[Posted 7:00 AM ET]
Return of the Bear
Years ago I read a book titled “Empire of the Czar” by the Marquis de Custine, a travelogue from the 1830s of this French aristocrat’s experience in Russia. I haven’t had a chance to glance through it again but I remember how he wrote of the Russian character and thinking he was spot on, much as Alexis de Tocqueville was in his characterization of the United States, also written in the 1830s, the classic “Democracy in America.”
But whereas Tocqueville was highly complimentary of Americans, Custine slammed Russians for being deceitful and cruel, much of which was fueled by an inferiority complex built up over the centuries. 170 years later, nothing has changed.
I know a fair amount of Russian history and I’ve been there three times, once as a youth in 1973 at the height of the Cold War and then twice in the last five years, trips well-chronicled in these pages. To me there is no more fascinating place in the world, but believe me when I say I am biting my tongue in writing of the Russia of Czar Vladimir the Great and the war in Georgia. Suffice it to say, I agree with Custine.
I saw a CNN report from Georgia that pretty well summed up the situation today. Some soldiers had fallen behind on the march to Gori and a CNN reporter was threatened by this band of roving nitwits, “smelling of alcohol.” Others, such as Ralph Peters, a former intelligence officer quoted below, have written of the shoddy performance of the Russian military the past week, such as pilots incapable of hitting targets, mostly because they receive zero training and their Soviet style equipment is in disrepair. But when they come up against Chechen civilians, or against an outmanned Georgian army, they can look powerful by comparison.
Vladimir Putin is a smart, calculating man and he knows one thing; in a conventional fight with the likes of the United States, or even Britain, he’d get his butt kicked, and this kills him. I wrote extensively of how when he first came to power he sought to upgrade Russia’s conventional forces but he has since wasted his oil wealth and the nation’s military today is a largely undisciplined, rag-tag bunch. They can only pick on those lesser in size…though they still have nukes. Lots of them.
But whereas mutual assured destruction worked in the past, we live in a different world today, with state-sponsored terrorism and, as I’ve also written on numerous occasions, loose nukes and rogue Russian generals whose true allegiances are not often known. And now we have this invasion of little Georgia. It’s about Russia’s inferiority complex, it’s about regaining lost respect, it’s about naked aggression. And it’s about Vladimir Putin, former KGB operative, looking to make his mark on Russian history.
As George Will said last Sunday, “This is about Russia reestablishing the Evil Empire.” Will added, in commenting on those in this country who aren’t familiar with Georgia, “No one had heard of Sarajevo until Aug. 1914 either.”
You’ve been kept well-apprised of the reasons for caring about Georgia all along.
“Georgia accused the Kremlin of trying to annex the breakaway republics of Abkhazia and South Ossetia, as Russia said it would intensify cooperation with the two. Georgian President Mikheil Saakashvili responded, ‘We demand Russia revise all decisions which violate Georgia’s sovereignty.’ NATO’s secretary general supported Saakashvili in calling for Russia to back off.
“Of course none of this would happen without the approval of Vladimir Putin, who is still president for another few weeks. On Tuesday, Putin solidified his future power by agreeing to lead United Russia as new party chairman. Putin will assume this role on May 7, the day Dmitry Medvedev ascends to the presidency.
“Understand that United Russia controls 315 of 450 seats in the Duma and thus parliament, through Putin’s edicts, can check Medvedev should the latter become a little too independent for Putin’s liking. For his part, Medvedev can dismiss the prime minister, which is what Putin will also become, but the Duma must endorse a successor, thus no-go on that option for Dmitry. So in case you harbored doubts as to who will really be running the country, it’s Putin.”
Four months later, that conclusion couldn’t be more clear as the issue of Georgia takes center stage. I’ll let Georgian President Saakashvili speak for himself below on the origins of the conflict. Personally, I’m disgusted by the apologists for Russia, in any shape or form.
Of course this war is also about oil and Putin’s ongoing attempt to 1) prevent the West from building any new pipelines originating in the likes of Kazakhstan and Turkmenistan that then bypass Russian territory and 2) the ability to hold Europe hostage by controlling in excess of 25% of that continent’s natural gas supply.
For starters, the United States and its European allies, as well as Canada and Japan, should immediately boot Russia from the G-8. We’ll have ample time in coming weeks and months to discuss other alternatives. But for now, count me in as being Georgian. They need, and deserve, all the help we can give them.
[This column is a running history of the decade. At times like these I feel it is only right I provide as much detail and opinion as possible, thus the length of this week’s effort.]
“Russian actions…represent a dramatic and brutal escalation of the conflict in Georgia. And these actions would be inconsistent with assurances we have received from Russia that its objectives were limited to restoring the status quo in South Ossetia that existed before fighting began on August the 6th.
“It now appears that an effort may be underway to depose Georgia’s duly elected government. Russia has invaded a sovereign neighboring state and threatens a democratic government elected by its people. Such an action is unacceptable in the 21st century….
“(Russia’s) actions have substantially damaged Russia’s standing in the world. And these actions jeopardize Russia’s relations with the United States and Europe. It is time for Russia to be true to its word and to act to end this crisis.”
“Russia’s invasion of Georgia strikes at the heart of Western values and our 21st-century system of security. If the international community allows Russia to crush our democratic, independent state, it will be giving carte blanche to authoritarian governments everywhere. Russia intends to destroy not just a country but an idea.
“For too long, we all underestimated the ruthlessness of the regime in Moscow. Yesterday brought further evidence of its duplicity: Within 24 hours of Russia agreeing to a cease-fire, its forces were rampaging through Gori; blocking the port of Poti; sinking Georgian vessels; and – worst of all – brutally purging Georgian villages in South Ossetia, raping women and executing men.
“The Russian leadership cannot be trusted – and this hard reality should guide the West’s response. Only Western peacekeepers can end the war….
“As we consider what to do next, understanding Russia’s goals is critical. Moscow aims to satisfy its imperialist ambitions; to erase one of the few democratic, law-governed states in its vicinity; and, above all, to demolish the post-Cold War system of international relations in Europe. Russia is showing that it can do as it pleases.
“The historical parallels are stark: Russia’s war on Georgia echoes events in Finland in 1939, Hungary in 1956 and Czechoslovakia in 1968. Perhaps this is why so many Eastern European countries, which suffered under Soviet occupation, have voiced their support for us….
“Last week, Russia, using its separatist proxies, attacked several peaceful, Georgian-controlled villages in South Ossetia, killing innocent civilians and damaging infrastructure.
“On Aug. 6, just hours after a senior Georgian official traveled to South Ossetia to attempt negotiations, a massive assault was launched on Georgian settlements. Even as we came under attack, I declared a unilateral cease-fire in hopes of avoiding escalation and announced our willingness to talk to the separatists in any format.
“But the separatists and their Russian masters were deaf to our calls for peace. Our government then learned that columns of Russian tanks and troops had crossed Georgia’s sovereign borders. The thousands of troops, tanks and artillery amassed on our border are evidence of how long Russia had been planning this aggression.
“Our government had no choice but to protect our country from invasion, secure our citizens and stop the bloodshed. For years, Georgia has been proposing 21st-century, European solutions for South Ossetia, including full autonomy guaranteed by the international community. Russia has responded with crude, 19th-century methods….
“I have staked my country’s fate on the West’s rhetoric about democracy and liberty. As Georgians come under attack, we must ask: If the West is not with us, who is it with? If the line is not drawn now, when will it be drawn? We cannot allow Georgia to become the first victim of a new world order as imagined by Moscow.”
“While the rape of Chechnya was brutal, this is the most brazen act of Mr. Putin’s reign, the first military offensive outside Russia’s borders since Soviet rule ended. Yet it also fits a pattern of other threats and affronts to Russia’s neighbors: turning off the oil or natural-gas taps to Ukraine, Belarus, Georgia, and even to NATO-member Lithuania; launching a cyberassault on Estonia; opposing two antimissile sites in NATO members in Eastern Europe that couldn’t begin to neutralize Russia’s offensive capabilities….
“As for the U.S., this is perhaps the last chance for President Bush to salvage any kind of positive legacy toward Russia, amid what is a useful record elsewhere in Eurasia. While Mr. Bush has championed the region’s fledgling democracies, he and Secretary of State Condoleezza Rice badly misjudged Mr. Putin. Now would be a good moment for Mr. Bush to publicly acknowledge his misjudgment and rally the West’s response.”
Ralph Peters / New York Post, 8/9
“The Kremlin decided it was time to act, since Georgia was only growing stronger under its democratically elected government. Although NATO has been hemming and hawing about admitting Georgia, the Russians didn’t want to take any chances. [Just last month, 1,000 U.S. troops were in Georgia for an exercise.]
“Calculating that the media and world leaders would be partying in Beijing, the Russians ordered North Ossetian militiamen, backed by Russian ‘peacekeepers’ and mercenaries, to provoke the Georgians earlier this month.
“Weary of the Russian presence on their soil, the Georgians took the bait. President Mikheil Saakashvili ordered his U.S.-trained military to respond.
“How do I know that the Russians set a trap? Simple: Given the wretched state of Russian military readiness, that brigade could never have shot out of its motor pool on short notice. The Russians obviously ‘task-organized’ the force in advance to make sure it would have working tanks with competent crews.
“Otherwise, broken-down vehicles would’ve lined those mountain roads.
Bronwen Maddox / London Times
“The body language said it all. Dmitry Medvedev, Russia’s so-called President, meeting the French President in Moscow yesterday, looked tense and subdued, a pale face above a dead-white shirt, sitting cramped in one of the Kremlin’s gilt chairs as Nicolas Sarkozy took up the airspace with expansive hand gestures. In contrast, Vladimir Putin, the Prime Minister (the role he chose when appointing Medvedev as his successor), has been relaxed, leaning back in his chair, using long answers to shut out other speakers in chairing his Cabinet and in public appearances.
“The past five days have answered the puzzle of who is running Russia. Putin is clearly in charge; Medvedev has seemed like his puppet. Putin flew from the Olympic Games to the border of South Ossetia, an action man dashing in to comfort terrified civilians. Medvedev has been confined to the Kremlin….
“It is Putin who has believed that the dismemberment of the Soviet Union is a profound humiliation, but perhaps only a temporary disaster that might one day – under a strong enough leader – be reversed. He has loathed the Georgian President since the two met in 2004. He made the crushing of Chechen separatists his own mission. And he found the recent Western rebuff to Russian wishes over Kosovo enraging.
“Putin’s fury over Kosovo may explain the scale of Russia’s response over South Ossetia. Russian officials have explicitly compared the two, arguing that they are doing no more in protecting ‘their’ citizens in South Ossetia than the West did by its military assault to repel Serb forces from Kosovo. But that account ignores, for a start, the Serbian attempt to drive Kosovar Albanians, the majority of the province’s population, out of their homes, and the deaths that had already occurred….
“(It) looks as if Putin’s special sourness and his aggrieved belief that he has done the West favors with no reward are to shape Russian policy. Those wanting to be hopeful about Russia must wish that its increasingly modern and open society, with people traveling and feeling part of Europe, will win out over its irritable and aggressive leadership.”
Robert Kagan / Washington Post
“This war did not begin because of a miscalculation by Georgian President Mikheil Saakashvili. It is a war that Moscow has been attempting to provoke for some time. The man who once called the collapse of the Soviet Union ‘the greatest geopolitical catastrophe of the [20th] century’ has reestablished a virtual czarist rule in Russia and is trying to restore the country to its once-dominant role in Eurasia and the world. Armed with wealth from oil and gas; holding a near-monopoly over the energy supply to Europe; with a million soldiers, thousands of nuclear warheads and the world’s third-largest military budget, Vladimir Putin believes that now is the time to make his move….
“Putin’s aggression against Georgia should not be traced only to its NATO aspirations or his pique at Kosovo’s independence. It is primarily a response to the ‘color revolutions’ in Ukraine and Georgia in 2003 and 2004, when pro-Western governments replaced pro-Russian ones. What the West celebrated as a flowering of democracy the autocratic Putin saw as geopolitical and ideological encirclement.
“Ever since, Putin has been determined to stop and, if possible, reverse the pro-Western trend on his borders. He seeks not only to prevent Georgia and Ukraine from joining NATO but also to bring them under Russian control. Beyond that, he seeks to carve out a zone of influence within NATO, with a lesser security status for countries along Russia’s strategic flanks. That is the primary motive behind Moscow’s opposition to U.S. missile defense programs in Poland and the Czech Republic.
“His war against Georgia is part of this grand strategy. Putin cares no more about a few thousand South Ossetians than he does about Kosovo’s Serbs. Claims of pan-Slavic sympathy are pretexts designed to fan Russian great-power nationalism at home and to expand Russia’s power abroad.
“Unfortunately, such tactics always seem to work. While Russian bombers attack Georgian ports and bases, Europeans and Americans, including very senior officials in the Bush administration, blame the West for pushing Russia too hard on too many issues.
“It is true that many Russians were humiliated by the way the Cold War ended, and Putin has persuaded many to blame Boris Yeltsin and Russian democrats for this surrender to the West. The mood is reminiscent of Germany after World War I, when Germans complained about the ‘shameful Versailles diktat’ imposed on a prostrate Germany by the victorious powers and about the corrupt politicians who stabbed the nation in the back.
“Now, as then, these feelings are understandable. Now, as then, however, they are being manipulated to justify autocracy at home and to convince Western powers that accommodation – or to use the once-respectable term, appeasement – is the best policy….
“Historians will come to view Aug. 8, 2008, as a turning point no less significant than Nov. 9, 1989, when the Berlin Wall fell. Russia’s attack on sovereign Georgian territory marked the official return of history, indeed to an almost 19th-century style of great-power competition, complete with virulent nationalisms, battles for resources, struggles over spheres of influence and territory, and even – though it shocks our 21st-century sensibilities – the use of military power to obtain geopolitical objectives. Yes, we will continue to have globalization, economic interdependence, the European Union and other efforts to build a more perfect international order. But these will compete with and at times be overwhelmed by the harsh realities of international life that have endured since time immemorial. The next president had better be ready.”
Ralph Peters / New York Post, 8/12
“It’s impossible to overstate the importance of what’s unfolding as we watch. Russia’s invasion of Georgia – a calculated, unprovoked aggression – is a crisis that may have more important strategic implications than Iraq and Afghanistan combined.
“We’re seeing the emergence of a rogue military power with a nuclear arsenal.
“The response of our own government has been pathetic – and our media’s uncritical acceptance of Moscow’s version of events is infuriating….
“Prime Minister Vladimir Putin is putting it bluntly: Today, Georgia, tomorrow Ukraine (and the Baltic states had better pay attention)….
“This invasion recalls Hitler’s march into Czechoslovakia – to protect ethnic Germans, he claimed, just as Putin claims to be protecting Russian citizens – complete BS.
“It also resembles Hitler’s invasion of Poland – with the difference that, in September ’39, European democracies drew the line….
“Just as Moscow has reverted to its old habit of sending in tanks to snuff out freedom, Washington has defaulted to form by abandoning Georgia to the invasion – after encouraging Georgia to stand up to the Kremlin.
“Reminds me of 1956, when we encouraged the Hungarians to defy Moscow – then abandoned them. And of 1991, when we prodded Iraq’s Shia to rise up against Saddam – then abandoned them. We’ve called Georgia a ‘friend and ally.’ Well, honorable men and states stand by their friends and allies. We haven’t.
“Oh, we sure are giving those Russians a tongue-lashing. I’ll bet Putin’s just shaking as he faces the awesome verbal rage of Condi Rice. President Bush? He went to a basketball game.”
Charles Krauthammer / Washington Post
“The Finlandization of Georgia would give Russia control of the Baku-Tbilisi-Ceyhan pipeline, which is the only significant westbound route for Caspian Sea oil and gas that does not go through Russia. Pipelines are the economic lifelines of such former Soviet republics as Kazakhstan and Azerbaijan that live off energy exports. Moscow would become master of the Caspian basin.
“Subduing Georgia has an additional effect. It warns Russia’s former Baltic and East European satellites what happens if you get too close to the West. It is the first step to reestablishing Russian hegemony in the region….
“President Bush could cash in on his close personal relationship with Putin by sending him a copy of the highly entertaining (and highly fictionalized) film ‘Charlie Wilson’s War’ to remind Vlad of our capacity to make Russia bleed. Putin would need no reminders of the Georgians’ capacity and long history of doing likewise to invaders.”
Editorial / Washington Post
“You might think, at a moment such as this, that the moral calculus would be pretty well understood. Russian troops are occupying large swaths of Georgia, a tiny neighboring country, and sacking its military bases. Russian jets have roamed Georgian skies, bombing civilian and military targets alike. Russian ships are said to be controlling Georgia’s port of Poti, while militia under Russia’s control reportedly massacre Georgian civilians. Russian officials openly seek to depose Georgia’s elected government. Yet, in Washington, the foreign policy sophisticates cluck and murmur that, after all, the Georgians should have known better than to chart an independent course – and what was the Bush administration thinking when it encouraged them in their dangerous delusions? If the criticism is correct, a fundamental and generations-old tenet of American foreign policy is wrong, so we should be clear about what is at stake.
“Part of the blame-the-victim argument is tactical – the notion that the elected president of Georgia, Mikheil Saakashvili, foolishly allowed the Russians to goad him into a military operation to recover a small separatist region of Georgia. Mr. Saakashvili says that the facts are otherwise, that he ordered his troops into action only after a Russian armored column was on the move. If that’s not true – if he moved first – he was indeed foolish, and if Georgian shelling targeted civilians, it should be condemned. It is a bit rich, though, for the Russians – who twice flattened their separatist-inclined city of Grozny, the capital of Chechnya, killing tens of thousands of civilians in the name of territorial integrity – to wave the war-crimes banner now.
“Moreover, the evidence is persuasive and growing that Russia planned and instigated this war. Russian cyberwarfare against Georgia’s Internet infrastructure began as early as July 20, the New York Times reported yesterday. Weeks before that, Russian railway troops had entered another separatist region of Georgia to repair key tracks. Russia had 150 tanks and other armored vehicles ready to roll, strategic targets selected for its air force, naval units off Georgia’s Black Sea coast. And during the week before the war, Russian-controlled militia were shelling Georgian villages with increasing ferocity….
“You can quickly begin to see the reemergence of a world that would be neither in America’s interest nor much to Americans’ liking.
“If a democratically elected Ukraine chooses not to join NATO – and Ukrainians are divided on the question – NATO will not force itself on Ukraine. But if Ukrainians – or Georgians, Armenians or anyone else – recoil at Russia’s authoritarian model and choose to associate with the West, should the United States refrain from ‘egging them on’? Since the days of the Soviet Union, when the United States never abandoned the cause of ‘captive nations,’ American policy has been that independent nations should be free to rule themselves and shape their future. How, and how effectively, the United States can support those aspirations inevitably will vary from case to case and from time to time, and supporting those aspirations certainly won’t always involve military force. But for the United States to counsel a ‘realistic’ acceptance of vassal status to any nation would mark a radical departure from past principles and practices.”
Editorial / New York Post
“In dispatching Secretary of State Condoleezza Rice to Tbilisi, President Bush sent a tangible demonstration of U.S. support for his besieged Georgian counterpart, Mikheil Saakashvili.
“That’s it? Well, not exactly. American humanitarian aid is on its way, too….
“To be sure, Russia’s move into Georgia likely was inevitable after Washington backed Kosovo’s declaration of independence from Serbia. This violated a tacit understanding that Europe’s post-Soviet borders would remain unchanged so as to avoid just such explicitly ethnic conflict.
“Indeed, many of the arguments now being made by Moscow to support its own incursion into South Ossetia mirror those made by the Clinton administration to justify NATO’s Serbian intervention a decade ago.
“Which raises the unavoidable question: Was Washington’s seeming surprise at Russia’s invasion of Georgia the result of yet another intelligence failure, a political miscalculation – or both?”
Ralph Peters / New York Post, 8/14/08
“The Russians are alcohol-sodden barbarians, but now and then they vomit up a genius.
“Prime Minister – and now generalissimo – Vladimir Putin is Mother Russia’s latest world-class wonder.
“Let’s be honest: Putin’s the most effective leader in the world today.
“That doesn’t mean he’s good news for anybody – not even for the Russians, in the long run. His ruthless ambition and gambler’s audacity may end terribly.
“But, for now, give the devil his due: After a long string of successes, from his personal mastery of Russia’s government and media to his cold-blooded energy brinkmanship, Putin has capped his performance with a stunning success in Georgia.
“Not a single free-world leader currently in office can measure up to Czar Vladimir the Great.
“Following his turnaround of Russia from bankrupt kleptocracy to flush-with-cash autocracy, he’s now openly determined to restore Moscow’s old empire. And he’s getting away with it.
“As a former intelligence officer, I’m awestruck by the genius with which Putin assessed the strategic environment on the eve of his carefully scripted invasion of Georgia.
“With his old KGB skills showing, Putin not only sized up President Bush humiliatingly well, but precisely anticipated Europe’s non-reaction – while taking a perfect-fit measure of Georgia’s mercurial president.
“Breaking off his phony play date with Bush in Beijing, Putin rushed back to the theater of war.
“Upon arrival, he publicly consoled ‘refugees’ who had been bused out of South Ossetia days in advance. Launching the war’s Big Lie, Putin deployed dupe-the-rubes code words, such as ‘genocide’ and ‘response.’
“Wearing his secret-policeman’s stone-face, Putin blamed Georgia for exactly what his storm troopers were doing to the Georgians. And lazy journalists around the world served as the Kremlin’s ad agency.
“Strategy and conflict hinge on character. Putin’s character is ugly, but he’s certainly got one: On the world stage, he comes across as a man among munchkins. When French President Nicolas Sarkozy flew in to Moscow to demand a cease-fire, Putin – busy with his war – couldn’t’ be bothered. He fobbed Sarko off on Russia’s play-pretend president….
“Want a straightforward indication of what the Russians intend? Putin’s code-name for this operation is Chistoye Polye. Literally translated, that means ‘clean field.’ In military parlance, it means ‘scorched earth.’
“The empire of the czars hasn’t produced such a frightening genius since Stalin.”
“Russia’s decision to send its troops and bombs into Georgia is a testament, at least in part, to how much the flow of billions of dollars in oil and gas revenue is emboldening Moscow to defy the U.S. and the West in ways it either wouldn’t or couldn’t just a few years ago.
“But the troubling strategic reality that is emerging is bigger and starker than just that. The rise of energy prices also is enriching other bad actors, creating a kind of globe-girdling string of well-heeled regional antagonists the U.S. can’t ignore.
“In the Middle East, Iran has assumed the role of energy-enriched regional power hostile to the U.S., with its ability to build a nuclear program and to bankroll Hamas and Hizbullah Islamist militants made all the easier by soaring oil prices. In Latin America, Venezuela aspires to play the role of oil-fueled, anti-American antagonist.
“Now Russia, increasingly nationalistic and expansionist, may well be emerging as a similar oil-financed regional power either indifferent or hostile to the wishes of the U.S. and the North Atlantic Treaty Organization.
“ ‘What we’re basically seeing,’ says Richard Haass, president of The Council on Foreign Relations, ‘is a redistribution of power.’
“It’s a troubling picture that has one additional, important strategic implication. The emerging new global equation makes fostering good relations with China even more important to the U.S. in the global balance of power. Indeed, it was appropriate, perhaps even prophetic, that President George W. Bush was in Beijing for the Olympics, smiling and saying nice things about ‘respect’ for China’s people, even as Russia was bulldozing into Georgia….
“(The new U.S. president) will have to be prepared for more tensions with Russia. There is a real possibility that the next international crisis may spring not from Iraq, or Iran, or Afghanistan, but from Russia. The nightmare scenario is that Russia’s leaders, emboldened by their move against Georgia, try to follow up by seeking to rein in the bigger and much more important fellow former Soviet republic of Ukraine….
“(This) makes the U.S. relationship with China more interesting and important. It probably isn’t feasible to try to play China and Russia directly off each other, as was sometimes possible when they were the two behemoths during the Cold War. The two countries are now on quite different paths, with China developing an economy that requires much more integration into the global order to succeed.
“Yet that also represents an opening for the U.S., and at a good time to seize it. There may not be a direct trade-off between relations with Moscow and Beijing. But at a time of rising tensions with Moscow, the next president isn’t likely to want the same problems with Beijing.”
Richard Beeston / London Times
“Rarely have Russians had such cause to celebrate their hero. One minute Vladimir Putin was in Beijing mixing with Russian athletes on the opening day of the Olympics. Moments later he reappeared in the Caucasus, sleeves rolled up and directing a victorious counter-attack against his arch-rival Mikheil Saakashvili, the Georgian president. Fleeing refugees and wounded civilians were comforted. Generals saluted smartly as they were sent off to battle. No one was left in any doubt that Mr. Putin, rather than the absent President Medvedev, was still firmly in charge of the country.
“In the space of only five days the Russian Prime Minister succeeded not only in smashing the Georgian Army but also teaching all those in the ‘near abroad,’ as Russia refers to its neighbors in the former Soviet empire, a painful lesson about challenging Moscow in its own backyard.
“The decisive action was in sharp contrast to the response in the West. The war in Georgia exposed deep divisions in the transatlantic alliance and revealed the impotence of the Bush administration in protecting its closest friend in the region…
“The mini-war in Georgia may have surprised some Europeans, but it was expected weeks ago by British Intelligence. Thanks to the murder of Alexander Litvinenko, the ex-KGB officer who was poisoned in London by suspected Russian agents nearly two years ago, Britain has completely reassessed its relationship with Moscow. MI5, which reports that Russian agents in Britain are now back at Cold War levels, regards Russia as the third most serious threat to British security after terrorism and nuclear proliferation. Attempts to rehabilitate relations have faltered and the recent treatment of BP by its partners and the Russian authorities has only reinforced the view that Russia cannot be trusted.
“Flush with billions from the sale of oil and gas, the Kremlin may calculate that it does not need allies in the West and would rather be respected and feared than befriended.
“That too would be a serious mistake. For all its big-power bluster, Russia is weak and vulnerable. Russian tanks and aircraft may have smashed the fledgling Georgian Army with ease, but most of the weaponry was Cold War-era and many of the troops conscripts. Anyone who has seen the Russian Army operating in the Caucasus knows that the military will need a generation to modernize. Meanwhile America, and its main NATO allies, are decades ahead in military technology and combat experience.
“Russia is also facing a severe demographic crisis. Its population is shrinking by 700,000 people a year. The UN estimates the population will fall below 100 million by 2050, down from around 146 million today.
“As for the economy, it is booming thanks to natural resources that account for 70 percent of the country’s wealth. But the oil price is in a state of flux. Russia has failed to diversify. Should energy prices fall sharply, the economy could collapse, as it did a decade ago.
“Mr. Putin once described the collapse of the Soviet Union as the greatest tragedy of the 20th century. Trying to resurrect it could be the greatest folly of the 21st.”
This was the week where a stark reality finally hit everyone in the face, including those who heretofore were clueless…the global economy was tipping over. The 15-nation Eurozone, for example, retracted in the second quarter with GDP off 0.2%. Not a disaster, not a crash, not even a recession by the common definition since we haven’t had a second quarter of negative growth in this region, but just as in the U.S., if it looks like a recession and feels like a recession…it’s a recession. Even in Asia, where Japan’s 2nd quarter GDP fell at an annualized rate of 2.4%, while you still have a vast majority of that region’s economies growing strongly, at least by Western standards, you also have a significant slowdown; such as in Singapore where GDP rose 7.2% in 2007 but is now estimated to be closer to 4% this year. South Korea and Vietnam are in similar situations, and post-Olympics, all eyes are going to be on China. Remember, here, 10% growth is good, 8% bad; the latter being close to recessionary levels because at this level the government isn’t able to find jobs for all those who want to work.
So it feels like a global slowdown. Let’s say you made widgets and in 2006 you produced and sold 100. Then in 2007, you sold 107, or 7% growth. Then in 2008, you sold 111, or an increase of 4% over 2007. But you might have produced 114 because you were assuming growth of 7%, and maybe you had hired an extra employee, and now you have 3 unsold widgets, and you’re thinking, uh oh, if we keep this up I’ll produce 122 (114 Xs 7%) and only sell 115 (111 Xs 4%) and then have 7 on the shelf, and the price begins to come down, your margins are shrinking, and you still have this extra employee for whom you also might be paying benefits. By most measures your company is still growing, but it doesn’t feel good, and what if your major customer is in Europe and suddenly you’re only selling 103, or, worse yet, 98? Then you’re thinking of laying two people off, perhaps.
But wait….there’s more. Let’s say you were operating off a revolving line of credit with the banker you had a 20-year relationship with. You borrow money for raw materials, knowing each year you’ll easily sell enough to meet your debt service and pay it off, but your bank has had problems of its own, getting swept up in mortgage-backed securities and derivatives land and they have to cut back themselves and the edict has come down from on high that it’s belt tightening time, across the board, and now your friendly banker is saying he’s reducing your line of credit from $2 million to $1 million and now you’re scrambling to finance your purchase of raw materials, or a machine to replace the 20-year-old widget maker that is showing signs of being on its last legs. That, sports fans, is a credit crunch.
Of course in the old days, like as recently as 2005, you had positive equity on your home and your bank would have extended you a home equity loan that could have been used for your business if need be, but now not only is the bank balking, but the home you purchased in 2003 because your sales had exploded from 20 to 60 widgets is suddenly underwater and even if the bank had avoided the subprime crisis they still couldn’t loan you any money. And now your daughter, who had failed to get that women’s lacrosse scholarship at Duke, but you didn’t care because she was a freshman in 2005, when all was well with the world and your business, is entering her senior year and she’s reminding you you owe the school $40,000. And her sister is just entering her sophomore year of high school. Bottom line, you’re not sleeping well.
And that’s kind of the situation we’re in today, Charlie Brown. When you look at the Big Picture some of the actual numbers don’t look so bad, and we certainly are nowhere near what a few of our parents, and definitely our grandparents would remember as the Great Depression, but it’s tough out there.
Aside from the fact the consensus among economists in the United States is that growth will flat line, at best, in the second half of this year, when just a few short months ago the same folks were calling for a second half rebound, you have this global economy that is rapidly taking on water and a credit crisis, long tied to a global housing bubble that virtually no one foresaw years ago as I did, and there really is little cause for optimism.
So I’ll try and supply some. Take inflation. This week we learned that the consumer price index for July rose 0.8% and is now running at a 5.6% rate year over year, the worst level since 1991. Even the ‘core,’ ex-food and energy (no jokes this time because it’s getting old), rose 2.5%, above the Federal Reserve’s comfort level.
But Mr. Editor, you’re now talking of inflation moderating, the “Big Moderation” as you put it back in May. Very true, but I also said you have to give me some time and I’m here to tell you, as many other market participants are beginning to sniff out, that the peak in inflation is basically in. Forget oil, which has fallen from $147 to under $114 in five weeks, that old inflation barometer, gold, has collapsed from $960 to $790 during the same period. And it’s not all because the dollar has strengthened some. The percentage change in the latter is miniscule compared to that of most commodities.
Of course what I just wrote means one thing…speculators are unwinding positions at light-speed, as well as the fact inflation expectations are changing due to the slowing global economy and thus decreased demand for all this stuff. Take oil, please. Again, I just have to repeat a line from 7/5/08 when I wrote, in discussing how oil had peaked, that “there is no doubt speculation has played a role in the high price.” Many took issue with this opinion just six weeks ago. But in Friday’s Wall Street Journal you had the headline “Data Raise Questions On Role of Speculators.” Reported by Ann Davis:
“Data emerging on players in the commodities markets show that speculators are a larger piece of the oil market than previously known, a development enlivening an already tense election-year debate about traders’ influence.
“Last month, the main U.S. regulator of commodities trading, the Commodity Futures Trading Commission, reclassified a large unidentified oil trader as a ‘non-commercial’ speculator.
“The move changed many analysts’ perceptions of the oil market from a more diversified marketplace to one with a heavier-than-thought concentration of financial players who punt on big bets.
“As a result, the number of futures and options contracts held by traders counted as speculators – those who don’t have a commercial need to mitigate the risks of energy prices in their business – rose to 49% of all crude-oil bets outstanding on the New York Mercantile Exchange, up from 38%.”
I’m declaring victory, though I never had any doubt I was right in the first place. Anyway, back to inflation, you all know there are no wage pressures out there and so the pace of inflation will slow. Consider this, the 10-year Treasury finished the week at 3.84%, while stocks rose. If bond traders were so concerned about the highest reading on CPI since 1991, you can be sure we’d be trading well above 4.00%. [Yes, I also have to concede that the rally in stocks and bonds, amidst the poor economic news overseas, is also a sign of money flowing back to the U.S.]
Meanwhile, as alluded to above the credit crisis continues unabated. JPMorgan wrote off $1.5 billion in mortgage-related crapola, while adding that trading conditions “have substantially deteriorated” as housing and the global economy continue to take on gas. Others in the financial sector voiced similar concerns, and/or wrote off more garbage such as in the case of UBS. Even Goldman Sachs had a number of analysts downgrade its stock in slashing earnings forecasts.
On the retail front, Wal-Mart reported same-store sales for the 2nd quarter that came in above earlier estimates, but then issued a crummy forecast for 3rd quarter activity. Both are bad. Why? In saying same-store sales for Q2 rose a stronger than expected 4.5%, Wal-Mart is not only telling you it is executing its business plan beautifully in a tough environment, but when viewed alongside the other retailers, most of whom are sucking wind, it’s also saying frugality is in. Then, in forecasting Q3 same-store sales of 1%-2%, Wal-Mart is telling you it will feel the slowdown economists forecast, including for the key back-to-school period.
On housing, the news continues to be terrible. Zillow.com says 1/3rd of the homes purchased the last five years are now underwater and, astoundingly, there are parts of California where the figure is closer to 80%-90%. Overall, foreclosures rose 55% in July, year over year, and a whopping 8% over June’s pace; this despite all the do-good programs the government has instituted. You always needed the banks to cooperate, however, and largely they aren’t. It’s every man, woman, and banker for themselves these days.
There are some, though, that are talking of a bottom because a depressed market such as Cleveland’s is showing signs of recovery. Not yet. Reminder, when we bottom, and that will happen over the next year (which is the first time I’ve actually gone this far), we’ll just sit there. No V-shaped recovery.
–We had yet another reminder that stocks trade on sentiment as much as on fundamentals; the latter are awful but at least for now most investors/traders/speculators believe the worst may be over. Nasdaq, amidst a five-week winning streak, up another 1.6% to 2452, is now off just 7.5% for the year. The small cap Russell 2000 is only 1.7% from break even for ’08. As for the Dow Jones, it fell 0.6% to 11659 and the S&P 500 advanced 0.2% to 1298.
–U.S. Treasury Yields
Economists are now forecasting that GDP will rise 1.2% in Q3 and 0.3% in Q4. Just to remind you of the prior three quarters….Q4 ’07, -0.2%; Q1 ’08, 0.9%; Q2 ’08, 1.9%.
–Demand for crude oil in America is collapsing; in June off 4.7%. At the same time, OPEC produced a record level (32.8mm barrels per day in July), so the supply/demand picture was conducive to a slide in prices. Yet global demand is still expected to be higher in 2008 than ’07, thanks to the likes of China and India.
–Inflation Watch: [For the believers out there.] China’s producer price (wholesale) index came in at 10% for July, not good, but the CPI for the same month came in at 6.3%, very good, relatively, because food costs have begun to come down. [Economists would say, though, PPI is the pipeline, to which I’ll say the impact will only last a month more, if that.] Similarly, Britain’s PPI came in at 10.2% for July, the hottest since 1986, but with the slowdown in the U.K., growth fears trump inflation. One other item, India’s PPI was up a disconcerting 12.4%. If you disagree with me, you have your ammo.
–WIR, 6/28/08: “I’m going to be a contrarian with this call, but I’ll say the U.S. corn harvest is not as bad as expected. Not all of Iowa was flooded, for example, just 9% of the corn crop (or 1.5% of the nation’s normal harvest).” Bingo! The USDA projected this week that the U.S. will have its 2nd-largest corn harvest ever, next to 2007, because the impact of the floods has not been as severe as expected, thanks in no small part to Mother Nature, who decided she had overdone it earlier in the year, felt bad about it, and has since supplied some terrific weather in the corn belt.
–Total writedowns in the financial sector are now at the $500 billion level, with $350 billion in fresh capital having been raised to begin to make up the difference. Most would say we’re only about halfway through this fiasco. Witness…….
Swiss banking giant UBS, which continues to bleed profusely, writing down another $5 billion and thus bringing its total to $43 billion, as it announced a restructuring of units.
But then there is also irrefutable evidence UBS’ top executives knew of a plan by its private banking group to help wealthy American clients evade taxes by transferring their money to European tax havens. Back in May 2006, UBS chairman Peter Kurer received information from a whistleblower who had drawn attention to the issue, but Kurer then didn’t do enough to put a stop to the scam.
–Wachovia Corp. said it would cut 600 more jobs than it previously acknowledged, bringing the total to 11,350, including 4,400 open positions. All of the additional cuts will be in the mortgage business.
–Liz Rappaport and Randall Smith of the Wall Street Journal on the auction-rate securities fiasco.
“To help sell the securities as the market’s problems intensified, Citigroup and brokerage firm RBC Dain Rauscher last winter raised commissions to outside brokers for selling Citi’s and Dain Rauscher’s auction-rate securities inventory, according to emails sent from a Credit Suisse trading desk to Credit Suisse brokers. Dain Rauscher didn’t return calls for comment.
“Commissions on auction-rate securities were ‘much higher than for any other equivalent securities,’ says auction-rate specialist Joseph Fichera, chief executive of Saber Partners LLC, a financial consultant.
“State regulators also point to the ways financial firms pressed brokers and research analysts to pitch the securities.
“Merrill bond analyst Martin Mauro prepared a research report on last Aug. 22 warning of the dangers of auction-rate securities. It said investors ‘need to rely on other buyers in the market to redeem the securities at par.’
“The report was never published, Massachusetts regulators say, because Frances Constable, who ran Merrill’s auction-rate securities desk, shut it down. ‘It may single handedly undermine the auction market,’ she emailed two other Merrill employees later that day, according to a complaint filed by the regulators. The regulators say Ms. Constable demanded that the analyst retract and rewrite the report, which appeared the next day with language added that rising rates made the securities ‘a buying opportunity.’”
And then you have the case of UBS’ David Shulman, who ran the auction-rate desk. Last Aug. 22 he encouraged UBS brokers “to move more product through the system” on the same day he was selling personal holdings of the product worth as much as $475,000.
All manner of firms have been forced to settle on the ARS front, including Citigroup, UBS, JPMorgan Chase and Morgan Stanley, all having been jacked up against the wall by New York State Attorney General Andrew Cuomo and other state securities regulators and top cops. Merrill Lynch and Goldman Sachs, however, are among those holding out. But not for long. Three cheers for Cuomo. He’s getting it done and if it helps him politically, so be it. Of course I said the same thing about Eliot Spitzer, back in the day.
–Former Fed Chairman Alan Greenspan told the Wall Street Journal that while some sort of backstop for government-sponsored enterprises Fannie Mae and Freddie Mac was unavoidable, especially after the bailout of Bear Stearns, the White House and Congress “should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted – with necessary taxpayer support to make them financially viable – as five or 10 individual privately held units,” which the government would then eventually auction off to private investors, he said, rather than the Treasury’s temporary authority to use an unlimited amount of taxpayer money to lend or invest in the companies.
–According to an ABC News poll, 63% want the federal government to lift its embargo on new drilling in U.S. coastal waters, including half of Democrats. But Congress has continued to block a comprehensive energy bill, including extending tax credits for wind, solar and geothermal, because it’s all about November’s vote. As reported by Stephen Power in the Wall Street Journal, “Some conservatives worry that a deal would remove party differences on what they otherwise see as one of the Republicans’ best issues.” Rush Limbaugh says that by approving a compromise, drilling as well as goodies for the renewables crowd, it’s handing a “gift” to Barack Obama.
“(On July 30) the Senate was voting for the eighth time in the past year on a broad, vitally important bill – S. 3335 – that would have extended the investment tax credits for installing solar energy and the production tax credits for building wind turbines and other energy-efficiency systems.
“Both the wind and solar industries depend on these credits – which expire in December – to scale their businesses and become competitive with coal, oil and natural gas. Unlike offshore drilling, these credits could have an immediate impact on America’s energy profile.
“Senator McCain did not show up for the crucial vote on July 30, and the renewable energy bill was defeated for the eighth time….
“The fact that Congress has failed eight times to renew (the credits) is largely because of a hard core of Republican senators who either don’t want to give Democrats such a victory in an election year or simply don’t believe in renewable energy.
“What impact does this have? In the solar industry today there is a rush to finish any project that would be up and running by Dec. 31 – when the credits expire – and most everything beyond that is now on hold.”
“What these tax credits are designed to do is to stimulate investments by many players in solar and wind so these technologies can quickly move down the learning curve and become competitive with coal and oil…
“As Richard K. Lester, an energy-innovation expert at the Massachusetts Institute of Technology, notes, ‘The best chances we have – perhaps the only chance’ of addressing the combined challenges of energy supply and demand, climate change and energy security ‘is to accelerate the introduction of new technologies for energy supply and use and deploy them on a very large scale.’”
I keep bringing this topic up for very selfish reasons as I have sizable positions in a California-based solar company and a geothermal holding with a large facility in California as well. I need those credits extended or these investments will die. I’m sick of the Republicans and Democrats who are blocking a compromise.
–OPEC nations earned as much in the first half of this year as they did in all of 2007 thanks to the above-mentioned record production, as well as sky high prices. Try $645 billion for the first six months. If you’re happy with this, then I guess you favor the obstructionists in Congress.
The flip-side of OPEC’s largesse, however, is inflation, thanks to excessive government spending which OPEC nation leaders acknowledge is a big concern.
–While my own expectation is for inflation to moderate in the U.S., I have also been quick to add that I recognize some items, such as college tuition and healthcare, will continue to rise at a far higher clip, which is part of my gloomy economic scenario. Wages aren’t rising but other important costs are which in turn impact consumer spending.
So I see where a report by Aon Consulting Worldwide forecasts a 10% increase in healthcare costs next year, though this is the smallest Aon has seen in six years.
Personally, I’ve been pleased that my own insurance rates have risen less than 10% generally over the years…until now. I just received my premium renewal from United Healthcare and it is rising 30.5%! $155 per month. Yes, of course I’ll have to cut back to make up the difference. That’s a ton of money. I’ve also decided I’m going to get a whole new body this year…a new heart, kidneys, liver…you name it. Then, once everything is in place and working properly, I’ll cancel my insurance.
–According to the Energy Information Administration, home heating bills this winter are expected to rise 20% over last year; higher in the northeast.
–T. Boone Pickens has had a tough stretch in his hedge fund thanks to oil’s swoon from $147 to $114. BP Capital fell 35% in July. But any long-term investors have done exceedingly well during crude’s run since 1999.
–Fortress Investment Group, a manager of private equity and hedge funds, granted one hedge fund manager, Adam Levinson, shares worth more than $400 million, according to an SEC filing. At today’s share price for Fortress, the shares are worth about $300 million. Some say this is outrageous, seeing as Fortress is a public company whose shareholders have seen their stock plummet from $24 to $10 over the past year.
–EMarketer forecasts that online advertising in the U.S. will be far lower than its original forecast of 23% growth and that the initial 16% growth forecast for 2009 is also too high. Recall that recently Google admitted it faces “a more challenging economic environment.”
–Newsstand sales of U.S. magazines fell 6.3% in the first half of 2008, thanks to a cutback in nonessential spending. I know I’m wondering why I continue to spend $2 on the Wall Street Journal when I have an online subscription. Along these lines, Gannett Co., the largest U.S. newspaper publisher, announced it plans to lay off 1,000 as advertising crumbles.
–There are serious problems with dropped calls and other service disruptions on Apple’s new 3G iPhone. Some say it’s the chipset supplied by Infineon Technologies. The complaints have been worldwide and many say Apple’s obsession with secrecy is to blame since the company didn’t give carriers time to test the devices before they went to market. The slow speeds and dropped calls are occurring in good coverage areas, too.
–We note the passing of the great market strategist Michael Metz of Oppenheimer. He was 79. Metz was a beloved perma-bear and thus a hero of yours truly. No doubt he was often wrong, sometimes grossly so, but he had conviction.
But I have to blast CNBC. I read about Metz’s death in the Journal or New York Times and never heard one word about it on the network, even though he was a frequent guest. CNBC treated John Templeton’s death in the same fashion; saying nothing on air. Someone needs to get hold of the honchos there and remind them to treat the greats with respect. Alas, there isn’t anyone at CNBC who will be missed.
–China will overtake the U.S. next year as the world’s largest producer of manufactured goods, four years earlier than expected, in a forecast by the Financial Times and Global Insight. According to these estimates, China will account for 17% of manufacturing value-added output while the U.S. makes up 16%. Just last year, Global Insight said the U.S. would retain the top slot until 2013. Economic historians say China held the top slot for 1,800 years until about 1840, at which point Britain took over during the Industrial Revolution. The United States then led for the last 100+.
–Speaking of China, my holding here reported what to me was a solid quarter, especially since it had suspended biodiesel production due to the fact it isn’t profitable amidst rising raw materials prices and continuing government subsidies that put a ceiling on diesel. For those of you playing along at home, I bought a little more on the news and have not sold a share since I began buying it about 18 months ago. This is a long-term holding, though I will be highly disappointed if the market value isn’t substantially higher by Dec. 2009. Overall, I continue to recommend 80% cash, 20% equities.
Iran: I’m amazed how many people are still missing the point regarding Russia and talks to limit Iran’s suspected nuclear weapons program. As I wrote last week, just hours after the news hit on Georgia, you can kiss Russian cooperation goodbye. For his part, President Ahmadinejad was in Turkey on a mission that concerned the United States as Iran and Turkey looked to cut some energy deals, particularly on natural gas and a new pipeline.
Separately, and back to the nuclear front, Ahmadinejad said “We believe that dialogue is the best way to resolve the issue and we are always ready for dialogue,” but that negotiations had to take into account Iran’s right to develop nuclear energy technology. “Those who do not respect that will lose themselves. There will be no change in the will of the Iranian people.” [Every now and then I just have to put his statements down for the record.] Earlier he had said of Israel, “The life of this regime has come to an end.”
Of course when it comes to the development of nuclear weapons and negotiations it’s all about stalling and buying time, and for its part, Israel, an ally of Turkey, warned Ankara against “giving legitimacy” to a leader who has called for the destruction of the Jewish state. The U.S. State Department said any deals between Turkey and Iran “would send the wrong message at a time when the Iranian regime has repeatedly failed to comply with its UN Security Council and IAEA obligations.” Turkey is a NATO member and thus it was Ahmadinejad’s first bilateral visit to a NATO member.
Israel/Lebanon: In a move that will significantly impact Israel, Lebanon’s new unity government received the vote of confidence it was seeking, allowing the cabinet to start work. Its 30 members include 11 from a bloc led by Hizbullah, which will be enough to veto legislation, plus, the agreement asserts Hizbullah’s right to resist Israel militarily. The issue of the terror group’s weapons will be discussed separately. Hizbullah leader Nasrallah said he was more determined than ever to be part of a national defense strategy for Lebanon. “We insist, now more than anytime before, on the need to discuss and come up with a strategy for Lebanon so that we all know how we can defend our country.” A Hizbullah MP said they had more arms and personnel than before the summer 2006 war, affirming Israeli intelligence reports.
Lebanon/Syria: The two have agreed to reestablish diplomatic relations for the first time in 60 years. Part of this will be an agreement on disputed borders, but not including the Shaba Farms region that Israel won from Syria in the 1967 Six-Day War, maintaining it is part of the Golan Heights. Lebanon and Syria claim Shaba is part of Lebanon, but as I’ve written, if Israel would give up the 20 square kilometers it takes away Hizbullah’s raison d’etre, which is why Syria itself is taking it off the table when it comes to border negotiations. Related to the above pronouncement that Hizbullah was bigger than in 2006, consider that it may have as many as 40,000 missiles and rockets, technically, for the purpose of defending Shaba’s 20 kilometers, and according to the Jerusalem Post, "the latest talk is of Iranian-Syrian plans to supply Hizbullah with an advanced anti-aircraft capacity to provide defense against Israel’s air force." As Jonathan Spyer commented in the Post, “Such a move would represent a grave altering of the balance of power.”
Iraq: Foreign Minister Zebari said a ‘status of forces agreement’ is near between Iraq and the United States, and that there would be a “very clear timeline” for the withdrawal of U.S. troops. It is expected the U.S. presence will be deeply diminished within three years and that the U.S., if Iraq has its way, wouldn’t be allowed to unilaterally launch attacks inside Iraq without prior approval as soon as January 2009.
One of the problems is that parliament must approve any SOFA and these are the same politicians who will soon be up for election. They need to show how tough they are or they’ll be defeated and lose all their perks.
It also doesn’t help that, as a USA Today report has it, “Iraqi security forces loyal to the Shiite-led government are raiding voter registration centers and taking other steps to discourage participation in upcoming elections, says the head of Iraq’s voting regulatory agency.” [Charles Levinson and Ali A. Nabhan]
Separately, Jordan’s King Abdullah visited Baghdad, thus becoming the first Arab leader to do so as he signaled Jordan will be reopening its embassy. Just another reason why Abdullah remains a strong ally of the United States as well.
China: George Will / Washington Post
“This year’s August upheaval coincides, probably not coincidentally, with the world’s preoccupation with that charade of international comity, the Olympics. For only the third time in 72 years (Berlin 1936, Moscow 1980), the Games are being hosted by a tyrannical regime, the mind of which was displayed in the opening ceremonies featuring thousands of drummers, each face contorted with the same grotesquely frozen grin. It was a tableau of the miniaturization of the individual and the subordination of individuality to the collective. Not since the Nazi’s 1934 Nuremberg rally, which Leni Riefenstahl turned into the film ‘Triumph of the Will,’ has tyranny been so brazenly tarted up as art.
Poland: Not to give this short shrift, but the U.S.-Poland anti-missile deal reached on Thursday certainly didn’t please the Russians and the timing was curious, if just coincidental since Washington and Warsaw have been working on it for 18 months as the Poles wanted various concessions. Of most import, an American Patriot battery will be moved from Germany to Poland and manned by a crew of 100 U.S. military personnel. At least temporarily, the Americans will join their Polish compatriots on the front lines, facing east toward Russia. Should Poland ever be attacked, it of course means war for the United States. This week one issue that got lost in all the discussion over the Russia-Georgia conflict is the fact the U.S. desperately needs to increase the size of its military, above and beyond what the presidential candidates have proposed. It’s a new world, and a scary one.
India/Pakistan: Tensions have been rising after four years of mostly peaceful relations between these two nuclear-armed rivals. This past week saw renewed violence over the disputed territory of Kashmir as Indian forces killed a separatist/Muslim leader along with 15 others in protests on the border. Some say al-Qaeda has now begun to infiltrate Kashmir on the Pakistani-controlled side.
At the same time there were a slew of stories on Friday that Pakistani President Pervez Musharraf was within days of resigning and going into exile rather than face impeachment proceedings, though Musharraf’s allies denied this. Earlier, he had called for political stability in his country to help combat a tumbling economy and increased terrorism. Regarding the latter, al-Qaeda’s No. 2, Ayman al-Zawahiri, called for jihad in Pakistan, lashing out against the government, in English, and Musharraf specifically. While a date on the tape couldn’t be established, suffice it to say that the recent report of his death or incapacitation by CBS News was probably exaggerated.
Meanwhile, there is little doubt that even as polarizing as Musharraf has been, his departure, coming at a time of increased Taliban and al-Qaeda influence in the nation and a weak new government, would be deeply destabilizing and the United States has cause to worry, as does India.
North Korea: Not for nothing, but there is yet another dead end in the six-party talks. Pyongyang is rejecting key components of a nuclear verification plan, which is why Washington has yet to remove the regime from its list of state sponsors of terrorism. The Bush administration insists that any program must cover the regime’s suspected uranium enrichment and nuclear proliferation operations alongside its known plutonium program and the draft verification plan had called for full access by inspectors to all North Korean nuclear sites. But the North’s top negotiator dismissed this out of hand and demanded his nation be considered a nuclear power.
It now appears Lil’ Kim and his Orcs intend to just wait out Bush and deal with the new administration. The key sticking point above all others is the status of North Korea’s existing nuclear weapons and Pyongyang refuses to make them part of any inspection program.
–I have watched just some of the action from Beijing thus far, mostly the swimming, and I have to admit that I believe the Summer Games should only consist of swimming, track and field, and basketball. Soccer already has its World Cup and I’ve soured on events such as water polo this go ‘round. That’s an incredibly stupid ‘sport.’ It’s something to do at the swim club or in your pool, not an Olympic event. Or take Gymnastics. For starters, who believes the ages of the Chinese kids? No one. They are supposed to be 16 and stories from China’s own media, now taken off their Web sites, reveal the kids to be preschoolers, or thereabouts.
And then you have the deal with the lip-synching nine-year-old who faked the voice of a seven-year-old during the opening ceremonies because the musical director felt the other girl wasn’t attractive enough. Chen Qigang said “I think all China’s viewers and listeners should understand that was a matter of national interest.” Senior leaders in the Communist Party were involved in the decision.
As it also turns out, in rehearsals for the ceremonies one of China’s top dancers, 26-year-old Liu Yan, suffered a paralyzing injury as a platform malfunctioned and she plunged 10 feet into a shaft, landing on her back. Doctors have told the family it is unlikely she will ever walk again. Organizers tried to hush the incident up, but after an inquiry by the press, the Beijing Olympic Committee admitted the accident. What we don’t know is just how many other injuries there were in rehearsal among the 15,000 other performers.
The crowds have been deeply disappointing as well and hotels are reporting below-average occupancy for August, which is truly pitiful.
But, as for the American view, aside from strong television ratings, by a 55-34 margin we approve of the selection of Beijing for the Games [AP-Ipsos] despite all the human rights and freedom of the press issues.
One other Olympic note involving geopolitics. An Iranian swimmer refused to compete alongside an Israeli in the 100-meter breaststroke, pulling out under the orders of the chiefs of the Iranian delegation. The head of Israel’s Olympic Committee said “My heart goes out to the Iranian athletes. In the Athens Olympics one of their sportsmen, who was a gold medal favorite, had to pull out because he was drawn against an Israeli.” The IOC, by the way, accepted the explanation of the swimmer, who wrote a note that he was ill. Right. Iran faced sanctions if it was proved the fellow pulled out deliberately. Once again, the IOC proved itself to be a bunch of wimps.
–Post-Olympics, it’s back to politics and the conventions that will signal the start of the formal campaign and a time when the vast majority of Americans begin to give a damn beyond sound bytes and trumped up issues on talk radio.
For now, look at Barack Obama and how he’s had to kiss the Clintons’ rings for their endorsement. Hillary’s supporters will now be allowed to place her name in nomination, and Chelsea Clinton has signaled her ‘coming out,’ after being largely shielded on the campaign trail, as she introduces her mother to the throng that will assemble in Denver. Obama needs Hillary’s fanatical supporters and he’s bending over backwards to ensure he gets them, even if he’s emasculated in the process.
–U.S. News & World Report’s Kenneth Walsh on the two candidates.
“(John) McCain still has serious problems…His views seem too close to those of the unpopular President Bush. He generates little excitement. People are worried about whether, at 71, he is too old to be commander in chief. They aren’t sure what he really stands for as he struggles to present a cohesive message on the economy, healthcare, education, energy, and other issues.”
As for Obama, “Many white working-class Americans, worried about competition for their jobs and anxious about the future, seem to harbor vague fears that Obama will side too much with fellow African-Americans in setting policy. Beyond that, says a prominent Democratic pollster, ‘it fits into the modern racism framework. Some people don’t think an African-American has the same values that whites do. It stems from a belief that Obama is ‘different’ because African-Americans are ‘different.’’
“That’s a sad and unfortunate assumption in a society that, at its best, has prized its common values. But it’s a perception that Obama will need to change if he hopes to become the nation’s 44th president.”
–The news on John Edwards just hit as I writing up my last review and as I noted then, surely there were more shoes to drop, and they have.
Editorial / New York Post
“John Edwards yesterday admitted he’d had an extramarital affair even as his wife battled cancer – and that he’d lied about it.
“Yet Americans didn’t have to hear that to know the man is a despicable sleaze.
“His entire presidential campaign was based on hypocrisy and deception. Indeed, nearly every word out of the former trial lawyer’s mouth dripped with insincerity and falsehood.
“(Edwards’) campaign…has essentially been one big con. He played the role of champion for the poor – while raking in mammoth legal fees and spending on himself and his family like a pampered prince.
“Who can forget his two $400 haircuts last year, paid for by his campaign?”
Andrea Peyser / New York Post
“He’s still a lying skunk. Every American who stuck a bill into a can or wrote a check in the name of sleazy ex-presidential candidate John Edwards should demand a refund, with interest, from the man with a grotesque inability to wait until his wife had passed on, and his children had grown, before losing his soul.
“At the very least, your campaign dollar helped pay the inflated $114,000 salary of a first-time video maker named Rielle Hunter – a dedicated flake who used to be known as Lisa Druck.
“Hunter turns out to be not only an aging party girl fixated on the fella she stupidly called ‘Love Lips.’ She’s also the best-paid mistress in the Western world.
“Eliot Spitzer got it on the cheap with cut-rate harlot Ashley Dupre, whose going rate was less than $1,500 per roll in the hay, plus train fare.
“So I have five questions for John Edwards who, like a used-car salesman, looked the country in the eye and denied he’s the father of Rielle’s baby. Please try to answer them honestly, Johnny.
“*What’s Rielle Hunter got that you can’t find in the Yellow Pages?
“The 44-year-old head case received not only $114,000 for her primitive videos but is now reportedly getting $15,000 a month from a rich buddy of Edwards’ – his campaign fundraiser, Fred Baron. She also lives in a snazzy, $3 million house tucked out in California, where Baron claims to have relocated her. Without Edwards’ knowledge, of course.
“*Why did your campaign pay Baron more than $57,000 the month Rielle’s baby was born? Oh, right. Must be a coincidence.
“*You claim you told your entire family in 2006 about your brief affair with the chick who trashed your wife, Elizabeth, because she ‘does not give off good energy.’ Your youngest daughter, Emma, would have been 8 at the time, your son, Jack, 6. Is this sex education, Edwards style?
“*Why do you say you’ll take a paternity test – but Rielle refuses? What is everyone hiding?
A close friend of Elizabeth Edwards, Hargrave McElroy, told People magazine and other sources that Elizabeth decided to stay with John because she is dying and worried about their two young children.
According to the National Enquirer, which long ago first broke the story, “Edwards didn’t confess until after an unwitting campaign staffer walked in on him with Hunter and word got back to his wife, who confronted him.” [New York Daily News]
The Enquirer also says that Hunter and Edwards choreographed their public tango over a DNA test, with a source telling the paper Rielle is still in love with John and “thinks they may eventually have a future together.”
“The ostentatious Russian billionaires who invaded the French and Italian Rivieras in the ‘90s have become so unpopular that local restaurants are refusing to serve them.
“ ‘From north to south, a rebellion is growing against those who show off their money and power,’ said La Stampa, the daily in Turin, Italy.”
–The British government issued a report called the National Risk Register, assessing threats to national security, and a flu pandemic, while rated only fifth in terms of most likely threats, was listed first as likely to have the greatest impact, concluding half the population, 30 million people, could be infected and that anywhere from 50,000 to 750,000 would die. The most likely threat was another attack on the country’s transport network. [John F. Burns / New York Times]
–The U.S. and Canada announced a joint venture to map Arctic seabeds, a move that is designed to blunt Russia’s intentions to steal all the oil and gas there. With Russia back on the prowl, Canada becomes an even more critical ally in the coming years and if I’m President Bush, I hold an ‘emergency’ summit with Prime Minister Harper to reinforce our relationship. Barack Obama and John McCain should both then issue statements along the same lines. Because you know what’s coming, friends. Russia will “invade” Canadian territory soon, like in 3 to 5 years, just to rile our two nations up.
–Australian medical researchers said this week that just one can of the stimulant energy drink Red Bull can increase the risk of heart attack or stroke, even in young people. The drink causes the blood to become sticky, a precursor to cardiovascular problems. The lead researcher at Royal Adelaide Hospital said “One hour after they drank Red Bull, [their blood systems] were no longer normal. They were abnormal like we would expect in a patient with cardiovascular disease.” The makers of Red Bull assert “the study does not show effects which would go beyond that of drinking a cup of coffee.”
Red Bull is increasingly controversial in the United States because of the amounts some are consuming and it’s important to note that the drink is banned in Norway, Uruguay and Denmark because of health risks authorities in these respective countries have identified. Parents, just be aware of this when you see your kids quaffing it.
–The evidence seems irrefutable these days…we need more vitamin D. A study by Johns Hopkins went so far as to say lower levels may raise a person’s risk of premature death. Earlier studies said low levels of the vitamin could be linked to certain cancers, diabetes, and bone and immune system problems. The next step, according to Erin Michos, assistant professor of cardiology at Johns Hopkins School of Medicine is to “prove if we give additional vitamin D, will it prevent a heart attack?” [USA Today] Over the years I’ve been very careful with medical stories, opting to exclude most of them, but I feel compelled to pass on the thoughts of Dr. Timothy Johnson of ABC News who offered that he not only takes a daily multi-vitamin that has the standard 400 IU of vitamin D, but he also takes a supplement containing an additional 1,000 IU; this after reading all the studies and interviewing doctors involved in the work on it.
–Over the past year I’ve gotten to know a former major league baseball player, Jay Johnstone, who calls me from time to time on various charity deals. But the other day he called and we discussed how charities are really taking it on the chin due to the economy. It’s just not that easy anymore to justify spending $150-$250 on a golf outing. I know I’m already concerned over an annual event the service organization I’m involved with holds in June. We’re all going to have to be a helluva lot more creative; including perhaps lowering the price but trying to make it up elsewhere, like in multiple 50-50s at the cocktail party after the golf.
–Lastly, and switching gears rather drastically, Australian scientists have concluded that eating kangaroos is a terrific way to battle climate change; as in farming and consuming them will reduce carbon gas emissions because they produce far less methane than sheep and cattle. As noted in the London Times, “Methane is one of the worst causes of greenhouse gas and in Australia alone sheep and cattle produce 11% of the nation’s total emissions.” Goodness gracious.
Kangaroos produce far less because they are not ruminants; microorganisms in their stomachs differ from those found in sheep and cattle. So look for “low-emission kangaroo meat” soon in your grocer’s meat section.
Dow Jones -0.6% [11659]
S&P 500 +0.2% [1298]
S&P MidCap +1.0%
Russell 2000 +2.6%
Nasdaq +1.6% [2452]
I’m off mid-week on a short trip to Ireland, the one place where I’m not able to work on this column for reasons involving golf and pubbing. So, the next WIR will not be posted until Monday a.m., Aug. 25.
Have a great week. I appreciate your support.
