[Posted 7:00 AM ET]
Depression…Thy Name is Wall Street
Goodness gracious, there was a lot of gloom and despair in the
air this week, none more so than in the pages of Wednesday’s
Daily Telegraph (U.K.) where Ambrose Evans-Pritchard had a
story that began thusly:
“The Royal Bank of Scotland has advised clients to brace for a
full-fledged crash in global stock and credit markets over the
next three months as inflation paralyzes the major central
banks….
“A report by the bank’s research team warns that the S&P 500
index of Wall Street equities is likely to fall by more than 300
points to around 1050 by September as ‘all the chickens come
home to roost’ from the excesses of the global boom, with
contagion spreading across Europe and emerging markets….
“The authorities cannot respond with easy money because oil and
food costs continue to push headline inflation to levels that are
unsettling the markets. ‘The ugly spoiler is that we may need to
see much lower global growth in order to get lower inflation,’
said Bob Janjuah, RBS’s credit strategist….
“ ‘The Fed is in panic mode,’ Janjuah continues. ‘The massive
credibility chasms down which the Fed and maybe even the ECB
will plummet when they fail to hike rates in the face of higher
inflation will combine to give us a big sell-off in risky assets.’…
“Kit Jukes, RBS’s head of debt markets, said of Europe that
‘Economic weakness is spreading and the latest data on
consumer demand and confidence are dire…The political fall-out
could be substantial as finance ministers from the weaker
economies rail at the ECB.’”
Evans-Pritchard concludes in his piece, “Ultimately, the bank
expects the oil price spike to subside as the more powerful force
of debt deflation takes hold next year.”
Actually, I couldn’t agree more with some of the above, since
RBS echoes a theme of mine these days, paraphrasing, that being
inflation will come down as the global economy tips over, which
will also help lead to lower oil prices. I do not see a crash in
equity prices, however, but have maintained all year that at least
in the U.S. our equity markets would finish ’08 in the red.
Aside from the above, there’s more to report on the credit crisis,
inflation, and energy. Banks have written off about $400 billion
thus far as a result of the subprime and other mortgage-related
problems, but John Paulson, whose subprime debt hedge fund
rose 591% in 2007 as a result of his bet to short the sector, said
there is another $900 billion or so that the banks have to write
off. Others have voiced similar concerns and one of the
questions thus becomes, if Paulson is right, just where are the
banks going to get the extra capital?
On the energy front, oil hit $140 Monday morning and then
basically traded between $132 and $135 the balance of the week.
The Saudis said they would raise production, with more news on
this front to come on Sunday at their oil summit, attended by a
cast of thousands (good for Jeddah airport vendors, I imagine),
but this assurance had little impact; nor did the results of some
jawboning by Treasury Secretary Henry Paulson, with China
finally easing price controls on oil a bit, raising the allowable
price charged to consumers by 18%, the first hike since
November when crude was $90. At first this was seen as a
bearish signal for oil, seeing as how the hike could hurt demand
there, China being the 2nd-largest consumer of crude, but then the
move on Friday was buttressed by confirmation of a report that
Israel has been practicing a strike on Iran’s nuclear facilities. In
the end, oil finished the week where it started, $135.
There was further news on the energy front as President Bush
called for an end to the federal moratorium on offshore drilling,
but at least for now there is far too much opposition for this to
happen, regardless of what Congress does, because the states will
have veto authority and it would appear the only way to handle it
is for those impacted to hold ballot initiatives, with no guarantee
there’s enough time to enact them before November, let alone it
would be up to ten years before you see any actual results. Bush
also renewed his call for drilling in ANWR, and stripping away
the lower 48’s substantial shale deposits, which can be converted
to oil and gasoline, but the White House had to admit there are
no quick fixes, though it wouldn’t add sitting on its hands for
eight years was a major cause of today’s problem.
Aside from energy, on the inflation front we had the release of
the May producer price index and it showed wholesale prices are
up 7.2% over the past 12 months, while in keeping with the
above RBS report, inflation measures around the world are also
above comfort levels.
But like yours truly, Goldman Sachs chief economist Jan Hutzius
is sanguine on inflation going forward, as is the Bank of
England’s Mervyn King, as long as wages stay tame and, for
now, I do not see the prospects for higher wages when employers
have the upper hand. No doubt, especially in Europe, there will
be increasing calls to strike among the worker set, as soaring fuel
prices far exceed the rate of increase in their paychecks, but this
is not like the days, pre-Thatcher, where unions around the world
had their way.
For now, look at the situation here in the U.S. and with the states.
Not a week goes by where we don’t learn of another one being
forced to cut spending, and jobs, thanks to declining sales and
property tax revenues for instance. That’s a large set of
employees not operating from a position of strength, unless they
reside in energy intensive states such as Wyoming.
If you’re looking for some bright news, though, it’s contained in
the data that shows Americans are cutting back on their driving,
down 2% since last November. Almost everyone seems in
agreement; this is not some short-term adjustment but a real sea
change in behavior. Over time this is only good, even if it means
the automakers will continue to take it on the chin, particularly
when it comes to sales of the heretofore most profitable vehicles,
the ones that guzzle the most petrol.
Street Bytes
–Continuing a recent stretch of up one, down one, stocks took a
header this week as the Dow Jones fell 3.8% to 11842, the lowest
weekly close since Sept. 2006 for this index. The Dow’s
advances have been swamped by the declines the past two
months, witness this pattern.
+1.3%, -2.4%, +1.9%, -3.9%, +1.3%, -3.4%, +0.8%, -3.8%
Ongoing credit concerns and stubbornly high oil were the chief
culprits this go ‘round.
–U.S. Treasury Yields
6-mo. 2.22% 2-yr. 2.88% 10-yr. 4.16% 30-yr. 4.72%
Bonds rallied some after the bloodbath of the previous week as
the Federal Reserve prepared to meet on June 23-24. The market
expects the Fed to hold the line on rates but issue a warning
about inflation amidst the soft economy.
–Ford dealt a blow to optimists in the auto sector as the company
warned it would probably lose money a fourth consecutive year
in 2009 as it delayed introducing a new version of its most
profitable line, the F-150 pickup, to allow for dealers to clear out
existing inventory first. Ford also announced it would build far
fewer trucks in the second half of ’08. S&P also put both Ford
and GM under credit watch.
–Gary Crittenden, the CFO of Citigroup, warned of continued
losses on its leveraged loan exposure, as well as other areas of
the firm, which “could have a meaningful impact on our results
for the remainder of the year.” Analysts estimate Citi faces an
additional $10 billion in writedowns.
–Goldman Sachs once again proved it’s different, and head and
shoulders above the rest, in reporting better than expected
earnings (for a 12th consecutive quarter), while Morgan Stanley’s
results disappointed.
–Louise Story of the New York Times had a piece concerning
the Street’s overall profit picture as “Between early 2004 and
mid-2007, a period of unprecedented wealth…seven of the
nation’s largest financial companies earned a combined $254
billion in profits.”
“But since last July, those same banks – Bank of America,
Citigroup, JPMorgan Chase, Lehman Brothers, Merrill Lynch,
Goldman Sachs and Morgan Stanley – have written down the
value of the assets they hold by $107.2 billion, gutting their
earnings and share prices.”
Separately, the Financial Times reports that investors who have
recently participated in capital raises for the same above
investment banks are already suffering from paper losses in
excess of $10 billion, which as I note in my opening up above
makes it that much harder for the Street, let alone regional banks,
to raise further needed capital.
–Inflation alert, part XVIII: Employer health-care costs are
slated to rise about 10% in 2008, according to a study by
PriceWaterhouseCoopers. The same report predicts an
additional rise of 9.6% in 2009.
–Inflation alert, part XIX: Consumers in the UK could see their
energy bills rise 40% in ’08, unless there is a dramatic decline in
oil prices.
–The U.K.’s biggest mortgage lender said home prices there will
fall 9%. If that’s all, they’re very lucky. The damage in the long
run will be far worse.
–Treasury Secretary Henry Paulson, in an attempt to leave a real
legacy before he returns to bird watching has called for the
Federal Reserve to be given new explicit powers to intervene in
Wall Street’s ability to continue to con us………..OK, that was
more of an editorial comment, but Paulson said “Our nation has
come to expect the Federal Reserve to step in to avert events that
pose unacceptable systemic risk.” But the central bank “has
neither the clear statutory authority nor the mandate to anticipate
and deal with risks across our entire financial system.”
The Fed should thus be given the authority “to access necessary
information from highly complex financial institutions and the
responsibility to intervene in order to protect the system.”
I totally agree with Paulson’s intentions, while the SEC
scrambles to stay in the game.
–The FBI has rounded up more than 400 people over the past
few months as a result of a broad investigation into mortgage
fraud, costing victims more than $1 billion. But this is just the
tip of the iceberg, as the FBI also added it is homing in on 19
“large corporations,” including investment banks, credit rating
agencies, accounting firms and hedge funds.
–Related to the above, two former managers of Bear Stearns’
hedge funds surrendered to the FBI and have been charged with
securities fraud, the first such indictments against Wall Street
executives related to the credit crisis. There are some who say
the case against Ralph Cioffi and Matthew Tannin will be hard to
prove, but it appears to me they made one misleading statement
after another, in public (and not just in e-mails), to warrant
conviction for simple fraud. Defenders of the two say they are
being made out to be scapegoats. Good.
–A leading economic report on California, courtesy of UCLA
and the Anderson folks, says the state will avoid recession
because of strong exports and agricultural activity. On the
housing front, it expects an affordability bottom to be reached
before year end.
–But the Anderson Report may have it wrong when it comes to
real estate hitting a bottom in ’08 in much of California. The
exurbs, for example, such as the Antelope Valley and the Inland
Empire, don’t appear to be near a bottom as long as gasoline
prices stay at or above $4 per gallon. The median home sale
price in six Southern California counties sank to $370,000 in
May, down from $505,000 a year earlier, meaning the median
price is now basically back to March 2004 levels ($364,000).
But the 27% overall decline is nothing compared to the 38% and
42% declines in far-flung suburbs because the cost of the
commute versus the chance to own a better home just doesn’t
make sense.
–A few weeks ago the National Association of Realtors said
New Jersey was one of a handful of states seeing an increase in
home sales. I didn’t believe it. Well now the Realtors group
issued a bit of a correction. Turns out our state’s housing market
saw sales drop 30% in the first quarter compared to the same
period last year. The NAR apologized for the error.
–AIG still doesn’t get it. It continues to run the commercial with
the little kid who is having a nightmare about the family’s
financial future when the father goes, “Buddy, we’re with AIG!”
You see, AIG is indeed a nightmare and the kid, in actuality, has
been scared for life. This week the insurance giant finally forced
CEO Martin Sullivan to walk the plank after the company
reported the two biggest quarterly losses in its history, some $13
billion, but there is no assurance the worst is over.
–Jeff B., reporting from his annual vacation in Kiawah, SC, says
the condo parking lots were only half filled and the restaurants
not busy at all.
–China’s main stock index hit a 16-month low on Thursday
before rebounding a bit on Friday. But from its October peak,
the loss is still over 50%.
–Inflation alert, part XX: On Friday, cattle futures hit $1.06 per
lb., the highest since at least April 1986, the last year the Mets
won a World Series, but I digress.
–Gannett, publisher of 80 newspapers, including USA Today,
said ad revenue fell 14.3% in May. Smaller publisher
McClatchy is cutting 1,400 jobs, or 10% of its workforce.
–Congressional investigators urged the Air Force to reopen the
$35 billion tanker deal that the European defense contractor
EADS (in a joint venture with Northrop Grumman) had won
over Boeing. The Government Accountability Office, the
oversight arm of Congress, stressed there were errors in the
selection process, including flawed cost assessments. If the
contract is scrapped, trans-Atlantic relations could be damaged.
–If you have rhenium in your backyard, you’re probably feeling
wealthy these days. Rhenium is a minor metal that is used to
improve the fuel economy of jet engines and the price of it has
jumped from $1,000 a kilogram in 2006 to over $11,000 today,
according to the Financial Times.
Actually, unless you live in Chile or Kazakhstan, chances are
you don’t have enough rhenium in your backyard to make it
worthwhile for your kids to dig for it this summer.
–According to a story in the Los Angeles Times, one area in
which many Americans are cutting back during these trying
economic times is the gym, and monthly memberships.
–Update: The girlfriend of fugitive con man Samuel Israel III
was arrested for aiding and abetting his faked suicide the day
before he was to begin serving a 20-year prison sentence. Mr.
Israel has yet to be found, though investigators said the getaway
car was a 2007 Coachmen Freelander R.V. with the New York
license plate EEN-5973. [Let’s nab him.]
–So I’m flipping through the June 30 issue of BusinessWeek just
now and there is a story titled:
“Your Lifestyle May Hurt Your Credit Score: Lenders may be
monitoring your bar tab….”
Aagghhh!!!
Foreign Affairs
Iran: Foreign Minister Mottaki said “America should stop
interfering with other nations,” this as he added Iran was willing
to negotiate over a package of economic incentives, which of
course is another stall tactic. For its part, the European Union
has yet to levy new agreed upon sanctions, while President Bush,
on his last tour of Europe, reiterated “all options are on the
table.” No doubt, Iran is waiting out the Bush administration,
assuming it will get a better deal from the next occupant of the
White House. Meanwhile, Israel, as noted above, has been
practicing an attack on Iran’s nuclear facilities.
Israel: It’s been a busy stretch for Prime Minister Olmert, who
despite the ongoing corruption investigation appears to be
staying in power until new elections in the fall. Olmert is trying
to cement a legacy on the foreign policy front as he encourages
negotiations with Syria, institutes a six-month truce with Hamas
in Gaza, and approaches Lebanon.
Taken separately, there has been much talk that Olmert will meet
face to face with Syria’s President Assad in Paris on July 13, as
part of a previously scheduled international summit, but Assad
said “This is not like drinking tea” and that he wants the
technocrats to handle all the issues on the table in the
negotiations being overseen by Turkey before he sits down with
Olmert. Ergo, Assad doesn’t want to tick off sponsor Iran too
much just yet.
Regarding Hamas, Olmert is facing criticism internally because
the ceasefire is simply seen as giving Hamas time to rearm, while
Lebanon has said it is not ready to sit down with Israel, though
the Israelis, with prodding from both the U.S. and France,
understand that the disputed Shebaa Farms, currently occupied
by Israel, will eventually have to be turned back over to
Lebanon, as your editor said should be the case three years ago.
Iraq: The foreign minister here said a long-term security deal
with the United States was still within reach, despite concerns
over how it would impact Iraqi sovereignty.
Afghanistan: For the first time since the start of the Iraq war,
U.S. combat deaths in Afghanistan exceeded those in Iraq for the
month of May, 22 to 21. Casualties are becoming an increasing
political issue in the U.K. as nine British soldiers died in
Afghanistan in the past two weeks. Prime Minister Gordon
Brown has committed more troops to the effort, while Afghan
President Hamid Karzai threatened to send soldiers into Pakistan
if the latter didn’t do a better job of cracking down on the
Taliban’s bases.
Pakistan: The other day, former Pakistani prime minister Nawaz
Sharif said President Musharraf must be held accountable for the
1999 coup that ousted Sharif and brought Musharraf to power.
“We asked you to quit with honor after the election, but you
didn’t. Now people have given a new judgment for you…they
want you to be held accountable,” said Sharif to a crowd of
15,000 as they shouted “Hang Musharraf.” [Reuters]
Zimbabwe: Friday, June 27, is the date slated for the run-off
between Robert Mugabe and challenger Morgan Tsvangirai, but
there are serious doubts Tsvangirai will go ahead with the
contest. Many of his supporters are calling for him not to accept
a role in the charade as opposition leaders’ families have been
directly targeted, with at least three wives of leading figures
murdered; mutilated almost beyond recognition.
Russia: Former Secretary of State Henry Kissinger and former
British Prime Minister Tony Blair spoke at a conference in
Moscow and had some interesting comments. Kissinger warned
that the search for energy security could lead to aggression as
countries scramble to secure energy supplies.
“If supply is limited and demand increases, if countries compete
for access to energy on a purely national basis, we are bound to
see a repetition of the colonial conflicts of the 19th century,”
cautioning that such conditions could degenerate into “intense
political rivalry.”
Russian expert Marshall Goldman said “This is an early warning
signal, but…if anything, it might even hasten the grab for oil
assets. At the present time, Russia…is not in a position to worry
there won’t be enough for Russia. If anything, it might make
Russia even more aware of the fact that they are in a very
commanding position.”
Tony Blair said, “Power is shifting east, and it’s shifting fast, not
just to China and, in time, to India, but also to the Middle East
and to Russia. Political and economic relationships are
undergoing profound change.” [Moscow Times]
Separately, the U.S. and Lithuania have begun discussion on
Washington’s missile defense system. This is a huge mistake at
this point in time. Years ago, I wrote that the U.S. was wrong to
push for expansion of NATO because it was just rubbing our
nose in Russia’s face. You could counter I was wrong for this
stance, though I don’t believe I was.
But on missile defense, we’ve already been having discussions
with Poland and the Czech Republic that have raised tensions
with Moscow and while the U.S. is saying Lithuania is a fallback
position should talks with Poland, in particular, fail, the timing is
poor.
[Negotiations with Poland are stalled because Warsaw is looking
for broader support for its conventional military and air defenses
in exchange for allowing the U.S. to base radars there.]
China/Japan: The two struck a deal for joint development of a
controversial gas field in the East China Sea, a good thing.
China had initially begun drilling in the area in 2003, inflaming
tensions, and in 2004, a Chinese nuclear submarine had entered
Japanese waters near the gas fields. But ties have been
improving.
China/Taiwan: President Ma of Taiwan has called for even
broader economic ties between the mainland and Taiwan beyond
weekend charter flights and increased tourism. But Ma repeated
his demand that China remove the 1,000 short- and medium-
range missiles aimed at Taiwan before any true peace talks can
begin. “The idea is quite simple: we don’t want to negotiate a
peace agreement while our security is under the threat of missile
attack,” Mr. Ma said. President Ma appears to be a truly special
leader and I have turned optimistic on the future between these
two. [I also have the previously reported selfish reason for
hoping for the best…my China investment sitting directly across
the strait.]
South Korea: Nice start for President Lee Myung-bak…not. He
has been forced to issue one apology after another as his attempts
to jumpstart a sputtering economy have hit various roadblocks.
This week the apology was issued over the public backlash that
resulted from the move to restore U.S. beef imports. Lee told a
national audience he sought to help passage of a broader free-
trade pact with Washington, but the public’s opposition, amidst
fears of mad cow disease in American beef, grew into a larger
protest over Lee’s policy agenda. All of his top aides and cabinet
have offered to resign. At least nine were replaced on Friday.
Meanwhile, the U.S. has agreed to export only beef from
younger cows in order to allay concerns over the safety of the
meat.
France: President Sarkozy is looking to overhaul France’s
military to make it smaller yet more mobile to better address
today’s threats. Combat-ready troops would be reduced from
50,000 to 30,000, but Sarkozy is also calling for a broader
emphasis on an EU force as well as cooperation with NATO,
which France withdrew from back in 1966 to protest dominance
of U.S. commanders.
Sweden: Parliament approved broad new laws allowing
authorities to spy on cross-border e-mail and telephone traffic.
Surprisingly, Sweden now has the most far-reaching
eavesdropping statutes in Europe as the government says such
measures are needed for national security reasons.
Mexico: The drug war continues to intensify and the economic
impact is far-ranging. In Tijuana, for example, where over 200
have been killed in drug violence already this year, tourism is
down 90% and half the businesses are shuttered. [Washington
Post]
European Union: As I was writing up my review last time,
results from Ireland and its vote on the Lisbon Treaty came in
and admittedly I gave it short shrift. One long-time, loyal reader
then criticized me for the statement “The Irish were fools to turn
it down and they’ve made some real enemies.” Fair enough. But
as I told Billy F., this August I’ll be taking my 16th or 17th trip to
Ireland since 1989 and I feel like I know this place as well as
anyone and I have seen many a change, as described in these
pages, and I’m down on the country. In other words, I stand
behind my remark that the Irish made a big mistake.
The 27-member EU has struggled to put in place measures
streamlining European Union power and in the Lisbon Treaty the
prime focus is to create a president and foreign minister so that
Europe can speak with one voice on vital foreign policy matters,
such as the looming one on energy security and Russia’s
influence. 18 of the 27 nations have already approved the treaty,
including France and Germany, as well as smaller members such
as Hungary and Slovenia, but Britain, Italy and Spain are among
those still to do so and all 27 must sign off for it to become law.
Ireland’s vote, with 53% voting ‘no,’ effectively kills it,
according to most.
Opponents say Lisbon cedes too much power to unelected
officials in Brussels, the EU’s headquarters, and puts at risk
Ireland’s 12.5% corporate tax rate. Proponents, on the other
hand, say that with Ireland’s vote, the EU could form a ‘union
within a union,’ which is one reason why I said Ireland would
suffer. Following are some opinions.
Robert Kagan / Washington Post
“The Lisbon Treaty was supposed to (create) two potential
leaders to represent Europe on the world stage: a president and a
foreign minister. Names being bandied about for the two jobs,
from Tony Blair to Sweden’s Carl Bildt, made it possible to
imagine Europe taking a stronger role in the world, even amid all
the doubts. To Euro-enthusiasts across the continent, the new
constitution was the answer to Europe’s malaise and the next
step toward global leadership. But what now, since the treaty is
dead?
“All of this is bad news for the United States. In a world of
rising great powers, of which two happen to be autocracies, the
United States needs its fellow democracies to be as strong as
possible. A unified, independent, capable Europe is in American
interests, even if we may disagree at times. I would much rather
see Europe run the 21st century than Vladimir Putin’s Russia or
Hu Jintao’s China.
“The danger of this latest blow to European confidence is that
our allies, including Britain, could gradually sink into global
irrelevance. Already there are voices in London welcoming it.
The Financial Times’ Gideon Rachman believes that the majority
of Europeans, if not their leaders, prefer irrelevance and are right
to do so. It’s better than having to be like the United States, with
responsibilities all over the globe. After all, ‘being a superpower
can be a burdensome and bloody business,’ he writes. Europe’s
weakness is a kind of ‘nirvana.’
“Rachman is certainly right that many Europeans prefer it this
way. Europe has started to settle into a role akin to the chorus of
a Greek tragedy, endlessly commenting and pronouncing
judgment on the actions of the protagonists – ‘O Oedipus, by
reckless pride undone!’ – but with little or no effect on the
outcome of the drama. And perhaps Europe – the Europe
lacking in leadership, the Europe now lacking a new treaty – is
the way it is because that’s what the people really do want. If so,
the 21st century, decidedly not run by Europe, will be a very
tricky time for the United States.”
Roger Cohen / New York Times
“Europeans have spent a lot of time in recent years asking
Americans how they could be dumb enough to make the same
mistake twice in electing George W. Bush. But when it comes to
sheer electoral crassness, it’s hard to beat what the Irish have just
done.
“I can’t think of a country that’s benefited from European Union
membership more than Ireland. It has catapulted itself in a few
decades from beer-soaked backwater to the Celtic Tiger whose
growth rates, foreign investment and rags-to-riches story were
the envy of every languishing small nation with a thirst for a
makeover.
“Enormous E.U. farm subsidies, access for foreign investors to
the E.U. market, and the liberation from a Britain complex
afforded by new European horizons all contributed to the
rebranding of Ireland. Dublin was suddenly hip; the peat bogs
were passé. No wonder the Irish adopted the euro with élan
while the British shrunk from ‘the Continent’ and stuck with
sterling.
“Yet here we have the Irish, in a fit of Euro-bashing pique
worthy of the worst of little-Englandism, rejecting the
renegotiated Lisbon treaty essential for the functioning of an
expanded 27-member E.U. Biting the hand that feeds you does
not begin to describe this act of bloody-mindedness.
“The Lisbon Treaty is essential. It alone can create a streamlined
decision-making mechanism for a 27-member union. It alone
can forge the meaningful presidency and foreign-affairs posts
that will give the E.U. the increased political clout that its
economic weight demands. At a time of flux in global power,
with the United States overextended and China and India
emergent, Europe needs coherence to count.
“I know, the Irish, like the rest of us, were looking for someone
to blame for soaring gas prices and food inflation and
unresponsive politicians and new economic pressures, and what
better opportunity than a referendum on a still impenetrable E.U.
treaty that was once billed as a ‘constitution’ and is now the
downsized nightmare of every Brussels bureaucrat?
“Still, what the Irish did was unconscionable. It makes me
despair of a Europe that should be proud of what it’s achieved in
absorbing the freed former vassal-nations of the Soviet Union in
Central Europe. But instead of rejoicing at a Europe ‘whole and
free,’ Europeans have been in a funk of which the Irish ‘No’ is
the latest expression….
“Europe needs to get over (this). To come into force, the treaty
requires ratification by all member states. Others must now
proceed with the ratification process. E.U. history is full of acts
of ingenuity that have kept the Euro bicycle from toppling. The
months ahead should be used to find one to deal with the
ungrateful Irish.”
I couldn’t agree more with Cohen’s comments. I have written in
great detail about the Irish miracle after each of my trips and I’ve
written of the changes taking place on the Emerald Isle. There is
a cockiness bred not just of success, but an ugly kind. As I told
my friend Billy, I’ve seen Ireland in depression (which it was in
1989), on into the golden age, and now the big reversal. Those of
you traveling to Ireland for the first time could be in for a rude
awakening. It’s not all charm, but I keep going myself because I
now have long-time friends in the golf town of Lahinch where
I’m a member. These friends would also be the first to tell you
that their country has changed, and not for the better. Prices are
totally outrageous, and not just because of the pitiful dollar, and
my friends there recognize that there are other places to take a
vacation and they have legitimate concerns Americans, and
others, will begin to recognize this.
Ireland also has huge infrastructure issues that I’ve spelled out
before, such as it’s one of the most polluted countries in the
world. There has been zero planning for the growth and, frankly,
you’d be nuts to swim in the cold waters because of all the raw
sewage that is dumped into the sea, and they long ago ran out of
space at their traditional garbage dumps, without any
alternatives.
But the bottom line is the Irish were spoiled by E.U. largesse.
Then, they got religion and, taking advantage of their subsidies,
adopted the corporate tax reforms that fueled the growth of the
Celtic Tiger. But without the E.U., none of this would have been
possible and now as the bubble breaks, the Irish are, in Cohen’s
words, ungrateful.
Lisbon was not an attack on Ireland’s democracy, as some claim.
It’s an attempt to give it a unified political voice and now that is
at risk.
But get this. According to a story in the London Times, “it
appears three quarters of voters mistakenly believed that the
treaty could easily be renegotiated to give Ireland a better deal.
Young voters were against it by a majority of two to one, while
those that abstained felt they did not have enough information
about its impact.”
“The ‘no’ campaign achieved great success with the slogan ‘If
you don’t know, vote no,’ because not only was the document
full of legal jargon, but senior Irish politicians fed the idea that it
was incomprehensible. Brian Cowen, the Prime Minister,
admitted that he had not read it.”
There’s enough blame to go all around. But the Irish can’t
expect anyone in the E.U. to do it any favors anytime soon. That
was my point from last week.
Random Musings
–John McCain called for lifting the federal moratorium on
offshore oil and gas drilling before President Bush did, arguing
that the facts have changed with the advent of $4 gasoline at the
pump, but he continues to attempt to walk a fine line with
environmentalists in saying the Arctic National Wildlife Refuge
needs to remain off limits. On drilling offshore, McCain said it
“could be very helpful in the short-term in resolving our energy
crisis.” Wrong. Not short-term, maybe longer-term.
Of course Barack Obama and the environmentalists have called
McCain a hypocrite for changing his stance on this topic, but the
question is, what does the average American voter think? The
early guess is the pain at the pump outweighs any complaints
McCain is merely being politically expedient.
The latest Washington Post/ABC News survey has Obama
leading McCain 48-42, nationally, a margin that is consistent
with past surveys, while a new NBC News/Wall Street Journal
poll shows Congress with just a 13% approval rating…a stunning
record low. [In the ABC News survey, President Bush gets a
29% approval mark.]
–For his part, Senator Obama suddenly announced he wouldn’t
accept public financing for his campaign, a flip-flop
memorialized in a debate moderated by Tim Russert, which
supplies the McCain folks with all the ammunition it needs to
paint Obama as the ultimate hypocrite. Obama doesn’t want to
be limited to the $85 million he would be entitled to if he stuck
to the limits when he can raise at least $200 million by keeping
the spigots open to all. Through April, for instance, he had
raised $266 million, while McCain had taken in $110 million,
none of it for the fall campaign. [Democratic strategist Joe
Trippi says Obama can raise $500 million after the convention.]
–On the issue of the Supreme Court’s recent ruling, 5-4, that the
writ of habeas corpus applies to non-American detainees, I agree
with the musings of George Will as expressed in his Washington
Post op-ed.
“The day after the Supreme Court ruled that detainees
imprisoned at Guantanamo are entitled to seek habeas corpus
hearings, John McCain called it ‘one of the worst decisions in the
history of this country.’ Well.
“Does it rank with Dred Scott v. Sanford (1857), which
concocted a constitutional right, unmentioned in the document,
to own slaves and held that black people have no rights that
white people are bound to respect? With Plessy v. Ferguson
(1896), which affirmed the constitutionality of legally enforced
racial segregation? With Korematsu v. United States (1944),
which affirmed the wartime right to sweep American citizens of
Japanese ancestry into concentration camps?
“Did McCain’s extravagant condemnation of the court’s habeas
ruling result from his reading the 126 pages of opinions and
dissents? More likely, some clever ignoramus convinced him
that this decision could make the Supreme Court – meaning,
which candidate would select the best judicial nominees – a
campaign issue.
“The decision, however, was 5 to 4. The nine justices are of
varying quality, but there are not five fools or knaves. The
question of the detainees’ – and the government’s – rights is a
matter about which intelligent people of good will can differ.
“The purpose of a writ of habeas corpus is to cause a government
to release a prisoner or show through due process why the
prisoner should be held. Of Guantanamo’s approximately 270
detainees, many certainly are dangerous ‘enemy combatants.’
Some probably are not. None will be released by the court’s
decision, which does not even guarantee a right to a hearing.
Rather, it guarantees only a right to request a hearing. Courts
retain considerable discretion regarding such requests.
“As such, the Supreme Court’s ruling only begins marking a
boundary against government’s otherwise boundless power to
detain people indefinitely, treating Guantanamo as (in Barack
Obama’s characterization) ‘a legal black hole.’ And public
habeas hearings might benefit the Bush administration by
reminding Americans how bad its worst enemies are.
“Critics, including Chief Justice John Roberts in dissent, are
correct that the court’s decision clouds more things than it
clarifies….
“(But) no state power is more fearsome than the power to
imprison. Hence the habeas right has been at the heart of the
centuries-long struggle to constrain governments, a struggle in
which the greatest event was the writing of America’s
Constitution, which limits Congress’ power to revoke habeas
corpus to periods of rebellion or invasion. Is it, as McCain
suggests, indefensible to conclude that Congress exceeded its
authority when, with the Military Commissions Act (2006), it
withdrew any federal court jurisdiction over the detainees’
habeas claims?
“As the conservative and libertarian Cato Institute argued in its
amicus brief in support of the petitioning detainees, habeas, in
the context of U.S. constitutional law, ‘is a separation of powers
principle’ involving the judicial and executive branches. The
latter cannot be the only judge of its own judgment.
“In Marbury v. Madison (1803), which launched and validated
judicial supervision of America’s democratic government, Chief
Justice John Marshall asked: ‘To what purpose are powers
limited, and to what purpose is that limitation committed to
writing, if these limits may, at any time, be passed by those
intended to be restrained?’ Those are pertinent questions for
McCain, who aspires to take the presidential oath to defend the
Constitution.”
–Robert Samuelson on the candidates, part II. Last week I
passed on his thoughts, as expressed in the Washington Post, on
Barack Obama. Today, John McCain.
“No one can claim that McCain lacks convictions. He has often
defied Republican Party orthodoxy, and his credentials to lead a
centrist coalition are stronger than Obama’s. According to
Politico, he sided with his party only 83 percent of the time from
2005 to 2007. Even in this election year, he has taken unpopular
positions. Note his criticism of farm subsidies, which won’t help
him in the Midwest. The trouble with McCain is that he often
mistakes stubbornness for principle.
“He has a hard time changing his mind, even when the evidence
overwhelmingly suggests he’s wrong. He has stuck with
‘campaign finance reform’ despite its dismal record. After three
decades, it has entangled political campaigns in rules and
paperwork without solving any notable problem (for example,
people continue to believe that wealthy ‘special interests’ have
too much influence). On immigration, he still does not grasp
what I think is the actual problem: not illegal immigration so
much as too many poor and unskilled immigrants, whether legal
or illegal. Like Obama, he seems oblivious to the possible
unintended consequences of endorsing an anti-global-warming
‘cap-and-trade’ program.
“Steadfastness and good judgment are qualities we value in a
president, and McCain has often displayed these. He was early
and correct in his criticism of the Bush administration’s conduct
of the Iraq war and of its treatment of prisoners. He has been
consistent in his opposition to high and wasteful federal
spending. But good judgment must accompany steadfastness,
and there are enough instances of McCain’s bad judgment to
make you wonder which would prevail.”
–Talk about chutzpah, look no further than Democratic senators
Kent Conrad (ND) and Christopher Dodd (Conn.) who both
received preferential treatment on mortgages from Countrywide
Financial and CEO Angelo Mozilo, this as they prepare
legislation to combat the foreclosure crisis that directly aids the
likes of Countrywide. As the Wall Street Journal opined, in
commenting on Senator Conrad’s confession he had called
Mozilo and asked for a loan:
“So after calling the CEO of a company with various matters
before the Senate, asking for a loan and then receiving at least
two sweetheart deals, Mr. Conrad now says: ‘I did not think for
one moment – and no one ever suggested to me – that I was
getting preferential treatment.’ Lawyers will immediately
wonder if this isn’t a version of the ‘ostrich defense,’ which
judges describe during jury instruction as willful blindness or
deliberate ignorance. For what other reason, besides preferential
treatment, would one call the CEO of the mortgage company?
Does Mr. Conrad call August Busch IV when he wants to buy a
six-pack?”
–In a Journal op-ed for Father’s Day by Juan Williams, he cites
some of the following.
“The nation’s out-of-wedlock birth rate is 38%. Among white
children, 28% are now born to a single mother; among Hispanic
children it is 50% and reaches a chilling, disorienting peak of
71% for black children. According to the National Center for
Health Statistics, nearly a quarter of America’s white children
(22%) do not have any male in their homes; nearly a third (31%)
of Hispanic children and over half of black children (56%) are
fatherless.
“This represents a dramatic shift in American life. In the early
1960s, only 2.3% of white children and 24% of black children
were born to a single mom.”
–I can’t help but watch the flooding in the Midwest and think of
West Nile Virus, because needless to say there will be some
terrific breeding grounds for mosquitoes.
West Nile has already been detected in New York City as
spraying has commenced (though thus far limited in scope).
Look for it to become a big issue by August.
–Scientists believe the Mars lander has discovered chunks of ice
while excavating the other day, though it’s not known if this was
part of an ice sculpture left over from a Martian wedding
reception. Needless to say, it’s exciting.
–According to two environmental science professors, Brian
Toon and Alan Robock, in a nuclear war between India and
Pakistan, more people might be killed by changes in the climate
than by the nuclear conflict itself. As reported by William
Matthews of Defense News:
“Nuclear radiation from the war probably would not affect the
United States, Europe, Russia or areas outside of the two warring
countries. But smoke would cause colder temperatures than the
world has experienced in 1,000 years, the pair said in a
presentation on Capitol Hill, June 13….
“Based on their climate modeling, temperatures worldwide
would decline by an average of about 2 degrees Fahrenheit in the
year after the nuclear war. That’s enough to cut 20 days off the
growing season in most of the United States and shorten it by 10
to 20 days in Europe….
“Rainfall worldwide would decrease 9%, they said.
“The cause of the problem would be soot from burning cities.
Wafted high into the atmosphere, smoke would spread around
the world, filtering out sunlight and cooling the Earth.”
But wait….there’s more!
“A nuclear war between the United States and Russia would
have far worse environmental effects, ‘with temperatures
plunging below freezing in the summer in major agricultural
regions, threatening the food supply of most of the planet.”
So start stocking up on Chex Mix and beer, if you haven’t
already been doing so, sports fans.
–Finally, I have been surprised by the level of grief over the
death of Tim Russert, as his own family has been. You know
what a fan I was, but I never thought I’d receive the number of
notes I have from women, expressing how much they loved the
guy, nor would I have expected notes from male readers,
telling me either how bummed they were or how devastated their
wives are. I was golfing with a good friend the other day and
when we met at the club, one of the first things he talked about
was Russert and what a fan he was. “I really felt like I knew the
guy,” a common sentiment. And on Wednesday night, after
watching some of the memorial service (wasn’t Maria Shriver
great?), I said a prayer at a service organization dinner and
casually mentioned Russert, tying him to Tom Brokaw’s
comment on his friend about being a good citizen, and the owner
of the restaurant came up to me at the end of the evening and
expressed his thanks for my bringing Russert up in the fashion I
did. He then went on and on about how much he loved the guy.
At the same time, I’m amazed at those (such as some on the far-
right) who just don’t get it. Aside from the fact Russert
obviously connected with the average Joe and Mary, as I noted
last week I loved the guy not just because of his tremendous
work ethic, but because he was such a great teacher. If you want
to be a good citizen in this country, people like Russert play a
critically important role in our democracy.
But for those who still harbor doubts as to what kind of person
Russert was, here’s a remembrance from right-winger William
Kristol, publisher of The Weekly Standard, June 23.
“Tim gave the commencement address at the 2007 Washington
University graduation in St. Louis. My wife and I were there
because one of my daughters was in the graduating class. I
called to congratulate him on the speech – it was a good one,
especially given the difficulties and limitations of the genre – and
we had lunch. I remember thinking afterwards that he was
remarkably unchanged from the guy I’d met 30 years before
[when Kristol was working for Sen. Moynihan and Russert was
with the Democratic boss in Buffalo]. He was intellectually
curious and personally kind, a patriot and a family man, with a
lively personality and a great and communicable interest in
politics and life.
“Tim Russert was an impressive and admirable man, and while
Washington can be an insincere town, the almost universal
expressions of grief at his passing are genuine and, if I can put it
this way, completely deserved.”
Bernard Goldberg, the former correspondent who writes
frequently on the topic of media bias, had some of the following
thoughts in a Journal op-ed. It turns out that when Goldberg
came out with his first book, “Bias,” an insider’s look at bias in
the media, Russert was the only network news correspondent
who wanted anything to do with Bernie and gladly booked him
for an hour on his CNBC interview show. Goldberg writes:
“We ended our conversation that day with an exchange about the
criticism he took from some on the political left for wearing a
red, white and blue ribbon on his lapel when he interviewed Vice
President Dick Cheney on Sept. 16, 2001. He told me a good
friend of his died at the World Trade Center on 9/11, and that the
friend’s family had asked if he would wear the ribbon, ‘and I
never thought for a second about it.’
“ ‘I want a debate about national security and who defines
national security,’ he said. ‘I understand all that. But in the end,
you have to make judgments, and on that day I made a judgment
that five days after the most horrific event of my lifetime and of
my journalistic career, that for me to say to the country I too am
part of this, I too have experienced this gut-wrenching pain and
agony, and I too have enormous remorse and sympathy, with not
only the people who died in the World Trade Center, the
Pentagon, and in the field in Pennsylvania, but all of us – we’re
in this together. This isn’t covering Democrats and Republicans
or the Bills versus the Redskins; this is ‘us.’ The Taliban doesn’t
believe in the First Amendment.’
“ ‘But what about those who say journalists shouldn’t wear red,
white and blue ribbons, that by doing that somehow you’re
taking the government’s side in some debate or another,’ I asked
him.
“ ‘It is imperative,’ he told me, ‘that we never suggest that
there’s a moral equivalency between the United States of
America and the terrorists. Period. I’ll believe that until the day
I die.’
“Which was way too soon.”
Alas, now we have the scramble at NBC to fill Russert’s shoes,
especially on “Meet the Press.” Some of the early stories are flat
out unseemly, such as those involving Chris Matthews and Keith
Olberman. While Brian Williams is hosting this week, it makes
sense to me, as suggested by Al Neuharth, founder of USA
Today, that Tom Brokaw fill in until we get through the election.
And according to the New York Post, Russert himself wanted to
see NBC political director Chuck Todd eventually take over, so
maybe that occurs in 2009.
But today, we can all agree on one thing. There was no more
impressive person throughout this last week than Tim Russert’s
own 22-year-old son, Luke. As Jimbo wrote me Monday
morning, knowing I was watching Luke’s unreal performance on
“Today,” “Can I hire the guy?” Here’s hoping Luke gets a
chance to unwind some, after the pain and pressures he’s been
through. But no doubt his mother and father have done a terrific
job in grooming him for greatness.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $903
Oil, $134.62…unchanged on the week
Returns for the week 6/16-6/20
Dow Jones -3.8% [11842]
S&P 500 -3.1% [1317]
S&P MidCap -1.3%
Russell 2000 -1.1%
Nasdaq -2.0% [2406]
Returns for the period 1/1/08-6/20/08
Dow Jones -10.7%
S&P 500 -10.2%
S&P MidCap -0.4%
Russell 2000 -5.3%
Nasdaq -9.3%
Bulls 36.3
Bears 37.4 [Source: Chartcraft / Investors Intelligence…normal
ratio is 45/35…bull/bear]
Have a great week. I appreciate your support.
Note: I’m heading to Eugene, Oregon, later this week for the
Olympic Track and Field Trials, an event I’ve been looking
forward to for a long time as a big fan of the sport. However, the
schedule is such that I’m not too sure I’ll be able to post this
column at the usual time next week. I’ll keep you apprised if
there is a slight change.
Brian Trumbore
