For the week 11/3-11/7

[Posted 7:00 AM ET…from Hong Kong]

 

I was one of those tearing up election night as the enormity of the moment hit me, like it did for over half of the country, and then some. Yes, I voted for John McCain but America sent a powerful message not just to those who cherish freedom and democracy here, but around the world. At the same time I can see why many don’t share my sentiments, but I have no problem saying, as many of you have already told me, that we hope Barack Obama does such a good job, we’ll have no problem pulling the lever for him in 2012. Seeing as I’m a “wait 24 hours” type of guy, I’m cautiously optimistic. Frankly, I’d be very optimistic were it not for the presence of Harry Reid, Nancy Pelosi and others of their ilk. But we’ll be having this part of the discussion for at least the next two years, one can safely assume.

 

Senator John McCain:

 

“My friends, we have come to the end of a long journey. The American people have spoken, and they have spoken clearly….

 

“In a contest as long and difficult as this campaign has been, his success alone commands my respect for his ability and perseverance. But that he managed to do so by inspiring the hopes of so many millions of Americans, who had once wrongly believed that they had little at stake or little influence in the election of an American president, is something I deeply admire and commend him for achieving.

 

“This is an historic election, and I recognize the special significance it has for African-Americans and for the special pride that must be theirs tonight….

 

“I urge all Americans who supported me to join me in not just congratulating him, but offering our next president our goodwill and earnest effort to find ways to come together, to find the necessary compromises, to bridge our differences and help restore our prosperity, defend our security in a dangerous world, and leave our children and grandchildren a stronger, better country than we inherited.

 

“Whatever our differences, we are fellow Americans. And please believe me when I say no association has ever meant more to me than that….

 

“Tonight, more than any other night, I hold in my heart nothing but love for this country and for all its citizens, whether they supported me or Sen. Obama, I wish Godspeed to the man who was my former opponent and will be my president.

 

“And I call on all Americans, as I have often in this campaign, not to despair of our present difficulties but to believe always in the promise and greatness of America, because nothing is inevitable here.

 

“Americans never quit. We never surrender. We never hide from history. We make history.”

 

President George W. Bush:

 

“No matter how they cast their ballots, all Americans can be proud of the history that was made yesterday. Across the country, citizens voted in large numbers. They showed a watching world the vitality of America’s democracy, and the strides we have made toward a more perfect union. They chose a President whose journey represents a triumph of the American story – a testament to hard work, optimism, and faith in the enduring promise of our nation.

 

“Many of our citizens thought they would never live to see that day. This moment is especially uplifting for a generation of Americans who witnessed the struggle for civil rights with their own eyes – and four decades later see a dream fulfilled.”

 

President-elect Barack Obama:

 

“If there is anyone out there who still doubts that America is a place where all things are possible; who still wonders if the dream of our founders is alive in our time; who still questions the power of our democracy, tonight is your answer.”

 

Then, in addressing the immense challenges that face him…

 

“The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America – I have never been more hopeful than I am tonight that we will get there. I promise you – we as a people will get there.

 

“There will be setbacks and false starts. There are many who won’t agree with every decision or policy I make as President, and we know that government can’t solve every problem. But I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree. And above all, I will ask you join in the work of remaking this nation the only way it’s been done in America for two hundred and twenty-one years – block by block, brick by brick, calloused hand by calloused hand….

 

“Let us resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long. Let us remember that it was a man from this state who first carried the banner of the Republican Party to the White House – a party founded on the values of self-reliance, individual liberty, and national unity. Those are values we all share, and while the Democratic Party has won a great victory tonight, we do so with a measure of humility and determination to heal the divides that have held back our progress. As Lincoln said to a nation far more divided than ours, ‘We are not enemies, but friends…though passion may have strained it must not break our bonds of affection.’ And to those Americans whose support I have yet to earn – I may not have won your vote, but I hear your voices, I need your help, and I will be your President too.”

 

As the New York Times’ Thomas Friedman put it:

 

“The Civil War is over. Let reconstruction begin.”

 

As to the message the Obama victory sent around the world, I thought the last British governor of Hong Kong and current chancellor of Oxford University, Chris Patten, put it best in an op-ed piece a few days before the election.

 

“Around the world, the U.S. presidential election campaign has attracted as much attention as domestic political controversies in each of our own countries. The interest the world has taken in the U.S. vote is the best example of the United States’ soft power and a lesson in democracy from the world’s only superpower. If only we could all vote as well as watch and listen, because the outcome is vital for everyone around the world.

 

“What does the world want – and, perhaps more importantly, what does it need – from a new U.S. president?

 

“Much as some may hate to admit it, anti-Americanism is a sentiment that has been fed and nurtured during the eight years of George W. Bush’s presidency. Yet the world still needs U.S. leadership.

 

“Yes, we are witnessing the emergence of China, Brazil and India as important global economic players. Yes, we have watched the humiliating fall of Wall Street’s masters of the universe. Yes, U.S. military prowess has drained away into what Winston Churchill called ‘the thoughtless deserts of Mesopotamia,’ and its moral authority has been weakened by events in places from Guantanamo Bay to Abu Ghraib.

 

“All that is true. Yet the United States remains the world’s only superpower, the only nation that matters in every part of the globe and the only country capable of mobilizing international action to tackle global problems.”

 

By the reaction of the international community to the Obama victory, yes, the United States still matters and there are billions counting on our leadership.

 

But for his part, the president-elect knows there is no time to waste, particularly with the economy. As expected, Friday’s jobs report for October was awful, down another 240,000. What made it even worse, though, was the fact September’s figure was revised upwards some 125,000 to 284,000. Overall, the unemployment rate stands at 6.5%, the worst level since 1994.

 

Earlier in the week, the national gauge of manufacturing activity, the ISM for October, came in at 38.9, it’s lowest in 26 years, while September factory and construction orders both were off and we all know what happened next. As Cisco’s John Chambers said with regards to his company’s current activity, “The environment has changed dramatically in the last two months.”

 

It’s the speed of collapse that has been so shocking to all of us, whether we were bears or not going in. With the first look at third quarter GDP coming in at -0.3% (which is expected to be lowered further the next two refinements), Merrill Lynch’s David Rosenberg, who has been as good as anyone in calling the recession, estimates that fourth quarter GDP will be -2.0%, first quarter ’09, -4.0%, and second quarter, -3.3%, before we begin to see some semblance of a turnaround. Believe me, if we hit Rosenberg’s predictions it will feel like a depression, even though we’ll still be far from the common definition, down 10 to 15 percent over the prior year.

 

As if all the above wasn’t bad enough, you had October’s auto sales. Pick your maker, they were off anywhere from Toyota’s 23% to General Motor’s 45%. As GM’s chief sales analyst put it, adjusted for population growth, this was the worst month in the post-World War II era and many believe November will be even worse. [More on GM below and its sudden struggle to survive.]

 

Retailers were not to be outdone. They announced October was the worst month since 1969, with only Wal-Mart holding its own, up 2.4%. Target’s same-store sales were off 4.6%, Macy’s 6.3%, and GAP’s down 16%.

 

Globally, if you were looking for a real bellwether it came in the form of ArcelorMittal SA, the world’s largest steelmaker, which is cutting production by more than a third.

 

And layoffs, as reflected in the above employment report, are cascading. Citigroup and Goldman Sachs are issuing over 12,000 new pink slips. In the case of Citi, that brings the total announced job cuts for 2008 to 22,000.

 

So I guess you could say all that’s needed is a Keynesian stimulus package of $150 to $300 billion, right? Well, this is the kind of decision Barack Obama is faced with. 

 

Robert Samuelson / Newsweek

 

“The bad news is that (any) recovery, though boosting employment, may prove unsatisfying. Our new economic era may lapse into a state of ‘affluent deprivation.’ That’s an unfamiliar term. It doesn’t mean poverty. The United States will remain a wealthy society. Rather, ‘affluent deprivation’ signifies a state of mind. People feel poorer, because their sluggish income gains get siphoned off into higher taxes, energy costs and health spending. Though these all involve benefits, they don’t pay everyday bills or cover people’s routine pleasures. There’s an approaching collision between private and public wants – government spending for everything from retirement benefits to defense to the repair of roads and bridges.

 

“To some observers, we are so materialistic that we can easily make sacrifices. Do we really need fancier grills or more flat-screen TVs? Of course, there’s waste and personal extravagance. But what this argument ignores is psychology. ‘Luxuries’ quickly become ‘necessities’ – cellphones being a recent example. ‘Getting ahead’ feeds people’s optimism, and an upbeat society shows more ‘tolerance of diversity, social mobility [and a greater] commitment to fairness,’ as Harvard economist Benjamin Friedman argued in a recent book. Economic growth has anchored our national self-esteem; slower growth suggests a grumpier and more contentious America.

 

“Unfortunately, slower growth seems probable. What the new president, and everyone else, needs to understand is that the present crisis marks the end of an economic era. For roughly a quarter century, the U.S. economy benefited from the expansionary side effects of falling inflation – lower interest rates, greater debt, higher personal wealth – to the point now that we have overdosed on its pleasures and are suffering the hangover. In our zeal to identify the villains of the present economic debacle, we ought to recognize that the larger causes lie in this prolonged prosperity and the permissive attitudes and practices it inspired.”

 

Robert Samuelson / Washington Post

 

In addressing plunging revenues, thanks to the collapse in stock prices, my favorite economist comments further:

 

“That will mean lower capital gains taxes, because capital gains – profits on the sale of stocks and other assets – will plunge. In recent years, capital gains taxes have been running at $100 billion or more. That amount could drop sharply, even if the top rate on capital gains were raised from 15 percent to its pre-2003 level, 20 percent….

 

“(But) judged only by economic inequality, the financial crisis is a godsend. It will probably narrow the gap – though still vast – between rich and everybody else. But what good will that do? Economic inequality also declined in the Great Depression. The country wasn’t better off. By and large, the poor aren’t poor because the rich are rich. They’re usually poor for their own reasons: family breakdown, low skills, destructive personal habits and plain bad luck.

 

“The presumption implicit in the criticism of growing economic inequality is that society’s income is a given and, if the rich have less, others will have more….

 

“But the redistributionist argument is at best a half-truth. The larger truth is that much of the income of the rich and well-to-do comes from what they do. If they stop doing it, then the income and wealth vanish. No one gets it. It can’t be redistributed because it doesn’t exist. Everyone’s poorer….

 

“Americans legitimately resent Wall Street types who profited from dubious investment strategies that aggravated today’s crisis. And government properly redistributes income to reduce hardship and poverty. But that’s different from attempting to deduce and engineer some optimal distribution of income. Government can’t do that and shouldn’t try. Scapegoating and punishing all of the rich won’t do us any good if the resulting taxes dull investment and risk-taking, discouraging economic growth that benefits everyone.”

 

Turning to international affairs, David Ignatius / Washington Post:

 

“Looking through the gauzy veil of history, we tend to forget what a mess JFK made of his first year in office. A world of problems awaited him, and his inexperience showed. The CIA talked him into the disastrous Bay of Pigs invasion. The Soviet leader, Nikita Khrushchev, intimidated him at the Vienna summit and then erected the Berlin Wall. JFK discovered that the world was far more complicated than his campaign rhetoric had implied.

 

“The candidate who wins Tuesday will face a similar reality check. Indeed, the problems at home and abroad are so serious, and the room to maneuver is so constrained, that you have to wonder why anyone would want the job. The risks of failure will be huge; the opportunities for breakthroughs will be limited.

 

“Let’s start with the hardest problem, which is Iraq. Obama may have opposed the war in 2002, but if he’s elected, it will become his war on Jan. 21. Iran is waging an all-out campaign to push America out as soon as possible – to inflict a visible, painful defeat on the United States. How can the next president extricate America from this war without further empowering Iran? What if Iraq begins to slip back toward civil war? President Bush kept Iraq intact long enough that success or failure will belong to the next president….

 

“What of the Iranian nuclear issue, which, it appears, Bush will pass on to his successor unresolved? To take just one scenario, suppose the Israeli government sends an emissary to the White House next year with this message: ‘We’ve waited long enough. Either you take action to stop Iran from getting a bomb, or we’ll take action.’ How should the next president respond to that one?

 

“Not depressed enough yet? Okay, let’s think about Afghanistan. We’re slowly losing the war there, the NATO alliance is in increasing disarray and the talk among strategists is that maybe the best way out is to negotiate with the Taliban. Perhaps John McCain could get away with that, but could Obama? Yet that’s the choice the next president will face – cutting a deal with our enemies or sending more troops to fight what may be an unwinnable war….

 

“I have been describing what economists call the ‘endogenous’ variables, the ones that are built into the system. The exogenous variable – the ‘X factor,’ if you will – is presidential leadership. A president who can communicate and govern (and in our world, they are really the same thing) can break out of the box that constrains his choices. That’s what JFK eventually learned to do. But it wasn’t easy.”

 

Street Bytes

 

Stocks finished down after the previous week’s record recovery with the Dow Jones losing 4.1% to 8943, the S&P 500, 3.9% and Nasdaq 4.3%. Even the Obama victory and the good feelings that generated couldn’t last as it was overwhelmed by the dire news on all fronts financial, including from Detroit. At least for its part the world staged another series of interest rates cuts with the Bank of England taking its key rate down from 4.50% to 3.00% in a bold move anticipated by no one, while the European Central Bank did a more pedestrian 50 basis points, 3.75% to 3.25%. Our Federal Reserve is now expected to cut further when it next meets in December, if not before.

 

–U.S. Treasury Yields

 

6-mo. 0.82%   2-yr. 1.32% 10-yr. 3.79% 30-yr. 4.27%

 

Yields fell across the board on the hope of further Fed cuts, while on the commercial paper front, rates have come way down, such as in the case of Libor, but the banks are still not lending.

 

–In a national exit poll, 7% said the economy was either excellent or good, compared to 47% who answered this way in 2004. The seven percent are of course certifiable idiots.

 

–General Motors reported an operating loss of $4.2 billion for the third quarter, and, just three weeks after saying “bankruptcy is not an option,” GM is now telling us it doesn’t have enough cash to finish out the year. Most experts thought GM was fine until late 2009. So it now appears the government has to bail out the auto industry, as much as free marketeers don’t want to see this. The consequences of a collapse by GM, Ford and/or Chrysler would be devastating beyond words. Yes, we are paying for their own shortsightedness in not retooling earlier, just like we are paying severely for the hubris of Wall Street, but we’ve seen the consequences of not bailing out Lehman Brothers and we have to save Detroit…and all those around the country whose livelihood depends on it.

 

–Toyota slashed its annual earnings forecast to less than a third of what it was the previous fiscal year, another stunning development for the industry.

 

–For what it’s worth, the International Energy Agency expects oil to average more than $100 from 2008 to 2015. They have a longer range forecast than this, but anyone bothering to read it is a moron, save those making decisions on long-term drilling projects. I do concur, though, with the $100 forecast. The old fields continue to see steep production declines and they aren’t being replaced fast enough. Now, with the collapse in price, the situation is compounded by the fact new projects are being cancelled. It’s just one massive set-up for the next cycle turn, say in 2010.

 

–On the Irish real estate front, the Irish Independent reported that 200,000 homeowners will fall into negative equity by the end of next year. Remember, during the peak, one in three homebuyers here was taking out no-money down mortgages. We did not walk alone in this instance.

 

–JPMorgan Chase, in another sign of the times in the financial industry, said it was eliminating a standalone proprietary trading desk as the Street is increasingly reluctant to use its own capital for large bets. The co-heads of JPMorgan’s investment bank said “Our business and industry have changed dramatically this year and within this new market paradigm, the advantages of aligning our proprietary trading activities with the core business are clear.

 

–Back in February, when I was in Las Vegas with some old friends celebrating our 50th birthdays together, one learned senior executive at a major Wall Street house told us of the issues facing the private-equity business and the loans to finance major acquisitions, such as MGM and Neiman Marcus. As David P. and I now bemoan, we sat there, listened, understood the topic at hand…and didn’t act. 

 

While my consistent recommendation of the past two years to have a personal allocation of 80% cash / 20% equities has proved to be as good as any, non-short portfolio advice, I have made some big mistakes this year with my own small holdings. Or, as in the above, not acting on terrific information. [This would not have been insider trading, I hasten to add.]

 

In fact, last year I was railing about the private-equity industry and their slash and burn tactics, loading up companies with debt, but just as I was far, far ahead of the game in calling the real estate bubble, I didn’t act to take advantage of my own insight. I didn’t advocate selling financials short the past year because my own experiences were awful in this regard. A few years ago, for example, I told you after the fact that I had purchased puts on Washington Mutual, and then got out of the trade a few months later, breaking even. It turned out I was a full year ahead of the game, and huge profits. [Like turning $40,000 into $300,000 on a conservative bet.]

 

There’s a fellow on my floor who trades copper and we were commiserating the other day. I told him how disgusted I was with myself and as it so often turns out in this business, he was making the same mistakes himself.

 

At least I can say, in all honesty, that in the almost ten years of Week in Review since I started the site, my generic advice has been as good as any in this genre…period. It’s been about capital preservation. I have received more than a few thanks, for example, for my early warnings on housing.

 

Anyway, just had to get that off my chest as I prepare to check out my money-losing investment in Fuzhou, China, this week. I’ll have a full report next time, as well as all kinds of stuff on China in general and the current state of affairs.

 

–News Corp. joined the list of media companies decrying the crumbling advertising market, specifically “a pretty grim picture” at its local television stations and deteriorating advertising revenues at its UK and Australian newspapers. I’m very concerned at the rate of decline. It would be a tragedy to see many more newspapers fold. If I were king of the world (wink wink), everyone over the age of 18 would have to buy a quality newspaper each day, or not be allowed back into their home. Scientists are working on the needed monitoring device as we speak.

 

–After Google scrapped an agreement to place ads on Yahoo’s Web pages, Yahoo CEO Jerry Yang said he will go back to negotiating with Microsoft now that he realizes he can’t go it alone amidst stagnating cash flow. Microsoft’s Steve Balmer said in return, ‘Good luck trying to get a meeting.’ Yahoo could have received $33 a share from Microsoft earlier this year, but Yang, playing the role of village idiot, turned it down. Now, the best most experts expect he would get is $20, but only if the economy and the advertising environment stabilize in the next quarter or so, and if the hot-head Balmer elects to sit down despite refusing to at the moment.

 

–Circuit City, the nation’s No. 2 consumer electronics retailer, announced it would close 155 of its 700 outlets, cutting thousands of jobs. Liquidation sales began on Wednesday so check ‘em out.

 

–Wall Street said it will not use the $125 billion cash infusion from the federal government to pay bankers’ bonuses. But it’s six of one, half dozen of another. The average American doesn’t understand why some are getting any bonuses to begin with, even as various surveys show that bonuses will drop 20 to 50 percent across the industry.

 

–Unbelievably, the Bush administration is excluding Spain from the G20 summit that commences Nov. 14. The White House is doing this to get back at Prime Minister Zapatero for withdrawing his forces from Iraq after he was elected in 2004. But Spain is the eighth-largest economy in the world, by most calculations. This is incredibly short-sighted, though you can imagine Spain’s opposition parties are having a field day.

 

–Update: Reserve Management Co., parent of the Primary Fund, has ever so slowly begun to distribute portions of the $50 billion plus fund, though still only about 50%. This is far from satisfactory.

 

–A former UBS executive, Mitchel Guttenberg, was sentenced to 78 months in prison for his role in one of Wall Street’s biggest insider-trading rings.

 

–Meanwhile, a former analyst at Goldman Sachs, convicted of operating a separate $6.7 million insider ring, is missing and probably fled the United States. So if you see David Pajcin, like in some bazaar in Istanbul, trip him and then turn him over to authorities, which in Istanbul would be quite interesting.

 

–Back to Street bonuses, the New York Post’s Terry Keenan had some appropriate comments.

 

“Did you hear the news? Goldman Sachs minted 94 new partners this week, a designation that comes not just with a fancy title but with the promise of untold riches this bonus season and for years to come.

 

“Trouble is, the firm seems to have forgotten the 300 million new partners it acquired weeks earlier when the U.S. taxpayer footed the bill for a $10 billion loan to Goldman on extremely generous terms.

 

“Yes, get ready for it. While the rest of America is hunkering down for the worst Christmas in 25 years, Wall Street’s elves are merrily at work socking away at least $20 billion to be paid out in bonuses, and that’s just for three ‘investment’ banks still standing – Goldman, Morgan Stanley and Merrill Lynch.

 

“After taking $10 billion from Uncle Sam and after shareholders have seen shares fall more than 50 percent.”

 

–Douglas Feiden / New York Daily News

 

“When Lehman Brothers was on top, its executives blew through millions on limos, ballgames, golf dues, fitness clubs and four-star hotels.

 

“When the once-powerful brokerage went belly up, a slew of companies were left holding the bag – from the Red Sox to the Ritz-Carlton and from taxpayers to a tiny Tribeca Web design company.”

 

Lehman, according to recent court documents, owes the New York Giants, Red Sox and Chicago White Sox some $625,000 for multiple season tickets. It owes the Equinox Fitness Club $354,000. And a day care tab of $113,000 to Bright Horizons Children’s Center.

 

But wait, there’s more! The exclusive Stein Eriksen Lodge in Park City, Utah, is owed a $94,000 cancellation fee for an annual meeting with Lehman executives, since scrapped, and the U.S. Golf Association is owed a $57,000 balance on a tent for next year’s U.S. Open at Bethpage.

 

–Sarah Lawrence College in Bronxville, New York, is the costliest school in the nation with tuition, room and board climbing to $53,166, according to the New York Times. And they don’t even have a Division I basketball team! George Washington University (which does) and NYU (which also doesn’t) are the second and third most expensive.

 

–Lastly, with everything else crapping out this year, it’s nice to see Molson Coors Brewing Co. posting a 29% increase in third-quarter profit. Now this is a case of crossing both the domestic and premium markets. If I drink Coors Light, I’m saying it was a rough week in the markets so I have to go domestic. But when there is a significant rally, I can switch over to Molson, treating myself to a more premium import. These guys are smart, very smart.

 

By the way, Coors Light sales jumped 7% in the quarter, but Miller Lite’s fell 4%.

 

Foreign Affairs

 

Israel / Iran:   Sanctions against Iran have failed, so what does Israel do as Iran gets ever closer to shocking the world with a nuclear test? Pressure is rising domestically to launch a unilateral attack, but at the same time there is a segment in the population that believes a nuclear Iran is not something that can be stopped, as the Los Angeles Times reported the other day.

 

I have been adamant all year that Israel would launch a preemptive strike by year end, and remembering that Israel will never have a better friend than President Bush, I still say this could be the case. Saudi Arabia, for one, would quietly be leading the cheers should they do so, though of course for public consumption they would be outraged.

 

Along these lines, Foreign Minister Tzipi Livni warned President-elect Obama, indirectly, “We live in a neighborhood in which sometimes dialogue – in a situation where you have brought sanctions, and you then shift to dialogue – is liable to be interpreted as weakness.” Asked if she supported any U.S. dialogue with Iran, Livni replied: “The answer is no.”

 

I totally disagree with Ms. Livni. For starters, look where existing policy has gotten us.

 

Separately, lame duck Prime Minister Ehud Olmert has finally halted all direct or indirect government funding of illegal outposts amid rising domestic violence. Olmert’s government had long pledged to the United States it would remove at least two dozen of them. Militant settlers have been clashing with Israeli soldiers.

 

Back to Iran, there was a laughable impeachment of Interior Minister Ali Kordan. It seems he forged a degree from Oxford University, what was described as a crude fake. Members of Parliament have accused President Ahmadinejad of “grave naivety” for having been taken in by Kordan’s lies.

 

Syria: The London Times had a report that the Syrian government secretly supported the recent U.S. raid on a border town with Iraq that took out a key al-Qaeda target. Abu Ghadiya was feared by the Syrians as an agent of Islamic fundamentalism who was hostile to the Assad secular regime. It makes sense.

 

Iraq: For the record, in the month of October the U.S. death toll of 13 matched the record low of July. The overall total is now approaching 4,300. [In Afghanistan, there were 15 U.S. deaths in October.] Iraq is slated for provincial elections in late-January, prelude to national elections late ’09. No final status of forces agreement has been reached.

 

Afghanistan: Presidential elections here are slated for next year, but it will be impossible to hold them without vastly improved security and that isn’t likely. So, an option is to hold a grand loya jirga (tribal council). And in yet another disputed bombing, Afghan officials say the U.S. launched an attack that killed 37 members of a wedding party. President Karzai demanded that President-elect Obama cease in such aerial operations when he takes office.

 

Pakistan: The Post’s David Ignatius said leadership here is looking the other way in relation to the ongoing attacks on suspected terrorists by U.S. drones. The problem is new President Zardari’s hold on leadership is extremely fragile. At least for now, though, the military recognizes that the United States is helping it by going after the same al-Qaeda, Taliban figures who seek to destabilize the Pakistani government. Just my opinion, but any longer-range assessment of the Bush presidency has to look at where Pakistan is ten years from now. Pray this is a check in the plus column for him.

 

Russia: President Dmitry Medvedev set the stage for the return of Vladimir Putin in calling for a new, six-year term for the office of president versus the current two consecutive four-year terms that had forced Putin to step aside for Medvedev. So, when Medvedev’s term expires, now Prime Minister Putin could slide right back into the presidency for 12 years. 

 

Medvedev called for the legislation in his first 90-minute state of the nation address, where he also spoke of the threat Russia faced by the United States’ proposed missile defense plans in Poland and the Czech Republic, saying Moscow would deploy Iskander missiles to the enclave of Kalningrad, sandwiched between Poland and Lithuania, “to neutralize, if necessary, a missile defense system.” With a range of 175 miles, the Iskander missiles could reach targets in Poland but not the Czech Republic. The Iskanders are highly accurate and are capable of carrying nuclear payloads.

 

“From what we have seen in recent years – the creation of a missile defense system, the encirclement of Russia with military bases, the relentless expansion of NATO – we have gotten the clear impression that they are testing our strength,” said Dmitry.

 

Medvedev added Russia would not accede to calls for it to withdraw its troops from Georgia’s breakaway regions of Abkhazia and South Ossetia, or rescind its recognition of their independence following the August war.

 

Editorial / Washington Post…on Medvedev’s call that it was up to Barack Obama to “make a choice in favor of full-fledged relations with Russia.”

 

“It’s not surprising that the regime of Mr. Medvedev and his master, Vladimir Putin, would be the first to try intimidating the president-elect, though the speed with which it did so might have surprised even Mr. Biden [ed. referring to his remark that Obama would be “tested.”] The principal aims of Mr. Putin’s foreign policy are restoring Soviet-style domination of Russia’s neighbors, such as Georgia and Ukraine, and proving that Moscow can still act as a counterweight to the United States. So Mr. Medvedev blamed the United States for Russia’s invasion of Georgia and said that international ‘mechanisms must be created to block mistaken, egotistical and sometimes simply dangerous decisions’ by Washington.

 

“The point of deploying new missiles in the Russian Baltic enclave of Kaliningrad….is to bluff the new administration or its NATO allies into abandoning a plan to deploy a rudimentary missile defense system in Poland and the Czech Republic.   As Mr. Putin well knows, the defense system is aimed at Iran and would be powerless to stop Russian ICBMs. But the Russians also know that missile defense is regarded skeptically by many Democrats, because of questions about its cost and effectiveness. Moscow’s crude logic is that Mr. Obama can be pressured into ‘a choice’ to abandon the system – thereby proving Russia’s position to be equal to that of a weakening America.

 

“We expect that Mr. Obama will be smart enough not to fall for this. He’s already made it clear that he intends to stand against Russia’s aggression in Europe.”

 

China / Taiwan: Big goings on between these two this week. A top Chinese envoy traveled to Taipei to sign milestone agreements in terms of increased tourism and trade, the latter including the ability to ship directly across the Taiwan Strait, which will be a huge cost savings for business on both sides. Understand this is also the key military corridor so it was a major concession by China. [My China investment is directly across from Taiwan and the new plant is part of port expansion in Jiangyin. Ergo, one dream is for a Taiwan company to take an interest in my holding. One can dream, can’t he?]

 

But, Taiwan’s pro-independence opposition is in an uproar over President Ma’s acting too hastily to establish better relations with Beijing, in what were the highest level contacts since 1949. On Friday night there were violent protests.  

 

Congo: It’s been relatively quiet the past few weeks as rebel leader Nkunda waits to make his next move on the regional capital of Goma, defended by a mere 150 UN soldiers. Everyone is scared to death another full-blown war erupts between Congo and Rwanda, involving three or four different armies. Already, it’s been a humanitarian disaster with 100s of thousands having fled the region. From the scene, Jon Swain / London Times.

 

“Nkunda’s forces were dug in yesterday just nine miles from Goma, where truckloads of drunken government troops had earlier looted stores, murdered men and raped women as they retreated in panic from the rebel advance.”

 

Mexico: What a tragedy. Mexico’s powerful interior minister and the country’s deputy attorney general were killed in a plane crash when their Learjet crashed near Mexico City’s main avenue. The pilot had reported a breakdown to air traffic control moments before losing contact.  The two had been leading the battle against the drug gangs but there is no evidence this was anything but an accident. Nonetheless, a huge blow for the government.

 

Random Musings

 

–As I write, Sat. p.m. Hong Kong time, Barack Obama will end up with a 52-46 victory, with the electoral college at 364-162 (12 more to be decided). This latter would compare to a 282-256 margin in 2004. Ralph Nader, incidentally, polled only 0.5% and Bob Barr came in at 0.4%. So you might be thinking, why bother? At least get 2%, if you’re going to go through all the trouble.

 

In the Senate, it’s 57-40 Democrats with Alaska, Minnesota and Georgia still to be decided, and it could be a while in the last two. It does appear, though, that Republicans do not have to concern themselves with a feared 60 vote, filibuster proof majority, plus negotiations continue to get Joe Lieberman to move from the Independent / Democratic caucus camp to the Republicans.

 

According to the exit polls, here are a few key figures that helped determine the race.

 

Women went 56-43 for Obama, while he captured the black vote by a 95-5 margin and Hispanics 66-31; all sizable gains over 2004.

 

The 18- to 29-year old vote went to Obama, 66-31, while McCain captured 60 and older by a 52-46 margin and, whites, 55-43.

 

The percentage of young people in the total electorate, despite all the talk they would come out in droves, was essentially the same, 18% vs. 17% in 2004. Turnout overall was deceiving. While the final numbers aren’t in, I bet it ends up being close to ’04 levels. Not substantially higher.

 

I’m guessing I was a perfect example. I always go to the polls around 11:00 to avoid the big crush, and partake in the bake sales at the high school where I vote, but this time I thought I’d go when the polls opened, 6:00 a.m. I was one of 50 all set to go when the bell rang and was back in my office about 20 minutes later, though without any baked goods. The mothers have to do a better job, quite frankly. I later heard, though, that this was easily the heaviest period of the entire day.

 

Back to the poll data, in a Marist survey for New York, New Jersey and Connecticut, in 2004, 37% identified themselves as Republican, 26% Independent, and 37% Democrat. 

 

This go around it was 31% Republican, 29% Independent, and 40% Democrat; a further worrisome sign for the elephants, though as George Will points out below, this can be fleeting.

 

One final exit poll tidbit:

 

The electorate this time was 75% white, 13% black and 8% Hispanic. The other 4% were Asian and a smattering of Martians, the latter always helping to keep things interesting. 

 

–George Will / Washington Post

 

“As this is being written, Republicans seem to have lost a total of 55 House and 11 Senate seats in the past two elections. These are the worst Republican results in consecutive elections since the Depression-era elections of 1930 and 1932 (153 and 22), which presaged exile from the presidency until 1953. If, as seems likely at this writing, in January congressional Republicans have 177 representatives and 44 senators, they will be weaker than at any time since after the 1976 elections, when they were outnumbered in the House 292 to 143 and the Senate 61 to 38.

 

“After the 1936 election, when the Republican nominee against FDR, Kansas Gov. Alf Landon, carried only two states, both in New England (hence the jest, ‘As Maine goes, so goes Vermont’), there were 29 congressional seats in New England and Republicans still held 15. With Tuesday’s defeat of Connecticut Republican Chris Shays, Democrats hold all 22 New England seats. As recently as 1996, when New York had 31 House seats, Republicans held 14; after Tuesday, they have just three of 29. With the loss of the seat on Staten Island [ed. thanks to the drunk/dirtball, Vito Fossella], Republicans will hold at most one urban seat….

 

“Still, the Republican Party retains a remarkably strong pulse, considering that McCain’s often chaotic campaign earned 46 percent of the popular vote while tacking into terrible winds. Conservatives can take some solace from the fact that four years after Goldwater won just 38.5 percent of the popular vote, a Republican president was elected.

 

“The conservative ascendancy that was achieved in 1980 reflected a broad consensus favoring government more robust abroad and less ambitious at home – roughly the reverse of Tuesday’s consensus. But conservatives should note what their current condition demonstrates: Opinion is shiftable sand. It can be shifted, as Goldwater understood, by ideas, and by the other party overreaching, which the heavily Democratic Congress elected in 1964 promptly did.”

 

–Andrea Peyser / New York Post

 

Chicago – “Here, at the intersection of Michigan Avenue and history, thousands upon thousands came out of their homes, walked for miles or drove for hours, determined to breathe the air of the new era. The Age of Obama.

 

“Long after dark came the dawn. In Grant Park, Obama held a celebration so grand, and at the same time solemn, it was hard not to feel a sense of awe….

 

“But the 125,000 who massed on Grant Park, including dignitaries like Spike Lee and the Rev. Jesse Jackson, was just the beginning.

 

“Close to a mile away, cops held Obama’s army at bay. These were the folks without the connections or money to rate a pass.

 

“People wept. Others prayed….

 

“As the results moved into Grant Park, deafening cheers erupted. The election of the nation’s first African-American president was a moment to share with the grandkids. Like the moon landing. The second coming.

 

“I have never hidden my suspicion of Obama, whom I considered an inexperienced, knee-jerk leftist who electrified the gullible masses with a single word, ‘Change.’

 

“And yet, there I found myself in that park, surrounded by celebrants. And clinging to that other buzzword of Obamaspeak, ‘Hope.’

 

“I hope you will risk angering your leftist pals. I hope you don’t raise taxes. On anyone. Or kiss up to terrorists.

 

“I do not dare hope you are a great president, Obama. I hope you are a good one.

 

“Welcome, President Obama. Victory is yours. Make it work.”

 

–One area where John McCain could work closely with a President Obama is on defense contracting reform. Obama should welcome McCain’s input in this area, needing to find more funds after all. We just want it to be a rational process, as opposed to the kind proposed early on by the likes of Henry Waxman.

 

–Along these lines, I hope our new president spends a lot of time on the military bases, where I expect him to be well received. And he should not shy away from visiting the inner city. I know Obama didn’t want to play identity politics, and he succeeded, but as a black man he needs to have some highly publicized sit downs with kids, including gang leaders. Be bold, Mr. President-elect. Get in their face. Shoot hoops with them. They’ll eat it up, and they’ll respect you all the more.

 

–I couldn’t agree more with the Times’ Thomas Friedman. It will be refreshing to have a president who can speak English. 

 

–And now a few thoughts on Sarah Palin. On the flight over, I read a ton of material on the campaign, including Newsweek’s year-long account that they have been running since 1984.

 

It’s true. Gov. Palin was the ultimate diva, a real piece of work. For example, while I haven’t brought up the clothes issue before now, the fact is she was told by senior McCain staff to buy three new suits for the convention and an additional three for the campaign. The stories we heard at the time were totally true. Palin instead went wild, and the RNC is pissed. She bought $49,000 worth of clothing for Todd, for crying out loud.

 

I had 24 hours to form an opinion of Sarah Palin when she was first introduced to us, and I said at the time it could very well be a brilliant move by McCain. But none of us really knew her and then the Katie Couric interview was devastating (as well as a boon for Tina Fey and Saturday Night Live). It turns out Palin didn’t even try to prepare for the Couric sit down.

 

But how much did she really impact the final tally?  As much as I want to blame her, Palin’s absence from the ticket would not have turned an electoral landslide for Obama into a win for McCain. She did clearly “galvanize” a portion of the electorate, for what reason I haven’t a clue, so would adding the pro-abortion rights Tom Ridge have improved matters? I’d like to think so, but probably not.

 

It was McCain’s sloppy campaign that did him in. The real John McCain didn’t emerge until late, including his concession speech. He’s a good man, bushwhacked by our aptly named president and the credit crisis. It’s that simple. 

 

But back to Palin, I get to Hong Kong, after being out of the loop for 24 hours, and learn that Fox News, of all people, her big supporters, broke the story that the sexy (she has that going for her) Palin thought Africa was a country, not a continent; nor did she know the nations involved in the North American Free Trade Agreement.

 

You know what really ticked me off this campaign season? Having conservatives speak for me. Like Brit Hume, who said of Palin before the latest revelations broke, “People who disapproved of her wouldn’t have voted for McCain.” Speak for yourself, Brit. I couldn’t believe McCain picked Palin after learning more about her, but I still voted for the man. I hated the way a large percentage of us were constantly pigeonholed by the Conservateriat at Fox.

 

Sarah, please do us a favor. Stay in Alaska for a while. Don’t come to Washington should Ted Stevens lose his appeal (at which point he said he would resign). Attend your children’s geography classes and start reading a good newspaper now and then. It would be asking too much for you to read this column.

 

And while I’m at it, would someone please tell the virulently racist Joe the Plumber to shut the heck up and get out of our face?!

 

–California voters put a stop to same-sex marriages in a crushing blow to gay-rights activists, thus putting in doubt 18,000 same-sex ceremonies conducted since a court ruling made them legal. Proposition 8 was carried by 52 percent and exit polls for the Associated Press found that it received critical support from black voters who came out for Obama. About seven in 10 blacks voted in favor of the ban, while Latinos also supported it and whites were split.

 

And in South Dakota, voters rejected a closely followed measure that would have led to sweeping bans on abortion; what was seen to be the start of a new challenge to Roe v. Wade. The measure was more moderate than a previous attempt but still fell 55-45.

 

–If Barack Obama doesn’t earn my vote in 2012, I’m giving my early support on the GOP side to Louisiana Gov. Bobby Jindal, who this time was my favorite for the veep slot. In hindsight, he would have been superior to the babe from Alaska.

 

–Just to weigh in on this presidential puppy deal, it better be a mutt, and I did see Obama’s answer at his press conference when I arrived in Hong Kong. A good sense of humor, especially a self-deprecating one, is always welcome in the Oval Office.

 

[To my seatmate on the flight from Newark to Hong Kong, a total disaster in every respect…we landed a full five hours after we were originally scheduled to…I’ve decided to hold off on slamming Continental publicly. Good luck with your move.]

 

–So recall I said my brother and I had unusually awesome weather in the Black Hills of South Dakota a week ago. On Wednesday/Thursday, the area was hit with a blizzard. Not just your run of the mill kind. Try 46 inches in Deadwood. 46 inches!

 

—

 

Pray for the men and women of our armed forces.

 

God bless America.

 

—

 

Gold closed at $734

Oil, $61.04…was below $60

 

Returns for the week 11/3-11/7

 

Dow Jones -4.1% [8943]

S&P 500 -3.9% [930]

S&P MidCap -5.1%

Russell 2000 -5.9%

Nasdaq -4.3% [1647]

 

Returns for the period 1/1/08-11/7/08

 

Dow Jones -32.6%

S&P 500 -36.6%

S&P MidCap -37.1%

Russell 2000 -34.0%

Nasdaq -37.9%

 

Bulls 30.3

Bears 48.3 [Source: Chartcraft / Investors Intelligence. For what it’s worth, the percentage of bulls has jumped from 22.2 two weeks ago, an historic low.]

 

Have a great week. I appreciate your support.

 

Next review will also be from Hong Kong.

 

Brian Trumbore