For the week 11/24-11/28

Wall Street…Obama begins to take control 

In one of three news conferences this week, announcing his economic team in stages, President-elect Barack Obama said that while there has been “confusion on what the overall direction might be” of the Bush administration’s plans, he nonetheless pledged to “honor the commitments” of the outgoing team. 

And so this week the Federal Reserve, teaming with Treasury, pressed another button and, presto! $800 billion more is flooding into the system, and at least for this week, the latest plan struck a positive chord. 

The Fed and Treasury are purchasing $800 billion in troubled assets; $600 billion of mortgage-backed securities and an additional $200 billion of asset-backed securities to help provide consumers with credit. Treasury is providing $20 billion of “credit protection” to the Federal Reserve, which comes from the $700 billion Troubled Assets Relief Program. 

The Fed said the new facility is designed to “increase credit availability and support economic activity by facilitating renewed issuance of consumer and small-business [asset-backed securities] at more-normal interest rate spreads.” 

“By providing liquidity to issuers of consumer asset-backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower-cost consumer finance and small-business loans,” added Treasury Secretary Henry Paulson Jr. 

Editorial / Washington Post 

“Desperate times call for desperate measures – or at least unorthodox ones. That is one way to interpret the Federal Reserve’s announcement yesterday that it would go into the consumer lending business, to the tune of $200 billion in loans to holders of securities backed by auto, credit card, student and small business loans. Simultaneously, the Fed became a mortgage business, offering to purchase up to $100 billion in Fannie Mae, Freddie Mac and other government-sponsored enterprise (GSE) bonds, as well as $500 billion in mortgage-backed securities guaranteed by the GSEs. We’ve come a long way from old-style, open-market operations in which the Fed lends funds to banks, taking ultra-safe Treasury bonds or GSE securities as collateral. The consumer-loan piece of the new program does include a $20 billion loss-reserve supplied by the Treasury Department’s Troubled Assets Relief Program. But there is no getting around the fact that the Federal Reserve has taken the kinds of credit risks normally associated with private-sector banking onto its very public balance sheet. 

“This is an admission both that the nation’s credit markets are badly broken and that the steps the Federal Reserve has taken so far, chiefly cutting its discount rate to 1 percent, have not repaired them. Notwithstanding that Fannie Mae and Freddie Mac have been taken over by the government, the difference between their cost of funds and the Treasury’s is roughly 1.5 percentage points bigger than it was a year ago. In part, this reflects a panicked market’s extraordinary appetite for Treasurys. But it also shows that the market had grown so risk-averse that it was demanding an ironclad government guarantee for Fannie and Freddie debt, which would take an act of Congress. The bottom line, until yesterday, was that 30-year mortgage rates were stuck at around 6 percent, not much lower than they were at this time in 2007. Meanwhile, car loans and the like, even for people with strong credit ratings, had all but dried up.” 

What a year. I don’t know about you, but it’s worn me out in more ways than one, including the wear and tear on the personal portfolio. Late Sunday night we learned that the government had also moved in to save Citigroup, as the house that Sandy Weill built received $306 billion of U.S. government guarantees for some of its troubled mortgages and toxic assets, an amount that equates to about one-sixth of Citi’s total assets, while Citigroup also received an additional $20 billion in cash, on top of the $25 billion it previously received through the TARP. In return for the cash and guarantees, the government gets $27 billion in preferred shares paying an 8% dividend. Citigroup was forced to lower its own quarterly dividend to one cent from 16 cents. And Uncle Sam, acting on our behalf, ahem, picks up warrants valued at $10.61 each. Shares in Citi, which closed at $3.77 on Nov. 21, finished the week at $8.29. 

Bloomberg News: “The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago…. 

“The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program.” 

Bloomberg did extensive work on this topic to come up with the figure (which was before the $800 billion in announced new Fed programs on Tuesday) and one of the many issues is the lack of transparency. Regulators thus far have refused to disclose loan recipients or reveal the collateral they are taking in return. 

As for the funds we know have been injected into the banks as part of the TARP, Congressman Barney Frank (D-Ma.) echoed my complaint of five or six weeks ago. 

“The only purpose for this money is to lend. It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions’ or Congress may not approve the second half of the TARP money.” 

“When the Troubled Asset Relief Program of the Treasury Department handed over $125 billion in taxpayer money to nine banks a month ago, they were supposed to lend to small businesses, home buyers and other worthy borrowers to keep the economy’s gears in motion. 

“At the time, the Federal Reserve Board and three bank regulatory agencies said: ‘The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers.’ 

“Alas, that admonition wasn’t accompanied by any real requirements to lend. When the Treasury gave taxpayer billions to the banks, it attached no strings. So is it any surprise that lending is tight?…. 

“The problem is, unless the government puts serious pressure on the nation’s banks to start lending, the value of assets used as collateral will fall as individuals and institutions everywhere are forced to sell.” 

Ms. Morgenson quotes Frederick E. Rowe of Greenbrier Partners in Dallas. 

“The banks that have taken the taxpayers’ money ought to be part of the solution, but they are acting like war profiteers,” he said. “If I were in charge, I would haul them all down to Gitmo, put them in a room and say, ‘You have used the taxpayer’s money to pervert our objectives. It is morally wrong and we are not going to stand for it.” 

Sound familiar? That’s why I was substituting an LBJ-type figure for Gitmo in weeks past. 

But of course it’s not that simple, really.  Eugene Ludwig, a former comptroller of the currency who predicted the crisis, told the Washington Post’s David Ignatius: 

“I’m angry, too, and I don’t want to pay for this mess. But we’ve got to keep this country together and help people who are losing their jobs and their homes. Otherwise, we’re going to have bread lines.” 

Ignatius also cites David Smick, author of a prescient book, “The World Is Curved,” who in reviewing some figures the other week noted that “banks’ excess cash reserves, which normally total less than $7 billion, have recently approached $400 billion. A lot of that is taxpayer money that the banks aren’t putting to use,” as reported by Ignatius. 

Why? “You’d have to be crazy to lend in this environment,” says Smick. “They aren’t lending because it’s going to be a terrible 2009” and the banks don’t want to get caught. 

“Buyers are worried that the assets will continue to fall in value as the economy weakens, and sellers don’t want to cut their asking prices, further battering their balance sheets…. 

“Meanwhile the government’s hasty retreat [ed. from the original TARP plan] has only made the assets more poisonous. Some top-rated securities backed by home equity loans are valued at 40 cents on the dollar, vs. 67 cents when the rescue plan was announced two months ago.” [Francis wrote his piece prior to the Fed’s latest move which did improve some prices.] 

I’m assuming your head is spinning about now. $100 billion here. $400 billion there. Another $600 billion for other worthy causes. It’s insane. All the while the real economy just gets worse and worse and now there is another issue on the table. 

Gary Duncan / London Times…on the threat that current developments could morph into “bad deflation.” 

“While a dose of falling living costs might be benign, this could turn ugly if the sort of downward deflationary spiral first explained by Irving Fisher, the great Thirties economist, emerges. 

“Under the worst-case scenario, a ‘negative feedback loop’ builds up as falling prices drain away the economic lifeblood of demand. As consumers wait for cheaper goods and businesses sell less and less, profits plunge, wages fall and staff are laid off. 

“A rising wave of bankruptcies and unemployment then further erodes demand, as well as business and consumer confidence, leading to a still sharper retrenchment. 

“Things turn really nasty if wage cuts and rising joblessness then trigger falling incomes, sparking a rise in the real value of debts, relative to incomes. In Britain, the already heavy burden of personal debt would become unbearable for many households – triggering another wave of bankruptcies and economic pain.” 

The above represents some of the broader themes in play this week, as the markets staged a rally, the biggest gain for the S&P 500 since 1974, even as the fundamental economic news continued to be downright depressing. The revision for third quarter GDP showed a drop to -0.5%; new and existing home sales for October were awful, including with the latter the largest drop in median home prices since records started on the topic some 40 years ago; readings on consumer confidence that, in one instance, came in at a 28-year low; personal consumption (consumer spending) that declined a fourth-straight month in October, down a full 1.1%, the biggest monthly drop since 2001; a reading on manufacturing from the Chicago area that is 1.8 above freezing, when 50 is the normal dividing line between expansion and contraction; and a report on October durable goods (big ticket items) that exhibited a sickening drop of 6.2%. 

Throw in Cisco Systems’ announcement it was shutting down for five days over New Year’s to cut costs, Google’s slashing of its contractor force, and the scotching of a deal between metals giants BHP and Rio Tinto due to falling global demand, and it all added up to further evidence the global economy is decelerating at lightspeed. 

China’s chairman of its National Development and Reform Commission said at a news conference that “This crisis is spreading all over the world and its impact on China’s economy is deepening.” Economic indicators for November were showing an “even faster decline,” though he gave no details. Then Zhang Ping added, “Excessive production halts and closing of enterprises will cause massive unemployment, which will lead to instability.” With the World Bank slashing its outlook on China’s GDP for 2009 to 7.5%, below the key 8% level seen as necessary to avoid unrest, the preceding is not good. 

Elsewhere, Japan’s industrial production for October fell 3%, another awful number, while German and French readings on business confidence hit 15- and 16-year lows. And in the UK, retailers Woolworths and MFI (furniture) filed for bankruptcy protection, thus imperiling 30,000 jobs between the two. Consumer spending is cratering in Britain, like everywhere else. 

The International Monetary Fund now projects that for the first time since World War II, the U.S. and EU-15 will contract simultaneously in 2009. 

But you want an example of how quickly things are truly deteriorating? Try South Korea. Just about three weeks ago, the government was forecasting the economy would grow 4% in 2009. Now, UBS says GDP will decline 3%. 

Lastly, I was driving around last Monday when I caught the great Morgan Stanley economist Stephen Roach on Bloomberg. Roach has a way of simplifying things and despite the equity markets’ rally the past five trading days, one needs to consider that between housing, stocks and the pension arena, the level of wealth destruction has been unprecedented. Add in the fact that if you are a long-time employee, say 25 years, just about anywhere, you have seen your retirement funds evaporate in a nanosecond, especially if you worked on Wall Street or one of the larger banks. As Roach said, “You just can’t minimize the shock of it all.” We have gone through a massive, leverage-induced bubble that burst, worldwide, and the damage won’t be repaired for a long, long time. When it comes to the consumer, Roach said, we have entered a multi-year period of deconstruction. It’s scary. 

The above paragraph represents the real world these days, around the globe, and while any stock jock knows that the Street tries to anticipate a bottom in the markets some six months before the economy itself begins to turn up, this time it’s different. We all love rallies, and even some of my few positions have had a better time of it recently. But the truth is the American consumer is finished and I have trouble believing six months from now we’ll all suddenly be dancing a jig among May’s flowers. 

–You want to know the definition of a bear market rally? Nasdaq is down 32% since finishing at 2273 ten weeks ago, yet it’s had two, 10.9% advances over that same period, including this past week as it closed at 1535. The aforementioned S&P rose 12%, while the Dow Jones gained 9.7% to finish at 8829, or about 100 points below where it closed on Nov. 7. The rally was fed in part on the latest joint Federal Reserve / Treasury action to buy up mortgage-backed securities and aid the securitized loan markets. Mortgage rates plummeted and qualified homeowners (those with good credit scores and remaining equity in their abode) rushed to refinance. 

I wasn’t going to mention Black Friday, out of principle (it’s just not that meaningful a day anymore), except then we had this sick case of a Wal-Mart temporary employee on Long Island being trampled to death as the doors opened. Hundreds were oblivious as they ran over the poor guy. Man falls another 10 notches on the All-Species List. 

–U.S. Treasury Yields 

Treasuries posted their biggest monthly gain since 1981 as the 10-year hit a record low of 2.90% owing primarily to the putrid economic news. Traders are betting the Fed will cut rates at least 50 basis points when it next meets. At week’s end there was also a flight-to-safety element in the trade with the attacks in Mumbai. 

–The normal spread of a high-yield corporate over Treasuries is 4.90% since 1993, but as of 11/24, it was 17.75%. Yes, just slightly out of whack. [Barron’s] 

“President-elect Barack Obama unveiled on Monday an economic team with deep experience handling economic crises. But does the man at the center of this star-studded cast, Timothy F. Geithner, the nominee for Treasury secretary, have what is needed to take the nation in a new financial direction? 

“That is what a number of Wall Street chieftains are quietly asking, even after the stock market surged with relief after his nomination. 

“One reason Mr. Obama gave for nominating Mr. Geithner was his ‘unparalleled understanding of our current economic crisis, in all of its depth, complexity and urgency.’ More important, he suggested, ‘Tim will waste no time getting up to speed. He will start his first day on the job with a unique insight into the failures of today’s markets – and a clear vision of the steps we must take to revive them.’…. 

“But Mr. Geithner’s involvement in several ultimately ill-fated efforts to buttress the American financial system is the very reason some Wall Street C.E.O.’s – a number of whom spoke on the condition of anonymity for fear of piquing the man who regulates them – question whether he’s up to the challenge. 

“ ‘We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,’ said Christopher Whalen of Institutional Risk Analytics. ‘Throw in the Bear Stearns/Maiden Lane fiasco for good measure,’ he said. 

“ ‘All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.’…. 

“It was Mr. Geithner, not Mr. Paulson, for example, who put together the original rescue plan for the American International Group. 

“And, of course, Mr. Geithner also oversaw and regulated an entire industry whose decline has delivered a further blow to an already weakened American economy. Under his watch, some of the biggest institutions that were the responsibility of the New York Fed – Bear Stearns, Lehman Brothers, Merrill Lynch and most recently, Citigroup – faltered. While he was one of the first regulators to smartly articulate the potential for an impending disaster, a number of observers question whether he went far enough to stop the calamity.” 

“Six months after ‘Liar’s Poker’ was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual. 

“In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?” 

–The Times’ Zachery Kouwe and Louis Story had a good piece on how Detroit’s automakers owe more than $100 billion to Wall Street’s bankers and bondholders. 

“Few doubt that banks are sitting on billions of dollars of loans to the industry, though. Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley were among the banks that arranged $11.5 billion in financing for Cerberus’s takeover of Chrysler. Analysts say the banks are stuck with much of that debt…. 

“In 2005, when banking was still strong, Bank of America bought $55 billion in loans from GMAC and then sold most of them to other investors. In June, the bank, which has itself received billions of dollars from the government, helped GMAC refinance $60 billion of debt.” 

–German Chancellor Angela Merkel accused the U.S. and other governments of making “cheap money” a central tool of their economic management and a “driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the U.S. and elsewhere and whether we could find ourselves in five years facing the exact same crisis.” Yes, there are cracks in the alliance, a bad sign. 

–More on Citigroup’s bailout. Citi will cover the first $29 billion of pretax losses from the $306 billion pool, in addition to any reserves already set aside, but after that, the government covers 90% of the losses, with Citi covering the other 10%. That’s a bit unsettling to some of us. The great analyst Meredith Whitney of Oppenheimer said the banks overall will have further writedowns of $44 billion in the fourth quarter and that any capital being injected into the institutions by the Treasury is merely plugging holes in the balance sheet, requiring the banks to reserve even more over the next 12 months. 

–The latest S&P/Case-Shiller housing data for the three months ending in September was down 16.6% from the same period a year ago. Phoenix posted the biggest decline, 31.9%, among the 20 largest metropolitan areas, while Las Vegas dropped 31.3%, and San Francisco 29.5%. 

–My West Coast real estate maven, Josh P., and I agree that housing, nationwide, will bottom next April. Of course you won’t know this for a while as it’s happening, and the decline before then over the next five months could be severe, but that’s our story and we’re sticking to it. I also hasten to add that I’m sticking with my theory that once a bottom is reached, we just sit there awhile. 

–I warned long ago about the homebuilders and the inflated values of their “land banks,” but it’s still amazing when a DR Horton takes an additional charge of $1 billion in writing off further assets on its books. This process has been going on for about two years at this point. 

–Zale Corp., the biggest jewelry chain by stores, rescinded its forecast for the quarter and 2009. 

–The Federal Deposit Insurance Corporation’s list of ‘problem’ banks rose from 117 to 171 in the third quarter. Thus far, 22 banks have failed, including Washington Mutual, the biggest bank to go under in U.S. history. 

–Russian companies plan to slash up to 200,000 jobs in the next two months. The figures are based on data from employers who are obligated to notify the federal government two months before individual sackings and three months before major job cuts. Wage arrears, a common issue here, are up to $146 million. 

–The Netherlands would appear to be the last European nation to hit the wall in terms of its housing market, but it has and I see that the average homeowner here was receiving a loan “up to 110 percent of the value of the property.” [Bloomberg] 

–Unemployment in Ireland, just north of 3% until recently, is now expected to hit 10% in 2009, a figure that could lead to massive dislocations…and perhaps a bit of unrest. 

–One-third of Icelanders now want to emigrate thanks to the collapsing economy there. 

–I couldn’t believe a Journal story that discussed a proposed $100 million toll increase by the Massachusetts Turnpike Authority thanks to three “interest rate swap” contracts related to the disastrous Big Dig project. “The deals have gone wrong for the state, adding to its interest burden and confronting it with up to $467 million in potential fees if the firms [UBS, Lehman and JPMorgan Chase] opt to pull the plug on the contracts.” Unreal. 

–Advertising revenues for New York’s six English-language television stations plunged a historic 33% in October. The only worst month was September 2001. [Crain’s New York Business] 

On the radio front, nationwide, revenue was down 10% in October, according to the Radio Advertising Bureau, the 18th consecutive month of declines. [Stephanie Clifford / New York Times] 

And NBC is having a hard time selling out its final Super Bowl ads, this after announcing earlier in the year that the 67 30-second spots were being grabbed faster than usual. That was before the credit crisis hit. Super Bowl regulars like FedEx Corp., Garmin Ltd., Salesgenie.com and General Motors are sitting this year’s event out. But one company that’s going to keep advertising is Anheuser-Busch, which has bought 10 of the spots. 

–Auditor KPMG has determined that Bell Canada parent BCE may not be able to meet solvency standards set in the acquisition agreement with a group led by the Ontario Teachers’ Pension Plan. Unless KPMG changes its opinion, the deal won’t close on Dec. 11. This was to be the second-biggest leveraged buyout in history, but should it fail, BCE would remain a public company. Shares in BCE fell as much a 46% on the news. 

–Even Bill Gates is scaling back his foundation’s charitable contribution plans for 2008-09, though at least he may still show an increase from ’07 levels. Everyone else, it would appear, including the likes of casino mogul Sheldon Adelson, is reducing their own at least 20%, as the Wall Street Journal reported.   Typical of the current crisis in funding is a New York charity called A Leg to Stand On that helps children with missing limbs in developing countries. Its big fundraising event this year took in $170,000, compared with $320,000 a year ago. A better known charity, Tomorrows Children’s Fund, has seen its gift level go from $1.8 million to under $1 million. 

–Tiger Woods’ relationship with Buick ended, one that was worth over $7 million. General Motors maintained, though, that it would honor its commitment to two PGA Tour events it sponsors. 

–Internet research firm comScore Inc. reports that Google’s share of the U.S. search market through October was 63.1%, up from 58.5% in the previous year, while Yahoo is down to 20.5% from 22.9% over the same period. Nielsen has it 61.2% for Google and just 16.9% for Yahoo, with Microsoft at 11.4%. 

–Building permits fell 70% in October in New York City compared with year ago levels in yet another sign that residential construction in the Big Apple is grinding to a halt. As one developer said, “We know that it’s just really difficult to get credit so we’re not even trying.” 

–It’s gotten so bad, Starbucks is projecting negative same-store sales growth for 2009. 

–I thought Trader George had the line of the week. Commercial pitchman “Billy Mays is not only the only man in America who seems to be selling anything these days, he’s also the only one who could sell the TARP and TALF.” 

–My portfolio: I haven’t changed my recommended allocation of 80% cash / 20% stocks for over two years now, but will look to shake things up, perhaps, at year end. I did sell half my lithium battery company this week, surprisingly at a profit, to raise some cash. For those of you looking at the China company I visited two weeks ago, I believe it’s dead money given the economy there. I just remain convinced this one will still work out, but now probably not until 2010. Yes, I wish I had sold it last spring. For all I’ve gotten right, there are a lot of things I wish I had done differently in 2008. I imagine I’m not alone in this regard. 

Afghanistan/Pakistan/India: There has long been the concern that the nexus between two increasingly failed states, Pakistan and Afghanistan, would spill over into India. This week’s chilling, highly-coordinated attack in Mumbai, that at last word had killed over 150, is a stark reminder of just how volatile this entire region remains. 

So who is responsible? It is far too early to know, but in such matters India has a reputation of rushing to judgment and it immediately pinned the blame on Pakistan, which thus far is vehemently denying it had a role. [U.S. officials are leaning towards one of two Kashmir-based, Pakistani groups.] It does not, though, appear to be linked to al-Qaeda due to the nature of the attack, such as in no suicide element, but one thing is for sure; the terrorists succeeded in undermining confidence in India’s financial capital for some time to come. 

[In reading the Times of India on Thursday, one story emerged that had Somali pirates as being among the suspects. A vice admiral told the paper “we very strongly suspect such a thing can happen. It is a fact that our action against the Somali pirates in the recent past has got the Indian Navy into focus particularly in that area…These bad elements unfortunately have a fair amount of illegal money at their disposal. Even if Somali pirates were not taking direct action against us, there is every possibility of them pumping in the money into such organizations which are capable of taking terrorist action against us.” While I don’t personally believe the Somalis had anything to do with it, the preceding is yet another reason why it’s important to follow my edict, “wait 24 hours.”] 

Back to Afghanistan, President Hamid Karzai shot off his mouth again and rebuked NATO for the way it is waging the campaign against al-Qaeda and the Taliban. “How long will this war go on?” he asked. “Afghanistan can’t continue to suffer a war without end.” 

Most experts here say Karzai is just trying to appear tough before elections next year, though as I’ve written there is little chance the elections will actually come off amidst the security vacuum in many parts of the country. “There must be a problem somewhere,” Karzai added in suggesting “the international community didn’t fight the Taliban properly.” 

And one last item regarding the region; the London Times reports that the main target of a U.S. drone attack in Pakistan last weekend was a top al-Qaeda explosives expert, Abu Zubair al-Masri, and not British citizen Rashid Rauf. Three Hellfire missiles were fired at a compound about ten miles from the Afghan-Pakistan border and “British intelligence officials indicated that it had been a strictly U.S. operation and that the tip-off was from the Pakistanis, yet another example of the very complex relationship between the U.S. and Pakistan.” 

Iraq: The Iraqi parliament approved the security pact that paves the way for U.S. troops to exit by year end 2011. 149 of 275 voted for it. [Actually, only 198 bothered to show up.] 

The real key is that by next summer, American forces must withdraw from cities and towns and future moves, such as to detain Iraqi citizens and conduct military operations, will be severely restricted. As for Moqtada al-Sadr, the militant Shia cleric, he had vowed to launch attacks on U.S. troops if the agreement was approved. 

Iran: The government announced it has 5,000 centrifuges operating at Natanz, enriching uranium, in further defiance of UN demands to cease such activity. As noted recently in this space, thousands more centrifuges could be employed in the not too distant future. Israel must act to protect itself before long. 

Israel: Attorney General Menachem Mazuz announced he was preparing to charge Prime Minister Ehud Olmert with crimes including fraud over accusations Olmert was double-billing for plane tickets; part of the sweeping corruption investigation into the prime minister’s activities, particularly from 2002 to 2006 when he was mayor of Jerusalem, trade minister and deputy prime minister. Even though Olmert resigned in September, he has remained in power as the ultimate lame duck because Foreign Minister Tzipi Livni was unable to form a new government, which in turn has led to elections scheduled for Feb. 10. 

Separately, the Jerusalem Post reports that Hizbullah “has paid Palestinian terrorist cells to avenge the assassination of the group’s military commander,” Mughniyeh, last February in Damascus. Hizbullah is trying to ensure that Israel would not respond to any Palestinian action by targeting Hizbullah in Lebanon. 

Thailand: Chaos here as well as a monthslong standoff between the government and a coalition of protesters nears a climax. The protesters, comprised of royalists, Bangkok’s old elite and the middle class, is seeking to oust the prime minister, Sonchai, who is the brother-in-law of despised former Prime Minister Thaksin, now in exile. The protesters, who have been successful in largely shutting down parliament for months, and have now shut down the city’s two major airports, believe Sonchai is just a corrupt extension of Thaksin. They also say that lower-class Thais, who put both Thaksin and Sonchai in office, are too susceptible to vote buying, a long-time issue here. 

Meanwhile, the Army, which has stayed neutral until now, is calling for snap elections, but Sonchai is refusing to go along and there is growing pressure for the military to intervene and remove the prime minister. But for now, imagine being a tourist, stranded for days with no way of knowing when you’ll get out. 

Russia: Georgia and Poland’s presidents were touring a border area near South Ossetia when their vehicle was fired on. Neither was hurt, nor has it been confirmed who did the firing. Both Georgia and Poland blamed Russia. 

In Moscow, the Russian parliament is rushing to put the finishing touches on legislation that would amend the post-Soviet constitution to, among other things, allow Prime Minister Putin to regain his old post by laying the groundwork for an early election next year, which would then allow him to be president for two, six-year terms in pushing current President Medvedev, who Putin appointed, aside. Some say Medvedev will resign, smoothing the way for an election. 

And on a different matter, the Los Angeles Times reports that “Senior military leaders took the exceptional step of briefing President Bush this week on a severe and widespread electronic attack on Defense Department computers that may have originated in Russia – an incursion that posed unusual concern among commanders and raised potential implications for national security.” While not describing the extent of the damage, officials said “the attack struck hard at networks within U.S. Central Command, the headquarters that oversees U.S. involvement in Iraq and Afghanistan, and affected computers in combat zones.” [Julian E. Barnes] 

Russia/Venezuela: While the way is paved for Vladimir Putin to return to the top post, President Medvedev is still the main face on the foreign policy front these days and appearing in Venezuela, Medvedev and President Hugo Chavez signed agreements on promoting the development of nuclear energy as well as joint gas projects, in addition to conducting joint military exercises. Russia’s aim is to show President-elect Obama that if the U.S. persists with its missile defense project on Russia’s border, the Kremlin will feel free to pursue its own policies in Washington’s backyard. As part of his Latin American tour, Medvedev also stopped in Cuba. 

As for Chavez, himself, Colombian and U.S. officials are stepping up their accusations he is shielding Farc rebels inside Venezuela, while Chavez suffered defeat in several state and municipal races on Sunday, his second setback at the polls in the past year. Crime is a huge issue in the country as homicides and kidnappings have surged. 

China: With the need for coordinated action on the financial front, it isn’t helpful that China went ballistic over French President Nicholas Sarkozy’s plans to meet the Dalai Lama next month in Poland. China pulled out of an annual summit with the European Union. Last year, China froze economic ties with Germany for a month when Chancellor Angela Merkel received the Lama. 

Zimbabwe: What have I tried to pound home? “Clean water and good roads” are the key to development. And so we learned this week that a cholera outbreak in Zimbabwe, the result of dirty water and poor sanitation, has claimed hundreds of lives and, in the words of opposition leader Morgan Tsvangirai, represents “the greatest threat ever to face” the country. Power-sharing talks between Tsvangirai and Robert Mugabe have broken down, and former UN Secretary General Kofi Annan and former President Jimmy Carter were denied entry to Zimbabwe. Botswana’s foreign minister said his fellow neighbors need to “admit we got it wrong” in dealing with Mugabe and now need to close the borders in an attempt to get Zimbabweans to take out their frustration on Mugabe directly. 

South Africa: A study by Harvard researchers estimates that the South African government of Thabo Mbeki, who was ousted last September in a power struggle within the African National Congress, could have prevented the premature deaths of 365,000 people earlier in the decade if it had provided proper drug treatments to AIDS patients and pregnant women. The Harvard study concluded Mbeki’s policies of denial concerning the established scientific consensus about the viral cause of AIDS and the essential role of antiretroviral drugs in treating it were to blame. Mbeki’s successor, Kgalema Motlanthe, acted on the first day of his presidency to remove the health minister, “a polarizing figure who had proposed garlic, lemon juice and beetroot as AIDS remedies.” [Celia W. Dugger / New York Times] 

And in keeping with my call that South Africa will see serious problems next year, with the nation also slated to host the World Cup in 2010, Reuters ran a story last weekend: 

“South Africa has pledged to spend more than ($100 million) on security for the World Cup, while admitting that the country is battling a perception that it is unsafe.” Deputy Security Minister Susan Shabangu told a media briefing, “There has been a decline in general crime in the last year but the biggest challenge in South Africa is in the area of contact crime. The number of brutal crimes and house robberies are some of the areas that are of concern to us.” Just last week, Shabangu’s boss had described South Africa as a “killing field.” 

Somalia: Back to the pirates, five Indian sailors who were held hostage for two months before a ransom was paid said their captivity was “total desperation.” One said the hijackers “are not human but rather animals.” The hostages did not appear to be abused, however. 

In his op-ed titled “Why Don’t We Hang Pirates Anymore?” Stephens writes: 

“(In) pursuit of a better form of justice – chiefly defined nowadays as keeping a clear conscience – we get (at best) a Kenyan jail. ‘We’re humane warriors,’ says one U.S. Navy officer. ‘When the pirates put down their RPGs and raise their hands, we take them alive. And that’s a lot tougher than taking bodies.’ 

“Piracy, of course, is hardly the only form of barbarism at work today: There are the suicide bombers on Israeli buses, the stonings of Iranian women, and so on. But piracy is certainly the most primordial of them, and our collective inability to deal with it says much about how far we’ve regressed in the pursuit of what is mistakenly thought of as a more humane policy. A society that erases the memory of how it overcame barbarism in the past inevitably loses sight of the meaning of civilization, and the means of sustaining it.” 

Japan: This is too much. There’s a story that as Prime Minister Taro Aso’s popularity plunges, he has become a real gaffathon in terms of stumbling over words and phrases in public. 

“One explanation…He is too proud to appear in public with his reading glasses so he misreads his script.” [Hiroko Tabuchi / Wall Street Journal] 

Mexico: In a burgeoning corruption scandal, the former top anti-drug czar was charged with accepting a $450,000 bribe to leak information to a drug gang. 35 high-level law enforcement officials have been implicated. 

Guatemala: In a prison riot between rival gangs that left seven prisoners dead, five of them were beheaded. Ah yes, future MS-13 members crossing into America. 

–I have zero issues with the selections President-elect Obama has made thus far, with the possible exception of Tim Geithner for Treasury. I’ve always been a fan of Larry Summers and Paul Volcker, for example, and there are other coming picks, as described below, that I’ll be happy with. As for Hillary Clinton as secretary of state, it’s no surprise I’m not a big fan, but for this position I see her as being the ultimate pragmatist. However, then there’s the Billy Boy dynamic. Not good. 

–Editorial / Wall Street Journal, on the probable announcement, Monday, that Defense Secretary Robert Gates will be sticking around for at least one year, while Obama names Gen. James Jones as National Security Adviser. 

“Mr. Obama deserves credit for making flexibility a principle in assembling his Administration. As he said last year, ‘people should feel confident that we’ll be able to hit the ground running.’ So far on security, not bad.” 

–Tuesday is the Georgia senate runoff, while the other undecided race in Minnesota took a turn for the worse if you’re in the Al Franken camp as some absentee ballots they were counting on have been dismissed by the courts. As it stands, we have 58 Democratic senators (including the two independents who caucus with the donkeys) and 40 Republicans. Some of us desperately want to keep the figure under the 60, filibuster-proof number. 

–The terror threat regarding the New York City subway or Long Island Railroad has been labeled “unsubstantiated yet plausible.” Now we’ve had scores of other such reports since 9/11, but I’m a little disturbed by some of the detail that this al-Qaeda suspect who was interviewed by the FBI appeared to possess. 

–I was reading a report of President Bush’s trip to Peru for an APEC conference and it’s just kind of strange how he feels compelled to say things like the following.

“I’ve worked hard on a lot of fronts,” he told a Peruvian news outlet. “I have given it my all.” 

–In a column examining the Bush legacy, U.S. News & World Report’s Michael Barone concludes: “our triumphs are never as complete as they seem, and our setbacks never as dreadful.” 

–In a column on the coming Obama presidency, U.S. News’ David Gergen concludes: 

“(For) all the economic darkness, there is a silver lining. As Abigail Adams famously wrote to her son John Quincy: 

“ ‘These are the times in which a genius would wish to live. It is not in the still calm of life, or the repose of a pacific station, that great characters are formed. The habits of a vigorous mind are formed in contending with difficulties. Great necessities call out great virtues. When a mind is raised, and animated by scenes that engage the heart, then those qualities which would otherwise lay dormant, wake into life and form the character of the hero and the statesman.’” 

–I assume a few of you saw “24: Redemption” last Sunday and its timely topic, the child soldiers of Africa. Ironically, Newsweek had a big spread on this in its December 1 issue. [If you didn’t see the movie, it’s worth buying the DVD.] 

–Good news…for the first time since the government began compiling records, the rate of cancer has begun to decline. As the Los Angeles Times’ Thomas H. Maugh II reported: 

“The decline in both incidence and death rates was due in large part to declines in five of the six most common cancers – lung, colorectal and prostate in men and breast and colorectal cancer in women. The sixth most common form, lung cancer in women, leveled off. 

“Those cancers alone account for about half of both new cases and deaths.” 

–Without getting into any specifics, let’s just say it wasn’t a real good week for the kid. 

So, at least a piece by Richard Sandomir of the New York Times brightened things up here a bit. It’s about that champion beagle, Uno. 

“Nine months into his reign as the first beagle to win the Westminster Kennel Club Show, Uno is not fading away. 

“He was the first one to be celebrated as a champion by President Bush in the White House Rose Garden last May and still wears the red, white and blue collar that Laura Bush gave him. 

“He has thrown out – O.K., he fetched – the first pitch before major league games at Busch Stadium in St. Louis and Miller Park in Milwaukee. 

“His home state of Illinois declared a March day in his honor (and the lieutenant governor connected Uno to Abe Lincoln’s dog). 

“Shari Belafonte swept him off a table and walked him on the red carpet at a Hollywood fund-raiser. He has met the family of Charles M. Schulz, the ‘Peanuts’ creator who sired Snoopy, Uno’s ink-on-paper beagle forbear.” 

It’s been a great run for Uno, and who deserves it more than him? 

Gold closed at $819
Oil, $54.43…much more on this topic next time. 

Returns for the week 11/24-11/28 

Dow Jones +9.7% [8829]
S&P 500 +12.0% [896]
S&P MidCap +16.6%!
Russell 2000 +16.4%!
Nasdaq +10.9% [1535] 

Returns for the period 1/1/08-11/28/08 

Have a great week. I appreciate your support.