the
Wall Street Journal.
“Here’s a quick geopolitical quiz: What country is three times
the size of Texas and has more than 300 days of blazing sun a
year? What country has the world’s largest oil reserves resting
below miles upon miles of sand? And what country is being
given nuclear power, not solar, by President George W. Bush,
even when the mere assumption of nuclear possession in its
region has been known to provoke pre-emptive air strikes, even
wars?
“If you answered Saudi Arabia to all of these questions, you’re
right.
“Last month, while the American people were becoming the
personal ATMs of the Organization of the Petroleum Exporting
Countries, Secretary of State Condoleezza Rice was in Saudi
Arabia signing away an even more valuable gift: nuclear
technology. In a ceremony little-noticed in this country, Ms.
Rice volunteered the U.S. to assist Saudi Arabia in developing
nuclear reactors, training nuclear engineers, and constructing
nuclear infrastructure. While oil breaks records at $130 per
barrel or more, the American consumer is footing the bill for
Saudi Arabia’s nuclear ambitions….
“In 2004, Vice President Dick Cheney said, ‘[Iran is] already
sitting on an awful lot of oil and gas. No one can figure why
they need nuclear, as well, to generate energy.’ Mr. Cheney got
it right about Iran. But a potential Saudi nuclear program is just
as suspicious. For a country with so much oil, gas and solar
potential, importing expensive and dangerous nuclear power
makes no economic sense.
“The Bush administration argues that Saudi Arabia can not be
compared to Iran, because Riyadh said it won’t develop uranium
enrichment or spent-fuel reprocessing, the two most dangerous
nuclear technologies. At a recent hearing before my Select
Committee on Energy Independence and Global Warming,
Secretary of Energy Samuel Bodman shrugged off concerns
about potential Saudi misuse of nuclear assistance for a weapons
program, saying simply: ‘I presume that the president has a good
deal of confidence in the King and in the leadership of Saudi
Arabia.’….
“We’ve long known that America’s addiction to oil pays for the
spread of extremism. If this Bush nuclear deal moves forward,
Saudi Arabia’s petrodollars could flow to the dangerous
expansion of nuclear technologies in the most volatile region of
the world.”
China / Taiwan: For the first time in 59 years, non-stop charter
flights will be allowed between the two along with other bilateral
tourist ties. The two sides hadn’t even held any official meetings
in ten years until now.
That’s the good news. The bad news, applied to China
specifically, concerns the ongoing threat in its hacking into our
computers. Two key China critics, both Congressional
Republicans, saw their own computers hacked, apparently in
search of information on Chinese dissidents that both N.J. Rep.
Christopher Smith and Virginia Rep. Frank Wolf were
investigating for human rights violations on the part of the
Chinese government. Smith said the Chinese hackers gained
access to e-mail correspondence between his office and human
rights groups, the identities of Chinese dissidents and records
from more than two dozen congressional hearings on human
rights abuses.
Separately, U.S. national security agencies are warning
businesses and government about laptops or e-mail devices they
may take to Beijing for the Olympics, which will no doubt be
targeted by Chinese agents. It only takes a few minutes, after all,
for technicians to implant a bug into a PC or device left
unattended in a hotel room, for example. Travelers returning
from the Games should have their equipment checked for bugs or
viruses before reconnecting to U.S. computer networks.
South Korea: President Lee Myung-bak has only been in power
three months yet he may not survive another one unless he can
get a handle on the unrest breaking out across the country over
decisions made on the trade front as well as other government
policies.
Lee had signed off on a trade deal allowing U.S. beef to enter the
country after a mad cow scare from five years earlier banned
imports, but then he had to backtrack amidst massive protests
because he had not conferred with the people. Lee also faces
ongoing corruption charges, left over from the campaign, that
had been ignored because of his own business skills, which
voters saw as being a plus in resurrecting a slumping economy.
But instead the economy continues to weaken.
Venezuela: What’s gotten into President Hugo Chavez? He
actually said some rational things this week, this after he
recognized he had crossed the line with his spy law that had
required people cooperate with intelligence agencies, meaning
neighbor would be turning on neighbor. Chavez, amidst intense
pressure, has rescinded the worst aspects of it, and also said he
wanted to work with the next American president, while warning
George W. Bush’s last seven months in office could bring harm
to Venezuela.
But perhaps most importantly, following the death of Colombian
rebel group FARC’s leader, Chavez urged FARC to lay down its
weapons, free its hostages, and give up the fight against
Colombia’s government.
European Union: Irish voters dealt a stunning blow to the EU in
rejecting the Lisbon treaty on institutional reforms, many of
which were focused on having more of a voice in foreign affairs.
The 27-nation bloc risks being split apart as a result. The Irish
were fools to turn it down and they’ve made some real enemies.
Britain: Secret documents on al-Qaeda and Afghanistan were left
by a senior intelligence officer on a commuter train. The
individual who discovered them then turned them over to the
BBC.
Random Musings
–Barack Obama has a 47-41 lead in the latest NBC/ Wall Street
Journal nationwide poll, with McCain leading among men, 49-41
(though 55-35 among white men), and Obama blitzing McCain
among women, 52-33 (51-38 in a Gallup poll, and 52-39 in a
Rasmussen survey). Obama also leads with the critical Hispanic
bloc, 62-28. McCain should gain some hope, though, because
the same survey has voters selecting Democrats by a 51-35
margin when the question is which party do you want to win the
White House, without giving names, and yet McCain himself is
only six behind. This is also why advocates of divided
government can take some solace.
George Will / Newsweek
“Obama’s words mesmerize a nation accustomed to leaders who
routinely use words with antic indifference to their accuracy.
The No Child Left Behind law promises, indeed requires, that by
2014 all children will be ‘proficient’ in reading and math. That
will not happen. Obama vows to reduce carbon emissions 80
percent below 1990 levels by 2050. John McCain says 60
percent. Whether either goal should be reached, neither will be.
Commentators, too, use words in peculiar ways, as when they
speak of Obama and Hillary Clinton needing to bring together
‘the two left wings of the party.’ There is the left wing, and the
other left wing. As one precise commentator has said, Clinton
and Obama differ about as much as the Everly Brothers….
“McCain is fortunate. The eerie narcissism of Clinton’s speech
the night that Obama clinched the nomination distracted attention
from McCain’s badly delivered speech the same night, in New
Orleans. If he really opposes torture, he will take pity on the
public and master the use of a teleprompter.
“He said, ‘The American people didn’t get to know me
yesterday, as they are just getting to know Senator Obama.’
McCain, who has been running for president for 10 years, has
never entertained the thought that the country might sometimes
have a surfeit of him. Does some statute require that he appear
on at least one of the five Sunday morning talk shows every
week? He has appeared on them 67 times since 2004. He has
been such a ubiquitous figure, it will be difficult for him to seize
the attention of a public that thinks it knows everything about
him.
“But it does not. Because of his cultivated persona as a
‘maverick’ Republican, many – perhaps most – voters do not
know he is pro-life. When the fact that he is becomes well
publicized, and Democrats will make sure it is, Clinton’s female
supporters will stop sulking in their tents and will rally round
Obama.
“Something that millions of Americans think they know about
Obama – that he is a Muslim – is injurious. When they are
disabused of this idea, he will rise. McCain might think Obama
cannot rise high enough to win because he, McCain, can get the
support of white, blue-collar, culturally conservative Democrats
who decisively preferred Clinton to Obama in the primaries.
“But there are fewer of these ‘Reagan Democrats’ than there
were when that category was identified 28 years ago….War-
weary Americans are preoccupied with domestic discontents, but
McCain sounds at best perfunctory when talking about things
other than those that really interest him, things that fly or explode
– the sinews of national security.”
Needless to say, Mr. Will has never been a big fan of McCain.
–Economist Robert Samuelson / Washington Post
[On the prospects of an Obama presidency]
“Even those who disagree with Obama ought to feel pride in his
impending nomination because it continues America’s racial
reconciliation and atonement for slavery. But symbolism can’t
substitute for policy, and any feel-good fallout from electing
Obama would soon fade. He’d have to earn popular support, and
this would be made harder by a problem of his own making:
He’d have to disavow much of his campaign rhetoric. The reason
is that his campaign is itself a contradiction.
“On the one hand, he projects himself as the great conciliator.
He uses the metaphor of his race to argue that he is uniquely
suited to bridge differences between liberals and conservatives,
young and old, rich and poor – to craft a new centrist politics.
On the other hand, his actual agenda is highly partisan and
undermines many of his stated goals. He wants to stimulate
economic growth, but his hostility toward trade agreements
threatens export-led growth (which is now beginning). He
advocates greater energy independence but pretends this can
occur without more domestic drilling for oil and natural gas.
“All this reflects Obama’s legislative record. From 2005 to
2007, he voted with his party 97 percent of the time, reports the
Politico. But Obama’s clever campaign strategy would put him
in a bind as president. Championing centrism would disappoint
many ardent Democrats. Pleasing them would betray his
conciliating image. The fact he has so far straddled the
contradiction may confirm his political skills and the quiet aid
received from the media, which helped him by virtually ignoring
the blatant contradictions.
“And what does the straddle tell us of him? Aside from ambition
– hardly unique among presidential candidates – I cannot detect
powerful convictions in Obama. He seems merely expedient in
peddling his convenient conflicts. He strikes me as a super-
successful graduate student: the brightest, quickest, most
articulate guy in the seminar. In his career, he has advanced
mainly by talking and writing – not doing – and may harbor a
delusion common to the well-educated: that he can argue and
explain his way around any problem.”
Next week, the case against McCain, as expressed by my favorite
economist/commentator, Mr. Samuelson.
–A last post-mortem on Hillary’s campaign. Peggy Noonan /
Wall Street Journal:
“We will hear a lot of tasteful tributes…to Hillary Clinton’s grit
and fortitude. [Ed. we sure have.] The Washington-based media
may go a little over the top, but only out of relief. They know
her well and recoil at what she stands for. They also know they
don’t like her, so to balance it out they’ll gush. [Ed. they sure
have.]
“But this I believe is the truth: America dodged a bullet. That
was the other meaning of the culminating events of this week.
Mrs. Clinton would have been a disaster as president. Mr.
Obama may prove a disaster, and John McCain may, but she
would be. Mr. Obama may lie, and Mr. McCain may lie, but she
would lie. And she would have brought the whole rattling
caravan of Clintonism with her – the scandal-making that is
compulsive, the drama that is unending, the sheer, daily madness
that is her, and him.
“We have been spared this. Those who did it deserve to be
thanked. May I rise in a toast to the Democratic Party.”
Time to whip out the good stuff, I’d add, Ms. Noonan. In my
case that means premium beer.
–Note to Laura Bush. We don’t need to see you out front on
foreign policy forays, as in your trip to Afghanistan. We didn’t
elect you and we’re tired of your husband.
–I have never heard more of my friends, 90%+ Republican, so
discouraged and dispassionate as they are today. In responding
to my comment of last week that I hadn’t voted in a contested
primary for the first time in 20 years, because I simply didn’t
care, Brad K. noted he felt the same in not voting. Another said
he was passionate about 2000 and 2004, yet today really couldn’t
care less what happens in the presidential election.
And then there are others such as readers Scott P. and Dan L.,
who for over a year now were like me in praying for a viable
third party, but are today left high and dry. I don’t know if
Chuck Hagel and/or Michael Bloomberg could have pulled off
semi-successful candidacies (say with 20 percent of the vote),
and in the end I may not have voted for either depending on how
they performed during a campaign, but I sure as heck would have
liked to have had the choice.
Oh, no doubt we do have a choice this fall when it comes to the
chief policies espoused by the two candidates, but if you’re
looking for “change,” like real tax reform and a true national
energy policy, to cite two big examples, I seriously doubt we’ll
see it. Hopefully I’m wrong.
–I forget who said this on CNBC, but it’s truly pitiful when you
look back at Eisenhower’s Interstate Highway project (huge
back then) or JFK’s space initiative, to then think of the two
terms of George Bush and his failure to develop a comprehensive
energy policy. We’ll be paying for this in so many different
ways the rest of our lives.
–The London Times conducted an interview with President Bush
on his way to Europe.
“President Bush has admitted to The Times that his gun-slinging
rhetoric made the world believe that he was a ‘guy really anxious
for war’ in Iraq. He said that his aim now was to leave his
successor a legacy of international diplomacy for tackling Iran.
“In an exclusive interview, he expressed regret at the bitter
divisions over the war and said that he was troubled about how
his country had been misunderstood. ‘I think that in retrospect I
could have used a different tone, a different rhetoric.’
“Phrases such as ‘bring them on’ or ‘dead or alive,’ he said,
‘indicated to people that I was, you know, not a man of peace.’
He said that he found it very painful ‘to put youngsters in harm’s
way.’ He added: ‘I try to meet with as many of the families as I
can. And I have an obligation to comfort and console as best as I
possibly can. I also have an obligation to make sure that those
lives were not lost in vain.’”
–Ralph Peters / New York Post
“Miracles do happen: A Bush Cabinet officer has proven not
only competent, but wise, honest, independent and courageous.
“That man is Defense Secretary Robert Gates – who just may be
the vest SecDef this country has ever had….
“Gates is just and deliberate, but he’s wonderfully tough when
it’s time to make hard decisions. In his brief tenure – since Dec.
18, 2006 – he’s stood up to each of the services when they
deserved it.
“Even more crucially (and dangerously), he’s been willing to
face down the plutocrats of the defense industry – the thugs in
$3,000 suits who’ve robbed our military for decades, stealing
your tax dollars.
“Gates’ most-recent demonstration of patriotic guts involved
firing the Air Force secretary and chief of staff.
“They had it coming. The secretary was oblivious and inert. The
chief of staff, Gen. Michael ‘Buzz’ Moseley, thought that the
only Air Force missions that mattered were supporting Lockheed
Martin and fighting attempts to expand the use of cost-effective
UAVs (a k a ‘drones’).
“A member of the Air Force’s notorious ‘fighter-pilot mafia,’
Moseley pushed bankrupting buys of aircraft-without-an-enemy,
such as the F-22 – then refused to send that platinum-plated piece
of junk to Iraq, where its defects and limitations would’ve been
exposed before the buy was complete.
“Meanwhile, Moseley and the dozing service secretary continued
to neglect our nation’s nuclear deterrent – even after repeated
embarrassments showed that mission and safety standards had
eroded almost to Soviet levels.
“Moseley always had an excuse for every security breach. But
Gates wasn’t interested in excuses. Instead, he applied a military
axiom: ‘The maximum effective range of an excuse is zero
meters.’….
“While Moseley’s fair-haired boys drilled very expensive holes
in the sky over Nevada in $330 million aircraft that never flew a
combat mission, the in-the-fight Air Force of transport crews,
special operators, ground controllers and ground-attack pilots
were at war….
“This SecDef wants a robust Air Force that can fight….
“The Navy and Marine Corps have had to answer tough
questions, too. Everyone gets a fair hearing, but if Gates remains
unconvinced, he’ll go high-noon with the vested interests. And
his decisions always favor our troops in combat.
“When the generals decided not to buy vehicles designed to
deflect roadside bombs – since they might not be useful in future
conflicts – Gates overruled them. In the view of this SecDef,
protecting our troops now is more important than fantasies about
tomorrow….
“In other words, he’s the anti-Rumsfeld. As SecDef, Donald
Rumsfeld surrounded himself with yes-men. Gates seeks out the
best men.
“Rumsfeld assumed he knew everything. Gates understands that
learning never stops….
“When the going got tough, Rummy sent his underlings out to
take the hits. When Gates makes tough decisions, he stands in
the line of fire himself – as he did last week in front of those Air
Force audiences.
“While the Rumsfeld Pentagon was subservient to the defense
industry, from Boeing to Blackwater (to say nothing of
Halliburton and the like), Gates insists on giving our troops – and
taxpayers – the best value for our defense dollars. (The
contractors hope to wait him out).
“Rumsfeld was a bully. Gates is a warrior.
“Few Americans will miss the Bush administration. But the men
and women in uniform will miss Bob Gates. He’s the model of
what a public servant should be.”
Amen. And I’m proud to have given Sec. Gates my 2007
“Person of the Year” award, along with co-winner Gen. David
Petraeus. It would be a good sign for America if I was to hand
them the award a second time at year’s end.
–The Supreme Court dealt a big blow to the White House when
it ruled 5-4 that Guantanamo Bay detainees have the right to
challenge their detention in U.S. civilian courts. The result is
there is a very real danger some terrorists could be released as a
result of a compliant judge’s ruling at some point in the future
(though not the immediate one…those being held today are
going nowhere).
I agree with those on the Right who believe the Court’s ruling is
damaging, but the Right has to also admit that the inaction of the
Bush administration to act on the detainees, many having now
been held over six years without a hearing of any kind, until now
in five select cases, is both wrong and absurd. No wonder even
John McCain wants to see Guantanamo closed.
–In a new Pew Research survey of international attitudes
towards the United States, 60% or more had favorable views of
the U.S. in South Korea, Poland, India, Tanzania, Nigeria and
South Africa. But fewer than 20% had positive impressions in
Egypt, Jordan, Argentina, Pakistan and Turkey.
On the issue of Iran, six in eight countries with large Muslim
populations do not want to see it get nuclear weapons.
–I learned of the death of Tim Russert, Friday afternoon, as I
was preparing this column. Most of you long ago figured out I
was a “Meet the Press” junkie and his death comes as a shock to
all his fans. I’ve had disagreements with readers over the years
when I would quote his program because some saw him as being
biased. All I saw was a man who was the hardest working
journalist around and each week I admired the effort that I knew
went into his show. He’s been a role model for me and what I
try to do with this column. You can never read too much about
the world, I always muse. There’s always another angle to
pursue, two sides to every story, and you can never work too
hard, though on this last point there may be some who unfairly
blame hard work alone for his death.
Newsweek’s John Meacham noted something in an interview
that seems so obvious but is so seldom followed these days.
Russert “listened.” Tim asked a question and respectfully
allowed for an answer. How many times do you find yourself
screaming at the set, or turning it off, because some bombastic
host is more in love with himself than hearing what a guest has to
say?
As part of my routine I watch the first half hour of “Today”
before switching over to CNBC and occasionally a friend calls,
thinking I’m watching the latter at, say, 7:10. If Tim was on, I’d
be curt. “I’m watching Russert…I’ll call you back.” Click. His
words carried extra weight because you knew he had done his
homework. Tim Russert was an educator who treated his
audience with respect.
In reporting on his friend, Tom Brokaw said Russert lived his life
with the belief that “We’re all accountable.” How very true.
–Finally, our hearts go out to the good people of Iowa and the
incredible suffering they are having to endure these days. But
amidst the ongoing tragedy inflicted by Mother Nature, you had
the story of the Boy Scouts. This group has been pilloried for
years and been the brunt of late-night comics, for one, almost all
of it undeserved. 99% of Scout leaders, for example, are just
good folks, volunteering their time to help shape what turn out to
be some of our country’s best citizens. So God bless this great
organization as we pray for the families of the victims of the
tornado.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $873
Oil, $134.72
Returns for the week 6/9-6/13
Dow Jones +0.8% [12307]
S&P 500 -0.0% [fractional loss…1360]
S&P MidCap -0.9%
Russell 2000 -0.9%
Nasdaq -0.8% [2454]
Returns for the period 1/1/08-6/13/08
Dow Jones -7.2%
S&P 500 -7.4%
S&P MidCap +0.9%
Russell 2000 -4.2%
Nasdaq -7.5%
Bulls 43.0
Bears 32.6 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
And Happy Father’s Day!
Brian Trumbore
