[Posted 7:00 AM…Deadwood, South Dakota]
America’s Present…and Future
My favorite part of the country is the Black Hills of South Dakota and the surrounding area, including Devil’s Tower, Wyoming. And so it was that on my fourth trip to the region since 2001, I dragged my brother away from his work and family responsibilities (though he wasn’t exactly kicking and screaming) to share in my love of the Great American West. We started in Denver, then up to Scotts Bluff National Monument in Nebraska (think Oregon Trail), then Rapid City, S.D., to tour the Badlands (and Wall Drug Store), Mount Rushmore, then up to the Little Bighorn battlefield in Montana, then Devil’s Tower, and on back to the Black Hills and Deadwood, made famous by the likes of Wild Bill Hickok and Calamity Jane.
I always choose the last week in October for touring this region because there are virtually zero people at the attractions and there is no one on the roads. Cruising at 85 mph along some of the most beautiful thoroughfares is a pleasure (well, you didn’t think I went the limit of 75, did you?), but I’ve always had a weather adventure in the form of a big snow or ice storm along the way. That is until this time, so as my friends and family shivered and shoveled an early season surprise back East, the two of us basked in gorgeous sunshine and temps in the 60s and 70s. Two weeks earlier, this area had been buried in snow.
As it turned out, my 4th trip to Mount Rushmore (where I have never seen a cloud in the sky) also proved to be rather timely, given the upcoming election and the global financial crisis.
Mount Rushmore, as its creator Gustav Borglum intended, is classic America…bold, daring and inspirational. I always tear up when I read or view some of the comments our past leaders have made here, or those of the four that are honored in granite. Quite frankly, to tour it today is one of the more moving experiences you can have, assuming you not only care deeply about our nation, but are also fearful of what is to come. Such was why I came here in the aftermath of 9/11, for example.
Teddy Roosevelt once said back in 1912:
“Shame and disgrace will be ours if in our eyes the light of high resolve is dimmed, if we trail in the dust the golden hopes of man.”
Today, I want to believe that our leaders are doing all the right things and that a year from now we’ll have clarity and renewed faith in our system, but what of “the experiment entrusted to the hands of the American people,” as George Washington put it in his first inaugural address back in 1789?
The experiment has gone badly awry, and among the victims is an economy that is cratering right before our eyes. We learned this week that GDP for the third quarter dropped 0.3%; this as the estimate for the fourth is now for a decline of a full 3% or more.
And we learned personal consumption was down a whopping 3.1% in Q3, as the American consumer finally cried ‘Uncle.’ Christmas is going to be both ugly and depressing for America’s retailers and kids used to extravagant presents. I’m hearing tales of families calling each other and talking of draconian spending caps in exchanging gifts this holiday season. Expect consumption to nosedive from here. Is it any wonder then that consumer confidence, as measured by the Conference Board, is at its lowest level ever in the 41-year history of the survey? It shouldn’t make anyone feel better that a key gauge of manufacturing activity, the Chicago Purchasing Managers Index, plunged to a reading of 37.8 when 50.0 is the recession/growth line.
On the housing front, one analysis reveals that in the third quarter, 20% of homeowners were already facing negative equity on their homes as prices in many markets continue to plummet, even as bottom-pickers try to play Kreskin when perhaps they should be more realistic about first and foremost their job prospects and whether they’ll be able to pay the mortgage on their new, seemingly attractively marked-down purchase.
This week the S&P/Case-Shiller index for August showed home prices to have declined 17% in 20 major markets from year ago levels and, of course, we all know what has happened in the two months since the data. Las Vegas and Phoenix remain ground zero, down 30%, with Miami off 28%, Los Angeles 26% and San Francisco 27%. The government is working on a plan to aid 3 million homeowners and attempt to keep them in their homes, but as values continue to decline, time is of the essence. That 20% in negative equity figure is rising by the week.
So what of our government? In the words of T.R., are some leaders trailing in the dust the golden hopes of man through ineffective policies?
For example, Treasury keeps changing the rules of the game. They ended up doing what I hoped they would do first, inject capital into the banks, which in itself was not the original intent of the $700 billion rescue plan, but now they keep changing the rules on who can receive the federal largesse. Plus, remember about a month ago when I wished we had an intimidating figure like LBJ in the White House? I wrote then that we needed a kick-ass leader to gather the bankers who had just received the funds in the oval office, jack ‘em up against the wall and say, “Now look you SOBs, start lending or I’m going to go before the people and name names.”
I wrote that before Treasury opted to give the banks some direct assistance, but what do we have? The banks are either hoarding the cash or using it for acquisitions; like in the case of PNC, which received government funds and then turned around and purchased National City. They aren’t lending it out to deserving long-time clients. This is a period that cries out for leadership, which is why I singled out Gordon Brown and Nicholas Sarkozy recently, because at least they were doing something. This is no time for timidity. Threaten the bankers to make their lives a living hell unless they cooperate.
And here’s another thing about the banks. If they aren’t hoarding the cash or using it for acquisitions, they are continuing to pay out dividends. So taxpayer money is being used to protect the shareholders (and executives’ own stock options, assuming some are still in the money). This is crazy. Understand that in Britain and Germany, any bank accepting public money must suspend the dividend until the government is repaid. Some say that is too draconian and/or nationalization. I say it seems like good policy in a crisis.
But by week’s end the world did seem unified to a certain extent. The administration is coming to the aid of South Korea, Brazil, Mexico and Singapore, while the International Monetary Fund has planned similar actions for these and other emerging nations that are troubled but fundamentally sound. Because as some of the market performance figures below best illustrate, this crisis is global, and whether we like it or not, we’re all in it together. As investor George Soros put it, “Only by stimulating domestic demand (around the globe) can the specter of a worldwide depression be removed.”
At least economist Martin Feldstein, in an op-ed for the Washington Post, did point out one hopeful, post-election fact in having two senators run for the highest office. The winner (Feldstein assumes it’s Obama), can immediately propose legislation without having to be sworn in as president.
Feldstein has long called for an emphasis to be placed on the housing market, which has reduced homeowner wealth by $3 trillion. The stock market crash has cut another $8 trillion. So it’s easy to see why consumers have stopped spending, which leads to lower employment, which lowers incomes, which leads to further cuts in consumer spending, and on and on. One solution is for Obama or McCain to propose an immediate, massive infrastructure project to put people to work.
So if you want to be optimistic, there are options for our next leader, and long before he is inaugurated.
Which brings us back to Mount Rushmore. In 1936, in ceremonies commemorating the unveiling of Thomas Jefferson’s head on the mountain, FDR, in reflecting upon the monument’s grandeur and how it will survive countless generations of Americans to come, said, “10,000 years from now, we can meditate and wonder….what will they think of us?”
That’s what hits me every time I’m there. FDR’s hope was that those who follow will say we left a “decent land to live in and a decent form of government to operate under.” It’s up to us. It’s up to our leaders, with the current ones having failed the test. But it’s also not too late. Over the coming days, weeks and months, in a relatively short period of time, we’re going to find out if the new leadership has gotten the message.
Street Bytes
–If we are to avoid officially losing a generation of investors, Wall Street needs to keep some momentum, or at worst stabilize well above the recent lows. At least for one week that was the case.
I’ve long said you have to be constantly cognizant of the fact the market trades as much on sentiment, if not more so, than fundamentals, and there was never a clearer example of this than the past five trading sessions. While October proved to be the worst month for the Dow Jones and S&P 500 since Oct. 1987, the Dow’s 11.3% increase this week was its best performance since Oct. 1974. The Dow, at 9325, is now about 1500 points above its intraday low set Oct. 10. [For the month, the Dow declined 14.1% and the S&P 16.9%]
Among the reasons for the advance was the continuing improvement in the commercial paper market and the sense that some of the government programs were finally working their way into the system. In addition, JPMorgan Chase announced on Friday it was suspending foreclosures for 90 days as it seeks to modify terms on $110 billion in mortgages. That’s leadership.
–How volatile was October? In only 3 days did the Dow Jones not rise or fall triple digits. Nasdaq’s last five weekly returns are -10.8, -15.3, +3.8, -9.3, +10.9.
–U.S. Treasury Yields
6-mo. 0.93% 2-yr. 1.55% 10-yr. 3.95% 30-yr. 4.37%
The Federal Reserve cut the funds rate from 1.50% to 1.00%, with the accompanying statement reading “The pace of economic activity has slowed markedly,” which is as bold as the Fed gets, and that Chairman Bernanke and his band of merry pranksters could lower rates further still. The problem has been for over a year now that the bond market hasn’t cooperated, with the key 10-year Treasury, for example, barely moving over that time and thus keeping traditional mortgage rates higher than they would normally be under this scenario. Hardly a help for housing.
–For the archives, it appears, at least for today, that the lows in most world markets were hit the week of 10/21, or this past Monday. Here are some key year-to-date figures, using the benchmark indices, for the following as of 10/24.
London -39.9%
Frankfurt -46.8%
Tokyo -50.0%
Seoul -50.5%
Hong Kong -54.6%
Shanghai -72.7%
Sao Paulo -50.7%
New York -40.3% [S&P 500]
–Japan rallied back from Monday’s 26-year low of 7162 on the Nikkei to finish the week at 8576. Just incredible…39000 to 7100. One big problem has been that Japanese banks hold large amounts of shares in each other so it’s easy for selling to beget selling, while Mitsubishi UFJ, which just invested $9 billion in Morgan Stanley, now says it needs to raise about $11 billion in fresh capital.
–The layoff announcements are accelerating…Whirlpool, 5,000; Motorola, 3,000; American Express, 7,000…
–The value of the Bear Stearns mortgage portfolio now owned by the federal government, initially valued at $29.5 billion, has been officially written down to $26.8 billion; ergo, it’s underwater. Can it bounce back and save the taxpayer from a further loss? Sure. Is it likely at this point? Doubtful.
–I thought Staples, in announcing its earnings, gave a true picture of what is happening in Corporate America these days. Same-store sales were down 8% in Q3 and Staples is reining in its spending plans by adding 75 stores in 2009 rather than the 110 initially targeted.
–93-year-old economist Anna Schwartz, who co-authored with Nobel Laureate Milton Friedman the seminal “A Monetary History of the United States,” in an interview with Barron’s on the Federal Reserve and Treasury’s recent actions.
“Disclosure’s a problem. With the bailouts of Bear Stearns, AIG, and the failure of Lehman Brothers, we have yet to receive a full explanation of the reasons for either rescuing the banks or, in the case of Lehman, letting them fail. Why did the Fed rescue Bear Stearns, yet let Lehman Brothers go under? There’s clearly not enough disclosure to show if they are approaching the problem in a systematic manner or are playing favorites. Who knows? These unanswered questions only add to the fear in the system.
Q: Just how high are the stakes?
Schwartz: “My hope is that they will solve the problem by doing a bang-up job. But there’s already been talk about having to come back for more money. The risk of being unclear and doing things ad hoc is that you gradually destroy faith in the financial system. And complete loss of faith leads to the imposition of a bank holiday, the closing down of the system, to reassure the public of the solvency of banks.
“We’re not there yet. But if we keep making things more uncertain, and feeding the fear without minimizing the problems, we could eventually make it so that Americans lose faith in their financial system.
“The program now is to recapitalize financial institutions on the questionable premise that the accounting of potentially bad assets on the bank balance sheets is correct and accurate. The chief problem with this program is that the Treasury can responsibly provide capital only to solvent institutions, but should not recapitalize insolvent institutions. The current program offers no way of determining who is solvent and who is insolvent. We have a dilemma.”
–Ben Stein / New York Times
“Months ago, one of the greatest of American economists, Anna
Jacobson Schwartz…accurately said that American banks did not face a liquidity crisis, but that they might soon urgently face a solvency crisis. In other words, banks would have ample reserves to lend but might lack assurances that they could meet all their financial obligations if those loans went bad. She was right. In fact, bankers have had so many losses and faced so much uncertainty that they dared not lend, for fear of killing their banks with bad loans – so we have actually had a solvency crisis.
“The solvency crisis exploded when, in mid-September, Mr. Paulson allowed Lehman Brothers to die a sudden death. I would never have believed that it could happen….
“After Lehman, I felt sure that the government would realize its mistake and issue blanket solvency guarantees to banks. But that didn’t happen, the stock market fell apart, credit went icy cold and the wheels started to come off the economy.”
–I could hear the cries all the way out in Montana when Exxon Mobil announced world record profits of $14.8 billion for the third quarter. Chevron earned $7.89 billion. But such money was made with oil solidly above $100, having peaked early in the quarter at $147. It’s a new world now, and as lower prices force Big Oil and Little Oil to cut back on more expensive projects, the seeds are being sown for the next bull run once the global economy recovers, recognizing that day could be a long ways off. Two countries that could see a real impact on the investment front are Canada and Brazil, where projects such as the oil sands in the Great White North require crude prices above current levels to be profitable.
–New York Attorney General Andrew Cuomo and House Democratic Congressman Henry Waxman have called for investment firms receiving pieces of the bailout to turn over details on their compensation plans. All of America is in agreement on this one. If a Goldman Sachs took taxpayer funds, that money can not be used to pay out bonuses. [The Wall Street firms are going to have to prove it’s coming out of other sources. Good luck.]
–The bull run in the mutual fund industry is over, not that you didn’t already suspect that. Fidelity could lay off as many as 4,000, or about 9% of its work force. The combination of falling asset values and redemptions are doing a number on the management fees at these firms.
–I’ve watched the problem at the Reserve Fund, the nation’s oldest money market fund, with amazement, and this week Diana Henriques of the New York Times reported that as many as one million still can’t access their savings, more than six weeks after customer accounts were frozen. The situation is best summed up by the following example, John Oakes, a retired engineer in Austin, TX, who can’t tap $20,000 in his Reserve account to pay his mother’s nursing home bill.
“Longer term, I just don’t know how we’ll deal with it. They say we may get some money this week, but we don’t know if we’ll get 100 percent, 90 percent or 30 percent.”
This is truly disgraceful.
–I haven’t had a chance to really explore the situation with shares of Porsche SE and Volkswagen AG, but suffice it to say it was a wild week between these two as Porsche, which is VW’s largest shareholder, helped engineer a short squeeze on VW stock. Porsche announced on Sunday that it planned to raise its stake in the German carmaker to 75%, forcing short-sellers to cover their position, Monday, and sending VW stock up as much as 90% at one point, which then made it the world’s largest company in terms of market value. In the first two days of trading this week, Porsche’s own stake increased by $13.8 billion.
–After the Justice Department signed off, Delta Air Lines completed its merger with Northwest, thus creating the world’s largest airline with 75,000 employees (at least for now) and more than 800 large jets.
–New York Gov. David Paterson said his state faces a $12.5 billion budget shortfall in the fiscal year starting next April, and $47 billion over the next four years. Paterson is pleading for federal help.
“Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending financial calamity and stabilize our fiscal condition.”
New Jersey is in a similar situation, thanks to the collapse in the financial services industry that is now expected to cost at least 160,000 jobs in New York City alone as Gotham loses a projected $19 billion in revenues.
–The commercial vacancy rate in New York City is beginning to skyrocket and could surge to 17.5%, while the average home price in the Hamptons declined 23% in the third quarter. [Some things don’t bother me, like this last tidbit.]
–Tourism in the U.S. luxury hotel business was off 14% for the week ending Oct. 18, another harbinger of the coming carnage.
–Newspaper circulation continues to slide. One of life’s simple pleasures is reading a good paper, hard copy, over that morning cup of coffee, but circulation at the major dailies fell another 5% for the spring and summer; with The Atlanta Journal-Constitution off 13.6%, and 10%+ declines at the Star-Ledger (Newark), the Philadelphia Inquirer, and the Boston Globe. The New York Times fell 3.6%, but at least USA Today and The Wall Street Journal were basically unchanged.
And another sign of the times, the Christian Science Monitor is ending its daily paper.
–Related to the above, the online advertising business is sliding precipitously so many of the financial oriented Web sites are slashing staff to the bone. Here at StockandNews, we’ve instituted our own hiring and salary freeze. [Then again, my brother and Dr. Bortrum haven’t received an increase since the start of the darn thing.]
–Investor George Soros said the hedge fund industry will shrink to a third of its current size.
–Lastly, my brother and I were commenting that the region we traversed this week didn’t seem too down or morose. In fact, having come here often, business seemed the same. It was downright impressive, for instance, that on Tuesday night in Spearfish, South Dakota, the Applebee’s restaurant was jammed and with a waiting list. Most of our hotels, while not full (it being off-season after all), were at least 50% occupied from what I could tell.
And then on Friday, I pick up the Rapid City Journal and there is this lead headline:
“Economist: Recession won’t hit state hard”
While much of the rest of the nation has seen job losses, South Dakota has been steadily adding jobs primarily in the construction and manufacturing fields. Record farm incomes are also helping in a big way.
Foreign Affairs
Iraq: The United States conducted a raid across the Iraqi border into Syria, killing a key al-Qaeda leader who had been conducting operations in Iraq from his Syrian base. The Syrian government then ordered an American school and a U.S. cultural center closed in response while demanding the U.N. Security Council condemn the attack. Syria also said it was ceasing any diplomatic talks with Washington.
As for the critical security agreement with the United States, Iraq now wants a provision in the language that would ban U.S. troops from conducting raids across the border from inside Iraq. Grand Ayatollah Ali al-Sistani, who has been a voice of reason since the invasion, expressed concern that Iraqi sovereignty be protected in the pact as well. The current draft also continues to call for all U.S. troops to be out of Iraq by 12/31/2011.
Afghanistan: Violence continues to surge as the Taliban grows bolder and bolder in its operations inside Kabul. Among the dead were two DHL workers, killed by their own security guard, who then killed himself in what was clearly a Taliban-inspired suicide attack. Another suicide bombing occurred at the Information Agency.
But now General David Petraeus, who has control of the Afghan / Pakistani theaters among his other responsibilities, is considering staging talks with the more moderate Taliban elements, a la the successful mission in Iraq, the Awakening, where local tribal leaders were enlisted to drive out the insurgents.
Editorial / USA Today
“As naïve as the idea might sound, it is evidence of hard-learned pragmatism. If the Iraq and Afghanistan wars have taught anything, it’s that they cannot be won by military might alone. This year’s surge of U.S. troops into Iraq succeeded because it was part of a broader strategy that included working with, and paying, Sunni tribal leaders to turn against al-Qaeda in Iraq – the same leaders who had been at the heart of the insurgency killing U.S. troops….
“The U.S. badly needs a winning strategy in Afghanistan – one that does not cripple the U.S. economy and military for many more years in pursuit of the unattainable. Talking to the Taliban? Time to hold our noses and at least be open to the idea.”
An opposing view…from an op-ed in USA Today by William C. Martel, a professor of international security studies at Tufts University.
“The idea of negotiating with the Taliban might come from pessimism about defeating the Taliban insurgency, skepticism about democracy succeeding or a waning desire to fight after seven years of war. That matters less than the fact that negotiations could convince the Taliban that Afghanistan’s government and the United States have doubts about victory and want a way out of the war.
“Negotiations would only weaken Afghanistan, sow doubts about U.S. policy and strengthen the Taliban.”
Two things. First, I’m assuming that any negotiations would involve the U.S. looking the other way when it came to the drug trade; that just seems to be an unfortunate reality. Second, I have always felt that the United States missed a huge opportunity following Afghanistan’s defeat of the Soviet Union, as well as at the end of the First Gulf War. But that’s a long essay for another day, and, more appropriately, for historians and novelists alike.
Pakistan: Meanwhile, U.S. drones took out at least another two key Taliban commanders, while the Pakistani government once again said such operations must cease.
Iran: President Ahmadinejad is suffering from exhaustion, a rare admission for the government, and something that will throw more uncertainty into the June presidential elections.
Russia: A few opinions on the current state of affairs here.
Ralph Peters / New York Post
“Of all the pleasures to be found in the pain of others…none seems more justified than smugness over the panic in Moscow, Caracas and Tehran as oil prices plummet.
“We may need to be careful what we wish for.
“Successful states may generate trouble, but failures produce catastrophes: Nazi Germany erupted from the bankrupt Weimar Republic; Soviet Communism’s economic disasters swelled the Gulag; a feckless state with unpaid armies enabled Mao’s rise.
“Economic competition killed a million Tutsis in Rwanda. The deadliest conflict of our time, the multi-sided civil war in Congo, exploded into the power vacuum left by a bankrupt government. A resource-starved Japan attacked Pearl Harbor.
“The crucial point: the more a state has to lose, the less likely it is to risk losing it. ‘Dizzy with success,’ Russia’s Vladimir Putin may have dismembered Georgia, but Russian tanks stopped short of Tbilisi as he calculated exactly how much he could get away with.
“But now, while our retirement plans have suffered a setback, Russia’s stock market has crashed to a fifth of its value last May. Foreign investment has begun to shun Russia as though the ship of state has plague aboard.”
Peter Brookes / New York Post
“Russia’s alliance with Venezuelan strongman Hugo Chavez just keeps getting tighter – and worse for America. Now, Moscow could be putting ‘El Loco’ on the road to getting the bomb.
“Russia has already sold billions worth of arms to Chavez, and recently flew two strategic bombers to Venezuela in a show of solidarity and force. A Russian flotilla will soon arrive in Caribbean waters for joint naval exercises.
“But the latest deviltry came at a Moscow summit late last month, when Russian Prime Minister Vladimir Putin offered Chavez assistance in building a nuclear reactor.
“During the Russian visit, Chavez said: ‘Russia is ready to support Venezuela in the development of nuclear energy with peaceful purposes, and we already have a commission working on it.’
“Peaceful purposes – right. Venezuela, one of the world’s top energy producers, has about as much need for nuclear power as, well, Iran does.”
Nicholas Eberstadt / New York Times
“Russia is in the midst of a genuine demographic disaster from which its rulers have no obvious exit strategy. Although Russia’s fortunes (and the Kremlin’s ambitions) have waxed on a decade of windfall profits from oil and gas, the human foundations of the Russian nation – the ultimate sources of the country’s wealth and power – are in increasingly parlous straits.
“Despite net immigration since the end of Communism, the Russian Federation’s population is nearly seven million people smaller today than at the start of 1992. In the post-Soviet era, Russia has seen three deaths for every two births….
“Russia’s health situation today is a disaster – substantially worse than during the Mikhail Gorbachev years or even the Leonid Brezhnev era….life expectancy for Russian men, today barely over 60 years, is lower than for their counterparts in Pakistan….
“In and of themselves…crippling health trends augur ill for Russia’s productivity prospects or economic outlook: it is unrealistic to expect Irish standards of living or rates of economic growth from a population facing Indian mortality schedules.”
[Ed note. Mr. Eberstadt needs to brush up on the Celtic Tiger’s own economic woes these days.]
Israel: Tzipi Livni was defeated in her attempt to form a coalition government, thus setting the stage for early elections in mid-February and a battle between Livni (Kadima), Labor’s Ehud Barak, and Likud’s Benjamin Netanyahu; the latter being the frontrunner at this time. Until then, the government will essentially be paralyzed and there will be zero progress on peace talks with the Palestinians or Syrians.
India: In a stunning, synchronized operation, terrorists simultaneously exploded 13 bombs in four northeastern cities, killing at least 80 by last count. Officials don’t as yet know whether it is the work of separatists or Islamists.
Lebanon: Finally, the United States appears to be committed to rearming the Lebanese military. This should have been done back in 2005. Separately, Hizbullah’s Nasrallah and Sunni majority leader Saad Hariri met. I’m not sure how to interpret this as yet.
North Korea: Kim Jong-il is said to have suffered a health setback and is back in hospital.
Mexico: The drug cartels have infiltrated the Attorney General’s office and possibly the U.S. embassy, according to reports.
Random Musings
–What an election cycle it’s been. Two long years. Hillary vs. McCain….until it wasn’t. The last polls certainly don’t bode well for the Straight Talk Express, as not only does John McCain trail in every national survey, badly in some, but the bottom line is he needs to win both Florida and Ohio and he trails by 50-43 in the former and 49-40 in the latter. You need 270 electoral votes to win; Bush won 286 in 2004 and he captured both Florida (27 electoral votes) and Ohio (20). So many of us will be going to bed early on Election Day, I presume.
Personally, I’m voting for John McCain, praying that if he’s elected he stays healthy for four years. By now it’s no secret that I think his choice of Sarah Palin was a poor one, and Tuesday’s results may prove it was outright disastrous.
McCain also ran a horrible campaign, up until the last two weeks or so when he hit the mark on what an opposition victory could mean for the average taxpayer. Taxes, in and of itself, is not an issue that should decide elections, but in light of the current economic crisis, it’s one that becomes paramount. I also said way back I had supported McCain with my campaign dollars and despite all I’ve read and observed that was disturbing regarding the candidate, I just feel a sense of responsibility to honor my commitment.
That said, believe me, I harbor no ill will towards anyone voting for Barack Obama. I truly believe that he would operate more as a moderate, like Bill Clinton, than commonly thought today. That is I believe he would act as a moderate if, say, Evan Bayh was Senate Majority Leader and Steny Hoyer was leading the House, rather than Harry Reid and Nancy Pelosi. That’s the rub, and I know I’m not alone in this thinking.
But let’s face it, Obama has struck a chord with his line that current administration policies, as supported by McCain, have led to a “Wall Street-first, Main Street-last” mentality. Who can disagree with that these days?
I’m not concerned with Obama on the foreign policy front. Specifically, with regards to Iraq and Afghanistan, as long as Gen. Petraeus is in charge, Obama will listen to him, and, let’s face it, Iraq is going to be kicking U.S. forces out basically around the time an Obama presidency sought to exit the theater anyway. And Obama recognizes we need more resources in Afghanistan, quickly.
So that’s where I’m at. My major concern is with the current congressional leadership. Democrats control the House, 235-199 (with one vacancy), and the Senate 51-49 (with two independents caucusing with the Dems). All of us are going to be giving equal attention to the Democratic gains as well as the presidential race, though at least it now appears Republicans will prevent the Dems from attaining the key 60-vote threshold in the Senate.
As Americans, let’s at least all hope for a relatively scandal free vote and then, somehow, have leaders of both parties circle the wagons in a spirit of bi-partisanship, at least for the critical first 150-180 days. Then they can go back to being the jerks they’ve all too often proved to be. It’s incredible to think of the challenges the winner faces. God help us.
–Frederick W. Kagan / Wall Street Journal
“As the scale of the economic crisis becomes clear and comparisons to the Great Depression of the 1930s are tossed around, there is a very real danger that America could succumb to the feeling that we no longer have the luxury of worrying about distant lands, now that we are confronted with a ‘real’ problem that actually affects the lives of all Americans. As we consider whether various bailout plans help Main Street as well as Wall Street, the subtext is that both are much more important to Americans than Haifa Street.
“One problem with this emotion is that it ignores the sequel to the Great Depression – the rise of militaristic Japan marked by the 1931 invasion of Manchuria, and Hitler’s rise to power in Germany in 1933, both of which resulted in part from economic dislocations spreading outward from the U.S. The inward-focus of the U.S. and the leading Western powers (Great Britain and France) throughout the 1930s allowed these problems to metastasize, ultimately leading to World War II.
“Is it possible that American inattention to the world in the coming years could lead to a similarly devastating result? You betcha….
“The next president…will inherit two ongoing wars involving more than 180,000 troops. He will face two global enemies – al Qaeda and Iranian terror networks, including the Islamic Revolutionary Guard Corps/Quds Force and Hizbullah.
“It is important to note here the distinction between an enemy and a threat. Threats are problems to be concerned about in the future; enemies are organizations trying to kill Americans right now. Al Qaeda and Iranian agents are both killing Americans on a regular basis and have proclaimed their determination to kill more. They are enemies, not threats, and they will confront the next president from day one….
“The health of our economy rests on its fundamentals, and on the way the entire government – the president, Congress, the Federal Reserve, and the courts – approach the problem. The lives of American citizens rest on the way the president interacts with our enemies. When people feel relatively safe, they vote their pocketbooks. When they feel endangered, they vote for security. The world today offers no reason for Americans to feel safe. If we want safety, we have to be ready to fight for it.”
–A McCain insider told the New York Daily News that Sarah Palin had gone “rogue” in the last weeks of the campaign.
“She’s a diva. She does not have any real relationship of trust with any of us, her family, or anyone else.”
–The best way to describe McCain’s campaign is “helter-skelter.” But at least he gave us more of an effort, however ill-considered at times, than the holder of the worst campaign in my lifetime, Bob Dole.
–McCain’s key energy platform of building 100 nuclear power plants is beyond absurd. It’s just not realistic. Yes, it’s a terrific jobs program, but there is no way you can get past the logistics of gaining approvals in each jurisdiction. T. Boone Pickens’ plan, on the other hand, has tremendous merit and now that Congress has extended the tax credits for alternative energy, the next president should hammer away at getting investors, and homeowners, to take advantage of them…so wrote the editor with his heavily alt energy-laden portfolio.
–Alaska Republican Senator Ted Stevens was convicted on seven counts of corruption in lying about free home renovations. John McCain called for Stevens to resign. Alaskan voters will render their own judgment on Tuesday as Stevens faces reelection.
–Matthew Continetti / The Weekly Standard
“(The) future is never a straight-line projection of the present. This is true in life, culture, economics, and politics. A corollary is that presidents almost never govern in the manner in which they campaigned. Stuff happens. Woodrow Wilson ran for reelection on a peace platform. FDR ran as a fiscal conservative. George H.W. Bush promised he wouldn’t raise taxes. George W. Bush said the United States ought not to ‘nation build.’ In each case, events interfered.
“So, as we examine Obama’s economic policy proposals, we ought to look at them with a skeptical eye. Many of the proposals won’t become law. Others will be modified beyond recognition. Still others will be cast aside, as unforeseen developments force the rejection of old ideas and the adoption of new ones. The economy could worsen. The wars in Iraq and Afghanistan could worsen. The United States could become involved in new conflicts in Darfur, Iran, Pakistan, the Korean peninsula, Taiwan, or someplace no one has ever heard of. Al Qaeda could strike again. And don’t forget Putin.
“There are, however, a few basics we can take for granted. If Obama is elected president…not only is enrollment in his class [ed. Advanced Obamanomics] going to spike, but federal taxes, spending, and the deficit – at least in the short term – are all going to rise. As taxes on the rich go up, the income threshold at which one becomes ‘rich’ is likely to go down. Obama wants billions in new spending, and, if the Bush presidency is any indication, he won’t stop Democrats in Congress from spending even more. And the new spending, combined with the loss in revenue from an economy in recession, will increase the deficit.”
–George Will / Washington Post
“From the invasion of Iraq to the selection of Sarah Palin, carelessness has characterized recent episodes of faux conservatism. Tuesday’s probable repudiation of the Republican Party will punish characteristics displayed in the campaign’s closing days.
“Some polls show that Palin has become an even heavier weight in John McCain’s saddle than in his association with George W. Bush. Did McCain, who seems to think that Palin’s never having attended a ‘Georgetown cocktail party’ is sufficient qualification for the vice presidency, lift an eyebrow when she said that vice presidents ‘are in charge of the United States Senate?’
“She may have been tailoring her narrative to her audience of third-graders, who do not know that vice presidents have no constitutional function in the Senate other than to cast tie-breaking votes….
“Palin may be an inveterate simplifier; McCain has a history of reducing controversies to cartoons. A Republican financial expert recalls attending a dinner with McCain for the purpose of discussing with him domestic and international financial complexities that clearly did not fascinate the senator. As the dinner ended, McCain’s question for his briefer was: ‘So, who is the villain?’
“McCain revived a familiar villain – ‘huge amounts’ of political money – when Barack Obama announced that he had received contributions of $150 million in September. ‘The dam is broken,’ said McCain, whose constitutional carelessness involves wanting to multiply impediments to people who want to participate in politics by contributing to candidates – people such as the 632,000 first-time givers to Obama.
“Why is it virtuous to erect a dam of laws to impede the flow of contributions by which citizens exercise their First Amendment right to political expression? ‘We’re now going to see,’ McCain warned, ‘huge amounts of money coming into political campaigns, and we know history tells us that always leads to scandal.’ The supposedly inevitable scandal, which supposedly justifies pre-emptive government restrictions on Americans’ freedom to fund the dissemination of political ideas they favor, presumably is that Obama will be pressured to give favors to his September givers. The contributions by the new givers that month averaged $86.”
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Pray for the men and women of our armed forces.
God bless America.
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Gold closed at $723
Oil, $67.96
Returns for the week 10/27-10/31
Dow Jones +11.3% [9325]
S&P 500 +10.5% [968]
S&P MidCap +13.4%
Russell 2000 +14.1%
Nasdaq +10.9% [1720]
Returns for the period 1/1/08-10/31/08
Dow Jones -29.7%
S&P 500 -34.0%
S&P MidCap -33.8%
Russell 2000 -29.8%
Nasdaq -35.1%
Bulls 23.1
Bears 52.7 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
The next two reviews will be filed from Hong Kong.
Brian Trumbore
