Panic on Wall Street, continued….
“The country needs and – unless I mistake its temper – the country demands bold, persistent experimentation….It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.”
–FDR, May 22, 1932…on the campaign trail 2 ½ years into the Great Depression
“Imagine, if you will, that a man who had much to do with creating the present credit crisis now says he is the man to fix this giant problem, and that his work is so important that he will need a trillion dollars or so of your money. Then add that this man thinks he is so indispensable that he wants Congress to forbid any judicial or administrative questioning of anything he does with your dollars.
“You might think of a latter-day Lenin or Fidel Castro, but you would be far afield. Instead, you should be thinking of Treasury Secretary Henry M. Paulson, Jr. and the rapidly disintegrating United States of America, right here and now.”
“We could (refuse) to bail out the risk-takers and letting the financial miscreants squirm in their own juice. That might provide satisfaction to moralists, but life is not so simple. An epidemic of unpaid bad debts would devastate lenders and ignite a conflagration that could pull down the economic and financial structure, ruining everybody.
“We were on the verge of such an outcome in the last few weeks, as banks froze up in fear that every piece of paper was tainted. As a result, they refused to enter into the most routine kinds of transactions with one another. The choice is between two cruel outcomes: the high probability of an irreparably damaged financial system, or an overload of moral hazard. I prefer dealing with moral hazard later; preserving the system – and society – must now have top priority.”
“The Paulson plan isn’t what we would have drawn up. It will not by itself inject capital into troubled banks, and it carries risks in how Treasury will price toxic assets when it buys them. But it is one more policy tool at a time when something needs to be done, and it is the only one currently up for a vote. Passing it won’t by itself revive the banking system, but defeating it will guarantee far more damage to far more Americans.”
“I long predicted the recession for 2008, specifically, though I said as measured by the GDP figures it would be mild, but there is a fine line between recession and depression, and there are times it feels as if we’re uncomfortably close to the latter.”
What we are facing is not just a credit crunch, but a crisis in confidence, and both are global.
A hotel manager, upon learning his government had bailed out the third-leading bank in his nation, told Bloomberg News, “Nobody trusts anyone any more, and in banking trust is everything. As long as people trust you, you can build a very long domino chain. But once that trust is gone things start falling.”
Where was this gentleman, Arni Einarsson, from? Iceland. Yes, the crisis that started in America was the beginning of a very long domino chain. And if you thought banks in the U.S. didn’t trust each other, imagine what is unfolding in Europe. Albert Kyle, a finance professor at the University of Maryland, best summed it up in a piece by Neil Irwin of the Washington Post.
“Does an Italian bank trust a Spanish bank? Not as much as a U.S. bank trusts another U.S. bank.”
An Icelander said of the banking industry in his country, though he could have just as easily been talking of the industry in the U.S. and elsewhere as well, “They thought they could sit around inside all their buildings and keep on generating money on their computers. In the end, it is still hard work and diligence that creates value.”
Or as I concluded in my column of 9/20/08, on a number of levels it’s time to get back to basics.
Yes, the crisis is global and if you thought the recent actions of the Federal Reserve, Treasury Department and SEC were ad hoc, consider how in the European Union, it was every country for themselves.
Take Ireland, which had a true crisis on Monday in its banking sector. Shares in same totally collapsed as depositors fled in droves amidst rumors of insolvency. The next day the government proposed to guarantee all deposits on six banks as well as underwriting loans and debts for a fee for two years. Ironically, this negatively impacted British banks, because British bank customers thought, hey, I’ll shift my assets to an Irish bank and gain better insurance on my deposits.
Britain also had to seize and nationalize the lender Bradford & Bingley. Earlier in the year it was Northern Rock.
Belgium-Dutch banking giant Fortis was saved by the two countries plus Luxembourg.
Dexia, the world’s biggest lender to local governments, was bailed out by Belgium and France.
The second-largest real estate lender in Germany received a government guarantee.
When it comes to the economy, back here in the States the news this week was dreadful. A key reading on manufacturing, the Sept. ISM data, came in at 43.5, with 50.0 being the line between growth and recession. Factory orders for August were down a whopping 4%.
On employment, the weekly jobless claims data continues to deteriorate and is now, at 497,000, just 3,000 shy of a headline grabbing figure. And, of course, you had the September non-farm payrolls number, down 159,000, the ninth straight month of declines in the labor market.
Then there’s real estate. Short-term, like the next few weeks, the story is about the global credit crisis. Medium- and long-term, the next one to 12 months, it’s about the housing industry. This week we saw the latest S&P/Case-Shiller data for July and the 20-city index revealed home values had declined 16% over a year ago, with losses of 30% in Las Vegas and 29% in Phoenix according to their work. But the silver lining, to stretch a bit, is the fact the speed of decline is slowing. I maintain we’ll hit bottom early next year, call it April-May, but, as I’ve said for years, when we do hit bottom we’ll just sit there.
But here we face a bigger problem. When the credit spigot is turned back on, and we all hope that’s soon, what incentive is there for a lender to grant a mortgage when real estate values are still going down? And now that the rescue package has cleared, how do you get the banks to lend to each other, let alone to the small business owner?
I’m not going to spend time this week dissecting the package that Congress passed. It’s not necessarily a $700 billion plus plan, for starters. We have no idea just how big, or small, it could end up being. Nor am I going to spend much time in this forum delving into the past. I’ve only covered the main issues every single week for almost ten years at this point. We know how we got into this mess. It’s the fault of both Wall Street and Main.
I do have to say, however, that of all the ideas that were floated on the rescue plan, I liked the idea of injecting capital into the banks, first.
Which got me to thinking about leadership and President Lyndon Johnson and how this would have been a perfect moment for him. It’s one thing to have the skills of an FDR or JFK, or the leadership provided by Ronald Reagan. It’s another to inject the banks with capital and then gather the banking heads at the White House and have an LBJ jack ‘em up against the wall and boom, “Listen. I just bailed your asses out. Now no one is asking you to go back to doing what got us all in this mess, lending to those who weren’t credit worthy, but you start lending to yourselves, tomorrow. And then my boys are going to start monitoring your activity runs, and if you don’t begin lending to those small businesses and corporations who’ve been your best clients for years, I’m going to go before the press and start naming names. Now get out of here.”
And wouldn’t you know, that evening Lyndon would be with Lady Bird in their private quarters. “You know I really showed ‘em good today. I think we solved at least part of this crisis.” “That’s my Lyndon,” she’d reply, buttering him up because this is what his enormous ego required.
I don’t know where we go from here. The global economy is rolling over at light speed and, forget businesses not being able to meet payrolls because they can’t obtain credit, thus having to lay off their employees, the fundamentals themselves, outside of credit, are abysmal to begin with.
I have been careful in how I parcel out the word “depression.” We all now know just how close to one we might be, especially if leaders don’t step up. Watching from afar, it appears French President Sarkozy, for example, is taking a very active role in steering his nation through the turmoil and he can at least speak to the issues intelligently. I’ve seen little of this from the White House, let alone the Treasury or the Federal Reserve. It doesn’t help that Chairman Ben Bernanke, Mr. Expert on the Depression, told Congress last year the losses in the subprime crisis would be limited to $50 to $100 billion, and that the damage would be limited to this sector of the mortgage market. [See my recent series on the Fed and the crisis in my “Wall Street History” column.]
Lastly, how many of you believe your children will have it better than you, or your parents, for that matter? It could be worse, though, I guess. Remember, you could be a Mets fan.
–There was blood on the streets, Monday, following House rejection of the rescue package, with the Dow Jones plunging a record 777 points to 10365. The next day the Dow rallied 485. The rest of the week saw wild intraday swings depending on the latest from Congress as well as the freezing up in the credit markets, and when the House finally followed up on the Senate’s revisions and passed the legislation Friday afternoon, the market was like the rollercoaster that crested, paused, and then went screaming lower.
For the week the Dow and the other major averages essentially finished where they ended on Monday, with the Dow down 818 points, a sickening 7.3% and the worst week in more than six years. The S&P 500 lost a whopping 9.4% to 1099, essentially where it stood in Oct., 1998, while Nasdaq declined 10.8%, 236 points, to 1947, its lowest weekly close since April 2005, just to add some perspective. Overall, it was the worst week for the broad averages since the terror attacks of 9/11.
One fascinating sidelight to Friday was the situation involving Wachovia, the 6th-largest bank in the nation by assets, which earlier in the week, Monday, was acquired by Citigroup in a merger forced by the FDIC. Citi was to absorb some $42 billion of losses out of a $312 billion pool of Wachovia loans, but would leave Wachovia’s brokerage and Evergreen asset management units independent under the Wachovia umbrella.
Wachovia got into trouble by being a leader in option-ARM mortgages, paper as toxic as Love Canal, to the tune of $122 billion, 58% being in California and 45% of which was thought to eventually default.
But Citigroup was picking up Wachovia for $2 a share (Wachovia’s stock was at $52 last October) and bondholders weren’t totally left high and dry, while us taxpayers supposedly weren’t going to have to pony anything up. That was Monday.
On Friday, we learned that Wells Fargo was going to acquire Wachovia for $7 a share in a straight stock deal. So much for Citigroup’s ‘agreement in principle’. Shares in Citi dropped 17% on the news as it demanded Wells Fargo and Wachovia terminate their $15 billion takeover. “Citi has substantial legal rights regarding Wachovia and this transaction,” the company said in a statement as it huddled with lawyers. “Wachovia’s agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia.”
That’s where we stand as I go to post, with one Citi executive decrying what he saw as a “Keystone cops” debacle. Then there was Warren Buffett, who in the past few weeks had picked off Constellation Energy for $4.7 billion and had written a check to Goldman Sachs for $5 billion, with $5 billion more to follow. Buffett decided this wasn’t enough and acquired a stake in General Electric for another $3 billion (plus, again, $3 billion to follow), with both GE and Goldman being forced to cough up a 10% coupon for the privilege of having their butts, and credibility, saved. GE, stumbling because of its exposure to the mortgage market within its GE Capital unit, seemed for a time to be on the verge of bankruptcy before Buffett rushed in as the commercial paper window closed on its fingers. Think about that.
Lastly, there has been unadulterated carnage in the hedge fund industry and this was a week where clients had to put in redemption requests, their last opportunity to do so before year end. As many of these outfits are nothing more than momentum traders, surprise, surprise, as the funds redeemed their positions and were exposed…yes, the commodity sector, across the board.
–U.S. Treasury Yields
The credit markets seized up, around the world, as best reflected in the London interbank offered rate, LIBOR, which impacts everything from derivatives contracts to the rates charged on home loans and credit cards, and which normally trades 25 to 50 basis points (0.25% to 0.50%) over the fed funds rate (currently 2.00%). On Monday, LIBOR was at a basically normal 2.56%, or 56 basis points over fed funds, but then on Tuesday, as the commercial paper markets froze, LIBOR soared 431 bps to 6.87%. Friday, one-month LIBOR was back to 4.11%, still far above Monday’s level.
While rumors swirled the Federal Reserve would have to act soon and lower its target funds rate 50 bps to 1.50%, the European Central Bank held the line on its key rate at 4.25%, though ECB President Trichet hinted at future rate cuts in saying the turmoil is damping economic growth and inflation risks “have diminished.” With markets crashing, it only makes sense that there would be a global coordinated rate cut in the near future.
–A prime example of the crisis…California is in desperate need of $7 billion to pay for public services, but is frozen out of the credit markets.
–Auto sales were an unmitigated disaster for September as the annualized rate of 12.5 million units is a 15-year low and off the figure of 16.2 million for 9/07.
General Motors, down 16%; Ford, down 34%; Chrysler, down 33%; Toyota, down 32%; Honda, down 24%; Nissan, down 37%.
–Further signs of stress, from the Wall Street Journal… “Colleges Scramble as Fund Is Frozen,” referring to $9.3 billion that was parked in a short term money fund where Wachovia was the trustee and the money managed by Commonfund of Wilton, Conn. 85% of the portfolio was in commercial paper and the rest backed by assets such as mortgages, the latter selling for 89 cents on the dollar. It’s a nightmare, though I have no idea on how the new Wachovia / Wells Fargo hook-up may influence this issue. Certainly it’s yet another PR disaster for all those involved as well as the financial industry in general.
–Then you have the money-market Reserve Primary Fund, the one that first ‘broke the buck’ which played a large role in touching off the credit crisis. Reserve has said they would return just one-third of what were supposed to be highly accessible assets on or about Oct. 13. There is no word on disposition of the other two-thirds, though officials at Reserve are acting like shareholders will have to wait until the debt matures. Remarkable. Reserve’s problems started with a sizable holding in collapsed Lehman Brothers, which we’re all learning was the cause of many of the problems we face now. Should Lehman have been bailed out by the feds in hindsight?
–Lost in the news of the day is the lack of resolution on the auction-rate securities scandal. The Journal reported the Justice Department is stepping up its investigation into possible fraud by the likes of Lehman Brothers and UBS. Much of the cash is still frozen.
–Energy: Oil fell back, closing the week below $100 ($93) for the first time since last February, on fears the slowing global economy will do a number on demand…as it already has. U.S. demand is off more than 6% over a year ago. Shortages in gasoline for some southern metropolitan areas due to Hurricanes Gustav and Ike should be rectified shortly as production returns to more normal levels.
–Britain’s nationalized Northern Rock savings bank has seen a rush of deposits because of the guarantee introduced last February after the nation’s first bank run since the 19th century. The problem is deposits will shortly hit the 1.5% share threshold of total U.K. retail deposits, so Rock will have to begin turning away savers.
–Spain’s unemployment rate is a Eurozone high 11.3%.
–Marriott became the first global hotel chain to warn it may have to cancel and delay new projects due to the financial crisis, saying it expected the environment in 2009 “at a minimum…to remain unusually challenging.”
–Following is some of the egregious comp garnered by Wall Street honchos that has upset Main Street.
Merrill Lynch’s Stanley O’Neal, $172 million from 2003 to 2007, with successor John Thain receiving $86 million including a signing bonus.
Goldman Sachs CEO Lloyd Blankfein, $57.6 million in 2007 alone. Co-presidents Gary Cohn and Jon Winkelried each received $56 million the same year. Hank Paulson, $111 million between 2003 and 2006.
Morgan Stanley’s current and former CEOs, John Mack and Philip Purcell, were paid about $194 million over the last five years, though Mack declined to take a bonus for 2007. [He still received $1.6 million in salary and other compensation.]
Lehman’s Richard Fuld took home $165 million between 2003 and 2007.
[In the deal with Warren Buffett, Goldman’s top four executives agreed to hold on to 90% of the stock they own in the company until Oct. 2011, or until Berkshire redeems its $5 billion in preferred stock, whichever comes first. As one industry manager, Douglas Ciocca, put it, “The bet he’s making is not just on the horse but on the jockeys.”]
–Estimates on job losses for New York City’s financial services industry now range between 40,000 and 60,000, with 3 jobs lost in other sectors for each Wall Street position.
–Directly related to the above, New Jersey has as many McMansions as anywhere in the country owing to Wall Street, and as a story by Antoinette Martin in the New York Times points out, a big reason why there is a problem in this market, aside from the general crash in real estate, is that there is a rapidly shrinking pool of likely buyers.
“Since 2000, the state has lost 130,000 jobs in the highest-paying categories and added roughly the same number in the lowest-paying categories – service positions.”
–Manhattan apartment sales plunged 24% in the third quarter over a year ago as 35% more units went on the market.
–Russia was the worst-performing market of the third quarter, off 48%, while the U.S. was one of the best in relative terms, down ‘only’ 9% as measured by the S&P. France, Germany and the U.K. were all off 19% to 22% during the same period.
–Fertilizer king Potash has been on quite a ride the past year. Last Oct. 25 the shares traded at $97. By this past June 19 they had hit $241. They closed Thursday, Oct. 2, at $93.50.
–Correction: I said last week Washington Mutual bondholders were wiped out, but $5 billion in cash was “found” so there is some value, last I heard.
–Reminder. Us taxpayers are currently paying $244 billion annually for interest on the national debt, which of course is skyrocketing, as will the $244 billion figure in future years. I maintain this alone is cause for revolution.
–A Bank of America report says the Federal Reserve may lose as much as $6 billion on the portfolio of mortgage-backed assets it took over from Bear Stearns. The Fed will announce on Oct. 23 its quarterly estimate of fair value on the $30 billion in holdings that it took off of JPMorgan Chase’s hands when it acquired Bear.
–Asked of a money manager on CNBC: “As an investor, how would you approach equity markets the next day or so?” Oh brother.
“Bush, who often seemed to need directions to the Treasury, opted to allow an opaque derivatives market to grow into the trillions without supervision, regulation or information. Turns out that what the market knew best was how to turn capitalism into a pyramid scheme for trading worthless paper.
“The cost is now clear. But we should be grateful for small mercies. Remember Bush wanted to throw Social Security into the casino, too, by privatizing it!”
[For the record, your editor has always been dead set against privatization.]
–An example of how charity giving is going to plunge, from a story in BusinessWeek.
“Since the 1970s, Bear Stearns required senior employees to give 4% of their income to charity. Lehman Brothers gave $39 million to various causes last year – and that excludes additional millions donated by rich executives.”
Bear and Lehman who? Another example. T. Boone Pickens, who makes annual donations in the $200 million range, has given just $3.7 million so far in 2008. [Boone has lost about $250 million on his oil bets.]
–I’m thinking the home security business could boom if the economy rolls over into depression, assuming the firms themselves can still get credit to operate their businesses. Crime will obviously soar. Or you could just build a moat around your place and fill it with crocodiles.
–My portfolio: Well, I received my investment tax credits for my solar and geothermal holdings as part of the rescue package, and earlier the loan program for the auto industry may benefit my lithium battery outfit. But none of these stocks will do anything until we see a ray of sunshine on the overall economy. Also, for those of you still hanging in there with me on my China holding, I am slated to head back to Fuzhou in mid-November to check up on the status of the new plant. Know for now that the company has put up absolutely zero roadblocks in my request and that has to count for something.
Iraq: It was a bit ironic that last Sunday “60 Minutes” ran a balanced piece on General Petraeus’ successor, Gen. Odierno, on a day that violence erupted all over again in Baghdad, killing 27 in separate attacks, which was followed by more suicide attacks there that killed another 20 on Thursday. As both Petraeus and Odierno quickly point out, we still have a long ways to go here.
This week the Iraqi government took control of 100,000 Sons of Iraq, the mostly Sunni fighters who comprised the Awakening Councils that helped the U.S. defeat al-Qaeda in Anbar province in particular. While there are some Sunnis who are suspicious of their new Shia leaders, speaking of being betrayed by the Americans, the majority welcome the move and they are to be paid the same wage the U.S. was paying them as a majority is integrated into the Iraqi army.
Lastly, the Iraqi parliament finally agreed on regional elections early next year, assuming there can be some resolution of the dispute over Kirkuk. [Doubtful.]
Israel: Prime Minister Olmert said in an interview that in order to obtain peace with the Palestinians, Israel should withdraw from nearly all the West Bank as well as East Jerusalem in exchange for a like amount of territory. Olmert is only in power until Kadima’s Tzipi Livni can form a coalition to replace him.
“I don’t understand why there can be natural growth in Arab neighborhoods, but not in Jewish neighborhoods,” he said. “There is a difference between the plans of a family that has more children and wants to close off its balcony and the building of additional neighborhoods. There is no reason why there shouldn’t be development of existing [Jewish] neighborhoods.”
Netanyahu said there is no chance of a peace deal with the Palestinians.
On the topic of Iran, Olmert dismissed as “megalomania” those thinking Israel could stop Iran from developing nuclear weapons, saying it was up to the international community to do so. Netanyahu responded, “We must not in any way accept the idea of a nuclear Iran.”
Iran: President Ahmadinejad said Iran will not halt its uranium enrichment program as demanded by the latest U.N. Security Council resolution, though the Council did not impose new sanctions due to Russia’s opposition.
Arms control expert Gary Milhollin had some of the following on Iran’s nuclear weapons program in an op-ed for the New York Times.
“By Aug. 30, according to the (International Atomic Energy Agency’s) Sept. 15 report, Iran’s stockpile had reached 1,060 pounds of low-enriched uranium hexafluoride, and it was producing a little more than 100 pounds a month.
“At this rate, Iran will have produced at least 1,500 pounds by mid-January. Re-circulated, this could produce 35 pounds of weapons-grade uranium, enough for a bomb….It would take about two to three months to raise the enrichment level to weapons-grade – meaning Iran could potentially present the world with a bomb by Easter.
“There is a ray of sunshine here. Experts and diplomats have long assumed that no country would want just one bomb. It would want a first bomb to test (proving its nuclear capacity) and three or four more to deter attack. If Iran follows this line of thinking, it pushes the magic date farther down the road, but not much. Iran is adding centrifuges, so it could probably produce enough highly enriched uranium for a second bomb within a year from now. By February 2010, it should have enough for a third, and the rate will only increase as the number of centrifuges goes up.”
Another arms expert, David Albright, believes Iran can reach weapons capacity in as little as six months.
So it goes back to my long-held thesis that Israel, despite what Olmert is saying, will strike by year end in an effort to set back Iran’s program. I am in no way advocating this, just trying to guess what the powers that be in Israel are thinking. Iran poses an existential threat. We are within months of the point of no return in terms of it having the ability to manufacture nukes.
It doesn’t help when Iran’s supreme leader Ayatollah Ali Khamenei makes a statement echoing Ahmadinejad’s past pronouncements that Israel “has weakened day by day…Today, officials of the Zionist regime acknowledge that they are moving towards weakness, destruction and defeat…Definitely, the world of Islam will see that day and hope the existing generation of the Palestinian people will watch the day Palestine is at the disposal of the Palestinian people, in the lands of the landlords.”
Pakistan: A leading general claimed the Pakistani Army had killed 1,000 militants in the Bajaur tribal district but there was no hard evidence of this. Regardless, it is encouraging that some tribal leaders, a la the Awakening Councils in Iraq, do seem to want to take on the Taliban, though there is a chance they could flip back in this mercurial region. Meanwhile, the U.S. continues with its missile strikes despite the government’s protestations, including at least two on Taliban and al-Qaeda targets this week, while President Zardari has shaken up the intelligence apparatus, replacing the top three.
General Petraeus, recently promoted to head the U.S. Central Command, which oversees both Iraq and Afghanistan, as well as Pakistan, said of the latter:
“They (Pakistan) clearly have a threat, the nature of which and the importance of which is increasingly being recognized by those in Islamabad….You have heard the newly elected President Zardari. You’ve heard the army chief and others all recognize that this is in a sense an existentialist threat, this is a threat to Pakistan’s very existence. It is one with which they must deal.”
India: By an 86 to 13 margin, the U.S. Senate approved the nuclear cooperation agreement with India, after the House had also done so, handing President Bush a victory. I have been fully supportive of this as the United States will now be able to sell nuclear fuel, technology and reactors to the world’s largest democracy. In exchange, India will open up 14 civilian nuclear facilities to international inspection, though eight military reactors would continue to be beyond outside scrutiny.
Syria: A car bomb attack in Damascus killed 17 and the government pointed fingers at al-Qaeda, claiming it has been using Tripoli, Lebanon as a new base of operations. Few dispute that al-Qaeda is in Tripoli, witness the attack there that targeted the Lebanese Army, killing five.
As for Syrian/Israeli talks, they are suspended until Israel’s leadership issue is finalized. The negotiations have been a flashpoint for both Iran and Hizbullah.
Russia: Prime Minister Vladimir Putin, a k a Czar Vlad the Great, blasted the U.S. Congress for not approving the bailout on Monday.
“Everything that is happening in the economic and financial sphere has started in the United States. This is a real crisis that all of us are facing. And what is really sad is that we see an inability to take appropriate decisions. This is no longer irresponsibility on the part of some individuals, but irresponsibility of the whole system, which as you know had pretensions to (global) leadership.”
Yoh, Vlad. While the United States is at fault to a great degree, why don’t you take care of your own wildly-leveraged businesses and people while we focus on ours. And keep your drunken soldiers on your side of the border.
Speaking of the Russian army, it won’t allow hundreds of European Union monitors into the buffer zone surrounding South Ossetia, per an earlier agreement, while the Kremlin solidifies its relationship with Venezuela’s Hugo Chavez on the energy and arms fronts.
[Seven Russian soldiers were killed in a blast in South Ossetia on Friday, but it appears they mishandled a vehicle they discovered that was filled with explosives.]
And then there is Ukraine and Moscow’s relations with Kiev. This week, Ukrainian Prime Minister Yulia Tymoshenko was assaulted, verbally, by her counterpart, Putin, as she tried to negotiate a natural gas agreement. Putin criticized Ukraine for its support of Georgia and challenged its pro-west foreign policy; this as Tymoshenko and President Yushchenko are trying to preserve their coalition. The gas deal is to be concluded by year end and Russia is expected to try and double the price it charges Ukraine.
Separately, German Chancellor Angela Merkel torpedoed U.S. efforts to put Georgia and Ukraine on fast track for NATO membership. [Merkel also signed a gas exploration deal with Russia.]
North Korea: Talks involving the United States, South Korea and the North went nowhere. After a North/South dialogue, Pyongyang called South Korean President Lee “a despicable human scum whom no one can trust or deal with.” There are signs of activity at North Korea’s nuclear test site.
China / Taiwan: The Bush administration let pass a deadline for releasing $11 billion in arms to Taiwan, in direct contravention of the Taiwan Relations Act. John Tkacik, a former U.S. State Department official once stationed in both Taipei and Beijing said, “The Chinese will pocket the administration’s Taiwan arms halt as the baseline for approaching the next administration. Beijing will make it very painful for the next administration to restart arms supplies to Taiwan, insisting that doing so would renege on Bush commitments, imaginary or otherwise.”
At the same time, China continues to deploy more missile batteries along the coast facing Taiwan (including near where my China investment is located) and now has more than 1,000 missiles at the ready.
I said amidst the charm offensive between Taiwan’s new president, Ma, and Beijing that if China truly wanted better relations it would begin removing the missiles. Alas, it has instead continued to increase the numbers. And now the United States is abandoning Taiwan. This is potentially a big part of the Bush legacy.
South Africa: Back in December, I said this nation could be the sleeper issue of the year. There is still a chance of this, but I said the other day it definitely will be in 2009 due to the emergence of African National Congress leader Jacob Zuma, who will formally take control next April following elections, but is now de facto leader after an internal coup that took out Thabo Mbeki.
Polls are already showing massive ‘white flight’ from the country, with 63% “seriously considering” emigration. 20% of whites have fled the nation since 1994 and the pace is picking up. South Africa can ill afford this brain drain.
It’s Zuma, though, that will be the center of attention. As reported in the London Times, “Zuma has sought to calm the fears, but seems oblivious to the fact that appearing at celebrations as a Zulu warrior, replete with leopard skins and assegai, and singing ‘Mshini Wam’ (Bring Me My Machine-gun) at party rallies does little to calm confidence.”
Zimbabwe: The meltdown continues with some experts now believing half the country faces starvation.
Austria: In parliamentary elections, the two far-right parties captured a total of 29% between them, thanks to a combination of anti-European Union sentiment, anti-immigration and general discontent with the traditional centrist parties; for the latter their worst showing since World War II. Interestingly, 16- and 17-year-olds were able to vote this time. It is not certain, though, whether the far-right can garner enough support to enter what will be a new coalition government.
Mexico: The bodies of 11 men and one woman, some with their tongues cut out, were found dumped in an empty lot near a Tijuana elementary school Monday, an hour before children were scheduled to arrive. A plastic bag containing seven tongues was found nearby. An accompanying note read, “This is going to happen to all of those who are with ‘The Engineer’ for being blabbermouths.” Earlier, six other bodies were found in Tijuana….in case you were thinking of going there for a good time.
Canada: It was discovered by the opposition that on March 20, 2003, Prime Minister Stephen Harper plagiarized a speech by then-Australian Prime Minister John Howard given two days earlier in urging support for the U.S.-led war in Iraq. A spokesman for the Liberal party said half of Harper’s speech was a word-for-word recitation.
Harper himself didn’t plagiarize, rather a campaign worker did, who immediately resigned and took responsibility for the speech. “Pressed for time, I was overzealous in copying segments of another world leader’s speech,” said the guilty staffer. Harper later duplicated lines from Howard’s speech in a guest column in the Wall Street Journal later that month.
–The national polls these days basically have Barack Obama with a 5- to 8-point lead, with the AP at 48-41, for example. The CBS/New York Times survey, however, has Obama up 49-40. Then again, the ABC/Washington Post poll that two weeks ago had Obama up 52-43, now shows it narrowing to 50-46.
McCain is in deep trouble in three battleground states. In Florida, he went from a 7-point lead to an 8-point deficit in just 20 days. He is also trailing in Ohio by 8 points and 15 in Pennsylvania. And his campaign has abandoned Michigan to focus on Pa.
–One can assume, though, the numbers could swing a bit in McCain’s favor following the debate between Gov. Sarah Palin and Sen. Joe Biden. Prior to it, in an interview with newspaper editors in Iowa, McCain grew testy when it was suggested Palin was faltering.
“If there’s a Georgetown cocktail party person who, quote, calls himself a conservative who doesn’t like her, good luck,” McCain snapped. “I think the American people have overwhelmingly shown their approval.”
Not quite. The above-mentioned ABC/Washington Post survey revealed that 60% said Palin was insufficiently experienced. But that was before Thursday.
I wrote on 8/30/08 of Palin upon her being selected: “I only heard of her in the past few weeks and am learning along with the rest of you but for now my gut tells me this was a great pick.”
Then, in succeeding weeks, I was underwhelmed, to say the least, by what I observed. Now, after watching the debate, I give her credit for being a quick study following her cram sessions. Other than that, I hesitate to comment because I know I’ll offend some of you. But that’s wimping out and it’s been over 24 hours.
I watched Frank Luntz’s focus group reaction on Fox following the debate and I was struck by comments such as “she came across as Main Street America” and “She’s like all of us.”
It’s one thing to have a neighbor or co-worker that you like because you happen to share the same values or interests. It’s another to then take the leap and project that person into the Oval Office.
Regardless of where you stand, if you truly think Gov. Palin’s responses, especially on the economy, were good, well, I give up. [For his part, Joe Biden’s performance was satisfactory.]
But, face it, the debate the next 30 days is between Obama and McCain, and as I noted on 9/6 in this space, Friday’s employment report, the ninth straight of job losses, is all Obama needs to wrap this up, assuming he doesn’t come out in the next two debates wearing a dashiki and giving the audience the black power salute.
“There are some moments when members of a political movement come together as one, sharing the same thoughts, feeling the same emotions, breathing the same shallow breaths. One of those occasions occurred Thursday night when Republicans around the country crouched nervously behind their sofas, glimpsed out tentatively at their flat screens and gripped their beverages tightly as Sarah Palin walked onto the debate stage….
“There she was, resplendent in black, striding out like a power-walker, and greeting Joe Biden like an assertive salesman, first-naming him right off the bat….
“Republicans watching the debate had a hierarchy of needs. First, they had a need for survival. Was this woman capable of completing an extemporaneous paragraph – a collection of sentences with subjects, verbs, objects and, if possible an actual meaning?
“By the end of her opening answers, it was clear she would meet the test. She spoke with that calm, measured poise that marked her convention speech, not the panicked meanderings of her subsequent interviews….
“Palin could not match Biden when it came to policy detail, but she never obviously floundered….
“Biden, for his part, was smart, fluid and relentless. He did not hit the change theme hard enough. He did not praise Barack Obama enough. But he was engaging, serious and provided a moving and revealing moment toward the end, when he invoked the tragedy that befell his own family and revealed the passion that has driven him all his life.
“Still, this debate was about Sarah Palin. She held up her end of an energetic debate that gave voters a direct look at two competing philosophies. She established debating parity with Joe Biden. And in a country that is furious with Washington, she presented herself as a radical alternative.
“By the end of the debate, most Republicans were not crouching behind the couch, but standing on it. The race has not been transformed, but few could have expected as vibrant and tactically clever a performance as the one Sarah Palin turned in Thursday night.”
Dana Milbank / Washington Post
“Palin’s intellectual fitness had been put into question by her disastrous interview with Katie Couric, which was filled with panicked silences, flustered non-answers and even a promise to get back to the interviewer with more information. But when Palin took the stage with Biden last night for what may have been the most public IQ test ever administered, she had no problem meeting the exceptionally low expectations. She had talking points adequate to fill the 90 seconds on the various topics (Gwen) Ifill tossed her way, and often forced Biden to defend Barack Obama.
“On the other hand, it wasn’t exactly a confidence-builder. Palin, in her 90 minutes on the stage Thursday night, left the firm impression that she is indeed ready to lead the nation – with an unnerving mixture of platitudes and cute, folksy phrases that poured from her lips even when they bore no relation to the questions asked.”
Andrea Peyser / New York Post
“I walked in last night expecting a train wreck from our gal of the moment. Instead, I saw fireworks. Sarah rules.
“In her first, and last, vice-presidential debate, Sarah Palin was strong. Articulate. Folksy. And warm.
“She ran like a linebacker in lipstick with the first question. It was about the economy.
“ ‘Go to a kids’ soccer game on Saturday and ask…how are you feeling about the economy?’ You betcha you’re gonna hear some fear.’
“The ‘you betchas’ and ‘Joe Sixpacks’ that crossed her lips, so hokey from just about anyone else, somehow worked.
“More than that – they gave the public, ready to write Sarah off as a ditz, an opportunity to know a strong, sensible and smart woman….
“Sarah will be criticized for not answering questions, when both parties were guilty of this offense.
“What she’s learned, in the days since the debacle of her ‘gotcha’ interview with Katie Couric, is to stick to her principles.
“She’s learned the debater’s trick of steering the conversation to her comfort zone. She learns fast.
“In contrast, Biden jabbed and poked, and wound up agreeing with Palin. It wasn’t a fair fight. He looked like an old guy not used to duking it out with dames….
–As for President Bush, his approval rating in the ABC News poll is an all-time worst 26%.
–New York City Mayor Michael Bloomberg told his constituents on Thursday that he wants to break the rules and run for a third team, Nov. 2009. To do so, the City Council would have to approve a revision to the existing term limits law.
While Bloomberg’s approval ratings are high, all the polls going back to July reveal a lukewarm response to Hizzoner getting another four years.
Bloomberg said the reason for his wanting to run is that Gotham faces unprecedented challenges and, with his business experience, let alone the experience gained on the job the past seven years, he’s the right man to guide New York through these turbulent waters. I couldn’t agree more.
But this is a man who consistently supported term limits in the past and once called an effort to eliminate them “disgusting.”
Bloomberg does have the city council speaker behind him, but Democratic Congressman Anthony Weiner, who was measuring the drapes for Gracie Mansion, is super ticked off. City Councilman John Liu, democrat, said “It’s a billionaire’s game where people just get played for puppets.”
–The other day I saw where some of the states were starting to accept early votes for the presidential election and I thought, this isn’t right. So much can happen between now and Nov. 4. It’s one thing to get an absentee ballot because you’re going to be away, or physically unable to get to the polls, but otherwise why vote early? So, as happens so often I found myself agreeing with George Will (the Georgetown conservative McCain was referring to) in his column for Newsweek.
“The great national coming-together that Election Day has been and should be is a rare communitarian moment in this nation of increasingly inwardly turned individualists who are plugged into their iPods or lost in reveries with their iPhones. It is one thing, and an admirable thing, to privatize airports, turnpikes and many other government entities and operations; it is not admirable to scatter to private spaces, and over many weeks, the supreme act of collective public choice. The coming of the public into public places for the peaceful allocation of public power should be an exhilarating episode in our civic liturgy.
“With political excitement at an amazing boil this year, election officials in some communities are hoping that a surge of early voting will reduce the possibility that unusually heavy turnouts on Nov. 4 will cause local polling mechanisms to buckle under the strain. Good grief. Has the approach to Election Day – the fact that 2008 is divisible by four – taken these officials by surprise?
“Elections are government projects, so perhaps it is utopian to expect them to be well run. Still, it is time for second – or in some cases, first – thoughts about the fading away of Election Day.”
–From the New York Post:
“Bill and Hillary Clinton are doing their bare minimum to help elect Barack Obama president because the Democratic nominee refused to guarantee Hillary a U.S. Supreme Court judgeship should he win the White House, sources say.”
The Clinton campaign said “Hogwash.”
“But the word in Democratic circles is that Hillary…made it clear to Obama’s camp that she wanted to be appointed to the Supreme Court.”
The Post also notes Bill Clinton’s appearance on David Letterman’s show, Sept. 22.
“The ex-president did such a bad job of stumping for Obama that guest Chris Rock, who came on after him, remarked, ‘Boy, is it me or [did Clinton] not want to say the name Barack Obama?’”
–Update: Last week I wrote of Pakistani President Zardari’s flirtations with Sarah Palin. It turns out a radical Muslim cleric in Pakistan issued a fatwa on Zardari, saying the president had shamed the nation for “indecent gestures, filthy remarks, and repeated praise of a non-Muslim lady wearing a short skirt.”
–The engineer of the Los Angeles commuter train that collided with a freight train, killing 25, was indeed texting 22 seconds before the collision. Investigators, though, are unable to determine with certainty if this was the reason why the engineer blew through a red signal.
–The way the economy is falling off a cliff, I’m thinking that our celebration next year of the bicentennial of Abraham Lincoln’s birth may be more real than we thought. We’ll all be living in log cabins. Select wood that isn’t infested with beetles.
–The backlash against Russians on the French Riviera is getting more and more intense as the incredibly overleveraged “billionaires” attempt to have their way with the locals, including asking for rail lines to be moved that obstruct their views.
–I was bummed like many of you to learn of the passing of the great Paul Newman.
On the side of Newman that focused on philanthropy, John C. Whitehead (former co-chair Goldman Sachs) and Peter L. Malkin had the following in an op-ed for the Wall Street Journal.
“Paul’s passion for philanthropy was rooted in the strong belief that we had a great obligation as individuals and companies to give back some of the benefits that we were granted as free and prosperous citizens of the United States. He believed that corporations are granted a license to operate by their communities, and therefore have the responsibility to be good citizens in return.
“In 2000, Paul addressed a group of students at a U.C. Berkeley conference on philanthropy and articulated his motivation behind giving by saying ‘it seems so human to hold your hand out to people less fortunate than you are.’ This quote embodies the generous spirit of a man committed to not only giving back, but to inspiring the world to see the value of social responsibility.
“In today’s economy Paul’s ideals are even more salient. Business leaders should learn from his example and maintain or increase their corporate giving programs in these tough times.”
–The International Gymnastics Federation has concluded after an investigation that China’s girl gymnasts at the Beijing Olympics were indeed old enough.
However, it still has major questions about two team members from the 2000 Sydney Games. When looking at Dong Fangxiao and Yang Yun, the FIG (don’t ask me how IGF became FIG) said it “does not consider the explanations and evidence provided to date in regards to these athletes as satisfactory.”
Yang, who won a bronze medal on the uneven bars in 2000, said in a June 2007 interview that aired on Chinese state television that she was 14 in Sydney, when you need to be 16 during the Olympic year to compete.
Actually, according to the AP, North Korea was barred from the 1993 world championships after FIG officials discovered Kim Gwang Suk was listed as 15 for three years in a row, a nice trick if you can pull it off, I think you’d agree.
–The Phoenix lander has helped scientists detect snow on Mars! Peter Smith of the University of Arizona said “Is this a habitable zone on Mars? I think we are approaching this hypothesis.”
Granted, Phoenix didn’t detect 6 to 12 inches of packed powder with all lifts open to the top, yet, but the disclosure did have me humming, “Christ-mas-time…is here…”
By the way, Phoenix was scheduled to operate for 90 Martian days, called ‘sols,’ but the robotic arm has been digging up crabs and clams for 120 sols. What a work ethic. If Peggy Noonan was writing about it she’d have you crying in two minutes, describing what a great American Phoenix is.
Alas, as the Martian winter starts, Phoenix shuts down and in the deep freeze could crack up.
But then it has a “Lazarus” feature that could return it to life in the spring. Spring skiing!
–Meanwhile, Europe’s Galileo satellite was forced to adopt a “safe mode” for two weeks in which only essential power systems were kept on due to a surge of space radiation. Goodness gracious. What did it come in contact with? “Alien” springs to mind.
Returns for the week 9/29-10/3
Dow Jones -7.3% [10325]
S&P 500 -9.4% [1099]
S&P MidCap -12.1%
Russell 2000 -12.1%
Nasdaq -10.8% [1947]
Returns for the period 1/1/08-10/3/08
Bears 47.2 [Source: Chartcraft / Investors Intelligence]
Note: I keep forgetting to update you on a few things. Yes, there will be podcasts, with the first one finally this week, Tuesday, but I’ve been hesitant to roll them out because of some extensive upcoming travel that will screw up the schedule.
As for the ability to subscribe to various links, this service will be rolled out in a few weeks. Should you desire, WIR, for example, will be e-mailed as soon as I publish it.
