For the week 12/29-1/2

[Posted 7:00 AM ET]

Bloody ’08…the carnage in equity markets 

Japan (Nikkei) -42.1% [worst ever]
South Korea (Kospi) -40.7%
Hong Kong (Hang Seng) -48.3% [worst since 1974]
China (Shanghai Comp) -65.4% [2007 +97%]
Singapore (Straits Times) -49.2%
Australia (S&P/ASX) -41.3% 

U.K. (FTSE) -31.3%
Germany (DAX) -40.4%
France (CAC 40) -42.7% 

[28 of 69 nations under the MSCI umbrella had declines of greater than 50%, including Russia’s 67% loss and India’s 52%.] 

U.S. stock mutual fund averages for 2008 [Lipper indices] 

The uniformity of the returns, around the world, is amazing. If you were 12 years old in 1931, and were able to convince me you knew what was going on in the stock market then, that means you’d have to be 89, going on 90, to remember just how bad it was in the 1930s, the worst experience in investing until 2008. 

So let’s put to bed for a final time the line “I don’t ever remember anything like this” because for basically all of us alive today, there hasn’t been, including the 1973-74 bear market.  

$7 trillion in equity values in the United States was wiped out, $30 trillion worldwide. 

Even commodities, as measured by the benchmark CRB index, which looks at 19 raw materials, was off 36%…its worst year since the barometer was introduced in 1956. And this in a year when many commodities, such as oil, hit record highs. That’s volatility. 

It all started back in late summer 2007 when the subprime crisis began to hit home in earnest and then accelerated from there as the swoon in housing finally led to a slump in consumer spending, that then led to a plunge this fall in industrial production and capital spending, which fed back to housing, which fed back to the consumer come Christmastime, which….well, you get the picture; a vicious circle. 

Where everyone got it wrong…and I mean everyone…was in how credit would freeze up amidst the crisis, starting with the demise of Lehman Brothers in September. That’s what is killing us today. The mother’s milk of an economy, credit, must get flowing again, whether it is the small business owner, who is absolutely getting killed in this recession, the auto dealer looking to finance his inventory, on up to corporations that are attempting to close previously announced acquisitions. Bankers of all stripes have lost confidence that anyone, no matter what their credit score or past history with the financial institution may be, can pay them back. It’s what has killed housing. While mortgage rates have improved for the creditworthy, lenders aren’t apt to initiate new loans when the property is currently projected to continue to lose value. 

Speaking of financials, as the center of the financial universe went from New York to Washington, the latter being where the cash is these days, 2008 will long be remembered by market historians for the end of Wall Street, broadly defined, as we knew it. 

Bear Stearns and Lehman Brothers…gone. Fannie Mae and Freddie Mac…seized by the government. AIG…seized by the government. Merrill Lynch…loses its independence in a distressed sale to Bank of America. Washington Mutual…sold to JPMorgan after the largest bank failure in U.S. history. Wachovia…ends up in Wells Fargo’s hands for peanuts. Morgan Stanley and Goldman Sachs…forced to become bank holding companies, thus significantly impacting their ability to employ leverage to generate mammoth profits. Citigroup…takes on a new partner, Uncle Sam, who guarantees $300 billion in toxic paper as well as injecting $20 billion in fresh capital into the House that Weill Built. [Turns out the construction was shoddy and Citi was sitting on a reservoir of methane gas.] 

Is it any wonder then that financials, as measured by the S&P Financial sector index, declined 57% on the year, with shares in Citigroup leading the way, down 77%; Morgan Stanley off 70%; Bank of America 66%; and Goldman Sachs down 61%. At least 120,000 jobs in the industry have been lost thus far, with far more to come, as well as $1 trillion in credit-related losses…and still counting. 

But before we take a look back at my general market predictions for 2008 and a peek at 2009, a brief update on the economic news of the past week. 

ShopperTrak, one of the outfits that looks at the retail industry, said its preliminary figures (the final data is released Jan. 14) show sales were down 2.3% for the holiday season, Nov. and Dec. ComScore, which monitors online sales, says that over the same period online activity was down 3%. For 2009, S&P is anticipating retail sales will decline 5%. Some analysts believe there will be an additional 600,000 job losses in the sector this year, with some 73,000 retail operations going bankrupt. With 70% discounts in the stores today, and in many cases merchandise still not moving, these ugly estimates aren’t so far-fetched. Consumer confidence, after all, hit its worst level ever in December since the figure was first calculated in 1967. 

On the manufacturing front, two major readings of activity, the ISM and Chicago Purchasing Managers Index, came in with abysmal figures for December of 32.4 and 34.1, respectively, when a reading of 50.0 is the dividing line between expansion and contraction. 

Then you had the latest data from S&P/ Case-Shiller on housing. For October, the 20-city index was down 18%, including the usual 33% decline in Phoenix and 32% drop in Las Vegas that we’ve come to expect. Couple this with earlier figures on rising inventories and we have a ways to go before we see sustainable improvement on the housing front. 

Globally, the data was light in the holiday-shortened week, but we nonetheless learned consumer confidence in the 15-nation Eurozone (now 16 as of Jan. 1) was at a 15-year low as Euro retail sales fell in December for a 7th straight month. Sales in the U.K. were down a whopping 6.9%, but in Germany, if you’re searching for a shred of good news, sales were up 1% for the month. This is about the only good news, however small, I’ve seen around the world in three months. 

In Asia, South Korea’s industrial production plunged a record 10.7% in November, as Singapore, ever efficient, released its GDP figure for the 4th quarter. Try a decline of 12.5% on an annualized basis. Good god. 

And then there was the bad news that the government of Kuwait was pulling out of a $17.4 billion joint venture with Dow Chemical, proceeds of which were to be key to Dow’s financing of its previously announced acquisition of Rohm & Haas. Kuwait, which faced a political crisis over the deal, said it was just “very risky” in light of the global financial crisis and that the effects of the meltdown cannot be forecast. 

[Later, the 3rd-largest independent chemical producer in the world, the Netherlands’ LyondellBasell Industries, spoke of being forced into bankruptcy unless it could restructure its debt as the chemical industry in 2008 was hit, first, by soaring oil and then weak global demand.] 

As for my predictions, once again, one year ago, I alluded to my thinking from Dec. 2006, specifically, WIR 12/30/06, as I wrote in my review for 12/29/07:

“Those who are trying to convince us housing has bottomed and that it’s soon back off to the races are nuts. There is absolutely no way housing, at least as represented by prices, has a good 2007.

“Housing was in a bubble, period. Bubbles, witness Nasdaq in 1999/2000, don’t just pop and then return to old prices. But I’ll grant you the housing sector could just stagnate for all of 2007, though I believe instead we will see another leg down.

“Remember, it’s still largely about affordability and not one of the optimist shills ever brings this up. Prices have only retreated slightly in the bigger bubble markets and, as represented by the huge percentage of first-time and new-home buyers who are taking out subprime mortgages the past 12-24 months, a large percentage of Americans are still stretching way beyond their means .

“So in our three-legged stool; housing, the consumer, and capital spending, housing remains a problem.

“And it will increasingly wear on consumer spending. This hasn’t happened as quickly as I thought it would, nor has the market stagnated long enough for psychology to begin to wear thin. But at some point in 2007 reality will begin to hit Americans in the face; their leading asset has stopped appreciating, best case. The reverse wealth effect will then come into play.

“Bottom line, stocks will meander around the breakeven mark in ’07, call it up or down 3% for the troika – the Dow, the S&P and Nasdaq – when the final bell rings next December. But then all hell breaks loose in 2008.” 

[Note, 1/3/09: I was within a few days of being dead on with my equity predictions for 2007.]

“I then continued the following week, 1/7/07:

“What we will see is rising default levels for individuals; a harbinger of things to come in 2008. A reason why I’m not calling for outright disaster just yet is because, yes, there is a tremendous amount of cash sloshing around and spending at the top levels of our society will more than make up for shortfalls at the middle- and lower-income levels. For a while longer, that is.” 

I continued, 12/29/07:

“I’m giving myself an ‘A’ for ’07, at least when looking at the Big Picture. Oh, I got some things wrong, such as calling for just 1.5% growth when the average, after a presumed 1.0% reading for the 4th quarter, will be closer to 2.5% [Ed. 1/3/09: Q4 ’07 came in at -0.2], and I said the dollar ‘will remain largely a non-issue in ’07.’ Then again, except for Americans traveling overseas and a little rumbling on the trade front, the sliding dollar wasn’t the cause of any panics, rather it was the credit crunch, which I didn’t foresee in terms of the securities wrapped around housing.

“2008? More of the same. In fact it’s pretty simple. Ditto. Only this time we do indeed get the recession, as classically defined; two or more negative quarters in a row in terms of the nation’s GDP, though for now I’ll say it’s fairly shallow.

“After years of overspending, the consumer, weighed down by their number one asset, their home, will finally cut back in a big way. It’s not going to help matters any, either, that the big slowdown will be global. In many parts of the world this is already the case. Housing has certainly peaked in Western Europe, and you are seeing strong signs that my long discussed theme of a global real estate boom/bust has indeed taken hold. The speed of the decline will of course vary depending on the size of the bubble. Spain, the UK, and Ireland, for instance, will take it on the chin far worse than the U.S.

“There is a common comment that goes something like this. ‘Once we get the credit crisis out of the way…’ Wrong! The spillover from housing is just getting started. Around the world, consumers are overstretched and weighed down by personal debt loads of record proportions. What ameliorated the situation thus far has been the fact both stocks and home values had continued upward in much of the world, but now that is no longer the case. 

“And as the global economy sputters and then grinds to a halt (with a few exceptions such as China), you will hear all manner of talk about trade wars. It’s going to take a maximum effort on the part of world leaders to keep it from spinning out of control.

“You are also going to be inundated with more talk of just how dirty the Street is…. 

“In Japan, they labeled 2007 the year of ‘deception,’ or the big lie. That was certainly the case in the U.S. as well and it will continue in ’08 and beyond until we get some leadership in Washington that the people can respect; that which understands that U.S. capital markets have indeed become a joke as I ranted much of the fourth quarter. Wall Street, broadly defined to include some of the big banks and mortgage lenders, has been no better than some Third World systems on the transparency front. This must change, and soon. But as the global economy swoons, led by the United States, it’s going to be more about finger-pointing than actual solutions.” 

Oh, the past two years in my broad-based predictions I missed a few things, like while I’ll be right in talking of two straight quarters of negative growth in terms of GDP, you’d be hard-pressed these days to call the recession “shallow” as I did. And China began to implode in the fourth quarter. 

But when you go back to Dec. 2006, you won’t find more than a handful, anywhere, as prescient on the economy and the causes. 

Where I did blow it big time was in thinking equities, as measured by the major averages, would “decline only 3% to 5%” in 2008. In fact, as late as Sept. 12, the Dow was off 14% and the S&P and Nasdaq down 15% and I still thought I could be right. But you all know what happened the following week as I chose the wrong time to rent a place at the Jersey shore and ended up glued to CNBC instead as Lehman, Merrill, AIG, et al collapsed and the Reserve Fund broke a buck in the money market arena (a huge event, looking back). Bottom line, at least I had the trend right.  

Forgetting the usual caveats on geopolitical surprises, a major terror attack in the U.S., or a conflict over Iran, I do not see how you can make a claim, as so many are doing, that the economic recovery will begin in the second half, and, just as importantly, be sustainable, yet. What was once all about housing and the wealth effect has evolved into housing and jobs, the two then feeding into consumer and capital spending. The job picture is not going to be pretty for at least the first half of the year, while housing, which will bottom in April (though give me a month or two on this consistent forecast), then flatlines. There will be no ‘V-shaped’ recovery in housing. Not with inventory levels like we have today. At least lower mortgage rates, for those who qualify, could help keep the economy from tipping into depression through the ability to refinance, let alone buy a new home. 

This will remain a deep global recession, with pockets of rising unrest overseas helping to feed the doom and gloom as it doesn’t make for inspiring pictures on the nightly newscasts. 

The inauguration of Barack Obama, though, will supply some good feeling and both Wall and Main Streets will initially like the stimulus program that he signs shortly after taking office. Let’s face it, bulls are counting on stimulus packages around the world to get out of this crisis, and they have a point. I maintain China will be a leader in this vein. 

But, again, to then draw a line and say beginning in the second half it’s “Oh happy days!” doesn’t strike me as being rational given the many facets of the crisis that make this all so historic. [The behavior of the stock market, though, is a far different story. More later.] 

This is an unprecedented financial calamity (thus far different from the Great Depression because we live in a totally different world) that has cut to the core of household wealth across the globe. And thanks to the fact a bunch of dirtballs on Wall Street played a large role in generating the mess, particularly the resultant credit crunch that has frozen lending, you now have a severe loss of confidence that the rules of the game are fair, and that the playing field is even. This isn’t repaired overnight, let alone one year, but it is an area where the likes of Barack Obama can have a most positive impact. It’s a time crying for leadership, and we pray a few emerge to write their own chapters, a la Winston Churchill or Abraham Lincoln, where schoolchildren a hundred years from now are taught, “Now this was a great man (or woman).” 

A few other points. Any stimulus programs are going to be running up against not only the problems discussed above, but the coming blowups in commercial real estate; the government’s inability to administer its own bailout program, as admitted this week; credit card debts that are yet another shoe to drop, especially for the likes of Citi, JPMorgan Chase, Bank of America, and American Express; the Treasury’s massive funding requirements as the federal and budget deficits soar; severe financial stress at the state and municipal level; and the possibility of trade wars, despite the talk from government heads that the world will act responsibly, even as the people cry out to protect their own interests. 

Couple this with the hot spots listed below and you have to wonder if Barack Obama truly understands what he’s getting into.  

But to add some appropriate perspective on the disaster that was 2008, commentator Ben Stein had these thoughts for his New York Times column concerning “the main myth that’s hurting investors right now.” 

“It is well expressed by my hero, Bob Dylan, who warns against being ‘nothing more than something they invest in’ in the immortal song, ‘It’s Alright Ma (I’m Only Bleeding).’ 

“We are more than our investments. We are more than the year-to-year or day-by-day changes in our net worth. We are what we do for charity. We are how we treat our family and friends. We are how we treat our dogs and cats. We are what we do for our community and our nation. If you had $100 million or $100,000 a year ago and now you have a lot less, you are still the same person. You are not a balance sheet, at least not one denominated in money, as was explained to me recently. 

“Losing and making money are not moral issues so long as you are being honest. You may have a lot less money as this year ends than you did two years ago. But you are just as good or bad a person as you were then. It is a myth that money determines who you are, and if you have gotten over that myth by now, then 2008 will have been a very good year.” 

–It was a helluva week for stocks as the Dow Jones rose 6.1% to back over the 9000 level, closing at 9034, while the S&P 500 advanced 6.8% to 931; for both their best figures in two months. Nasdaq also stormed ahead, 6.7%, to 1632. 

Ah, but lest you get too carried away, the S&P’s 931 mark is the same as on July 17, 1997. Yes, it truly has been a lost decade for stocks, and then some. 

As for the action the first trading day of the New Year, it was the best start in six years and now we wait to see if there is further follow through. No doubt, what’s been impressive is the dismissal of horrid economic news, from all fronts; just the kind of thing you want to see to reassure yourself the bottom (in the case of the S&P, 752) is in. 

But I suppose you might be thinking, hey, Editor, you haven’t given your equity forecast for 2009 yet!  

I’ve been stalling, because I’m torn. For over two years I have maintained a model of 80% cash / 20% equities as the best way to beat the performance of the benchmark S&P 500 (or at least approach it and still be able to sleep at night) and I have obviously handily done so over that time. But then I missed badly on how far the market would fall last year, though you should have seen the experts’ bullish predictions. The S&P closed ’08 at 903 and more than a few big names were predicting a finish of 1575 to 1650. Yikes. And they’re still employed! 

Anyway, I’ve been hinting the past few months I would turn more bullish, despite the economy, and I’m raising my split to 50% cash / 50% stocks, and I could raise it further still depending on what I see over the first quarter. 

In terms of returns, I’m even more bullish. The Dow and S&P will rise 20%, while Nasdaq and the Russell 2000 will advance 30%. 

Now you might be thinking I’m kind of talking out of both sides of my mouth but I’m not. The fact I haven’t moved my equity allocation to more than 50% is simply a reflection of the still dreadful economic news. The 20% to 30% return numbers are a guess on where we end up in December. I remain a doom and gloomer on the economy, but I’ve always said stocks trade more on sentiment than fundamentals. Most of the time. 

I’ve given these issues a lot of thought the past two weeks and I know I’ve been highly critical of those calling a bottom in the economy, as I reiterate above, when I see zero hard evidence to warrant this.  But when I do see some positive signs, such as in  better figures on industrial production or retail sales, anywhere in the world, I\’ll turn quickly when it comes to the Big Picture. 

Also, keep things in perspective. As I point out further below, 20% to 30% returns still leave us far from where we were just 14 months ago.   Geezuz, it’s been an ugly ride. 

–U.S. Treasury Yields 

Check out the rise in yields from Wednesday to Friday as money fled bonds for stocks. Should the equity rally continue a spell, yields will of course rise some more, though this is not a sign we are suddenly entering some sort of inflationary spiral. 

A Bloomberg survey of 54 economists has an average forecast of 3.40% for the 10-year come next December. But ISI’s esteemed Ed Hyman sees 2.00% and Merrill Lynch’s David Rosenberg says the 10-year will be 1.50% by then. 

–On the equity side, a Bloomberg survey of 11 strategists comes up with an average of 1056 on the S&P 500 by year end, or a rise of 17% off the 903 close for ’08. But understand that would be over 500 points shy of the S&P’s all-time 1565 set 10/9/07. As former NBA star Derrick Coleman would say, whoopty-damn-do. 

[Blackrock’s Bob Doll is at 1050 on the S&P, with earnings of $57.50, while Merrill’s Rich Bernstein is at 975 with earnings of $50.] 

–Oil continued its comeback, up almost $13 in two weeks, thanks largely to the renewal of tensions in the Middle East (though conflict between Israel and the Palestinians in recent times has not led to the feared cut in supplies…so it’s kind of an idiotic excuse for a rally). Nor are the problems between Russia and Ukraine of real import on a broader scale. Of far more import, and credibility, is the feeling among some that perhaps all the stimulus programs around the world will indeed take hold and demand will rise again. Were this to be the case, you could see $80+ in a nanosecond…just not now. 

For the record, oil hit its record high of $147.27 on July 11, and its low of $32.40 on December 19, the lowest level since February 2004. 

Gasoline futures hit a high of $3.63, also on July 11, but after touching $0.76 just about two weeks ago, they have rallied back to $1.10. Ergo, the days of $1.60 gasoline in most places could be numbered. 

–To give you a sense of the volatility in 2008, according to Howard Silverblatt of S&P, since Lehman Brothers went under in September, the S&P 500 moved more than 5 percent in either direction on 18 days. There were only 17 such days in the previous 53 years. 

[I think volatility in 2009 will be far less and often incredibly boring.] 

–I didn’t comment on the GMAC bailout last time because no one had any real details, and then this week, when a few emerged, everyone suddenly rushed to the conclusion that by virtue of the government’s $6 billion injection and acceptance of GMAC as a bank holding company, thus allowing it to access the government’s TARP funds, it was clear sailing in the nation’s car lots, at least the GM brand. Well, I still don’t know what the real deal is. 

Granted, General Motors is now able to make loans again to customers previously shut out as it immediately announced no-interest financing on some vehicles, at least for a few days, with GMAC saying it would provide loans to those with below par credit scores again (as if we didn’t learn anything from just the past few years). But then we learned that GMAC didn’t come close to seeing the participation it needed on its much-discussed debt swap, so S&P lowered the long-term counterparty credit rating to “selective default,” because despite the positives of some of the other moves, GMAC’s financial position is still in dire straits. For starters, GMAC has zero access to further capital if it can’t sell out the debt exchange. 

Confused? I sure am. And GM common shareholders most assuredly are as the stock traded in a schizophrenic fashion (the same shares that should probably be trading at zero, regardless). 

–Among the Dow 30 stocks, only two rose in 2008; Wal-Mart, up 18%, and McDonald’s, 5.6%. Congratulations to both. My two favorite companies.  

–On the other hand, Warren Buffett’s Berkshire Hathaway had its biggest drop in more than three decades, down 32%. Aside from well-publicized bets in the fall in General Electric and Goldman Sachs that are now underwater, Buffett also agreed in July to a $3 billion preferred stock investment in Dow Chemical that has suffered in lieu of the Kuwait announcement it was withdrawing from the above noted deal. This one is way out of the money under the formula for converting his stake into Dow common. 

–Steel production worldwide is expected to decline 10% in 2009, the biggest year-on-year fall in more than 60 years. Some say it will be at least four years before we return to 2007 levels. 

–Even conservative commentator Charles Krauthammer has joined the likes of the New York Times’ Thomas Friedman in advocating a gas tax, say, starting at $1 a gallon, but then Krauthammer would offset it with a simultaneous reduction in the payroll tax. Krauthammer would also scale his gas tax with the goal of having near $3 gasoline. [$1.50 tax if gas prices slid to $1.50, for example.] I like it. 

–China’s electricity consumption fell 8.6% from a year earlier in November, the first such decline since 1999. 

–The European currency turned 10 on New Year’s Day, which, as the Wall Street Journal editorial board described it, “is a rare economic shining star of the past decade.” On Thursday, Slovakia became the 16th member to employ the euro, a stunning achievement for this nation as well. In the post-Soviet breakup period, Slovakia was a total basket case, mused the editor with Slovak roots. 

–Advertising is expected to decline for a third consecutive year in 2009, the first such spell since the Great Depression. According to Bob Coen of Interpublic Group, before the recent decline ad spending had fallen in only three years since the end of World War II: 1961, 1991, and 2001. Blame it mostly on the auto and finance industries the past few years, as well as retail. 

–Manhattan’s commercial vacancy rate has risen to 10.9%, more than three percent higher than a year ago, and should really skyrocket in ’09. At least rents are coming down from outlandish levels, down some 10% in one year for what’s known as midtown south. 

–Very much related to the above, Christine Haughney of the New York Times reports, “Nearly $5 billion in development projects in New York City have been canceled because of the economic crisis, an extraordinary body blow to an industry that last year provided 130,000 unionized jobs.” 

Nationwide, Ms. Haughney reports, “The growth rate for construction and land development loans shrunk drastically this year – to 0.08 percent through September, compared with 11.3 percent for all of 2007 and 25.7 percent in 2006, according to data tracked by the FDIC.” 

–Crain’s New York Business reported on Friday that residential permits in the Big Apple fell 74% in November compared with a year earlier. 

–According to various reports, and rumors, Microsoft is preparing to lay off up to 15,000 in an announcement to be made Jan. 15. That’s the potential bad news. On the good news front, a Chinese court sentenced 11 people involved in distributing more than $2 billion in fake Microsoft products to jail terms of up to 6 ½ years, the stiffest ever handed down for intellectual property theft. 

–No doubt a big issue next year is the Employee Free Choice Act, the most controversial provision of which would require employers to recognize a union once a majority of workers signed membership cards, and there would no longer be a secret ballot. Unions spent $450 million to help elect Barack Obama and they expect Congress to act quickly. But many, particularly in the Senate, are beginning to balk at what seems to be a basic freedom…the right not to be coerced when voting. 

–91-year-old investor Kirk Kerkorian has seen his holding company, Tracinda, lose $10.8 billion of the $12.7 billion value of his richest asset, MGM Mirage, since last January, and now he has dumped his entire stake in Ford Motor for as little as $1.26 a share, another loss of $777 million on an initial $1 billion bet made last spring. 

But wait…there’s more! Kerkorian also lost $835 million in share value on his Delta Petroleum stake in ’08. Kerkorian is the one, you may recall, who just about a month ago issued the immensely depressing statement “I lived a few years too long.” 

Hang in there, Mr. Kerkorian. Here’s hoping you manage a spectacular comeback in ’09. 

–After 18 years of asset growth, the hedge fund industry has seen an estimated outflow of more than $100 billion for 2008. In 1994, the only previous time there were outflows, the figure was all of $1 million. [The redemptions are largely a result of the funds’ having lost an average 19% thru the first eleven months of the year.] 

–A bankruptcy court judge overseeing the liquidation of Bernie Madoff’s investment firm took control of $28 million in assets to cover employee salaries and other costs, but in complying with an SEC request for a written accounting of all his assets, liabilities and properties, details of which haven’t been released, investigators don’t seem close to determining where all the money went. The suspicion is Madoff had multiple offshore accounts with strict privacy laws. 

Separately, among those we’ve now learned were fleeced by the con artist are actors Kevin Bacon and Kyra Sedgwick, as well as famed economist Henry Kaufman.  

–Los Angeles money manager Stanley Chais, who directed a number of big investors to Madoff through his feeder funds, charged 4.5% in fees! Outrageous. 

–Citigroup’s top execs won’t receive bonuses for 2008, but if they are expecting medals for good behavior, they need to get a grip.  

–I’ve written glowingly of my experience with Hong Kong’s Airport so it’s only fair I make mention of a strike by a trade union representing 1,000 ground staff that resulted in extensive delays the other day. It turns out that the company that employs the workers halved their annual bonus. 

–CD music sales plunged 20% in 2008 in the U.S. Album sales, including digital downloads, fell 14%. 

–Attention shoppers! If you shopped at Macy’s on Dec. 20, you should pay close attention to your credit card bills. They had a computer glitch that day that led to duping of some charges. 

“Good news! Really! The European ski season is off to a terrific start. Snow is falling, and November was the best month for the white stuff (snow, not cocaine…you need to specify when you’re talking European resorts) in at least a decade.” 

“Cocaine replaces mulled wine at Austrian ski resorts as drug use rises” 

The report notes, “Police say that even ski instructors and bartenders are turning into part-time drug dealers at the peak of the season.” 

–Jay Leno had some interesting thoughts on his career direction and the issue of the success, or lack thereof, of satellite radio. When asked by the New York Times about his decision to stay at NBC to host a prime-time show, Leno cited Howard Stern as an example of the dangers of obscurity. 

“On radio, Howard to me was a populist. The truck driver, the average guy would listen in the café, the truck, the old car that’s 50 years old and still has an AM radio. But I don’t hear him quoted anymore. People don’t say: ‘Hey, did you hear what Howard said today?’” 

And thus you muse about the future of Sirius XM, which is laden with expensive contracts, is showing no signs of ever making a profit, and now faces competition from radio over the Internet. Personally, I love my XM Radio, but I don’t see the benefits of the merger, while some of the reasons for getting it in the first place, like ACC sports coverage, just aren’t as attractive as they used to be when you can follow the games on the Net almost as easily. 

“Recently, I was standing at the counter in a gourmet market in Tarrytown, N.Y., ordering a sandwich I could no longer afford, when a neighbor sidled up to me. 

“ ‘The kids are OK,’ I replied. ‘And I guess I’m doing as well as can be expected, now that Armageddon has arrived, and the four horsemen of the Apocalypse are grazing on my front lawn.’ 

“Now his previously dour face took on a disconcertingly chipper expression. 

“ ‘I don’t know what prompted me to do this, but I got everything out of the market in October of last year,’ he crowed. ‘I could see that the whole thing was way overvalued, so I moved everything into bonds and cash. I’m really glad I made that move when I did.’ 

“Warren Buffett didn’t get out of the market in October 2007. Neither did Larry Ellison, Steve Ballmer, Steve Jobs, Steve Schwarzman or anybody else. Moreover, I could tell from the modest purchases my neighbor was making – a bagel without butter, much less lox – and from his generally hangdog expression, that the market meltdown had hit him just as hard as everybody else. 

“Yet for whatever the reason, he was lying about having dodged a bullet that everyone else had taken right between the eyes. It was as if by pretending to be smarter than anyone else, he somehow erased the pain of not being smarter than everyone else. But lying about not having lost half your life’s savings overnight doesn’t change the fact that you did lose half your life’s savings overnight. So why bother?…. 

“Anyone who actually liquidated a portfolio in October 2007 wouldn’t still be tooling around in a Honda Civic or a PT Cruiser. He’d have upgraded to a Lexus, and a big, fat one at that. Anyone who had truly gotten out of the way of that oncoming tractor-trailer called the U.S. economy wouldn’t still be getting his Extra Bucks Card scanned at CVS or shopping for generic toilet paper at Sam’s Club or racing off to the early-bird special at the multiplex. 

“As for those rare individuals who did get out of the market in time, they’re careful not to gloat. As well they should be.” 

–Which leads me to my portfolio: The few stocks I owned were annihilated, beginning with my solar play that ran from $8 to over $16 in the first week of January, at which point I managed to only sell a little, and then plummeted just as quickly below $4 and now resides at $1.80. My China company is down a grillion percent and I have totally kissed off 2009 in hoping for a comeback 2010. I did sell half of my battery company for a profit, but then there is the geothermal operator in California. 

This story sums up what is happening these days amidst the credit crisis. All of my investments are very solid ideas, but they need continued funding to get out of the start-up phase. The geothermal one has a significant contract lined up for 2010 and beyond, and just announced it was ahead of schedule, and under budget, as it drills out a field. So it just shut down…until it gains funding to complete the operation, the last step towards going commercial. 

Here is the classic case, as I told a fellow investor in the stock, where if we see they obtain the funding by the end of the first quarter, it’s a terrific sign for small companies in general. If they don’t…I wouldn’t be in the least bit surprised to see all my speculative plays go under by December. 

I told you last summer my particular issues needed the credit window to open by spring and that is indeed the case. 

But where I’m totally disgusted with myself is I have always been a disciplined investor, particularly when it comes to taking small losses and moving on. For some reason I abandoned the discipline this year. I’ve talked to others about this and they tell me they did the same. Why? 

I run small accounts for my niece and nephew that I’ve managed superbly (as they grew to be not so small). But as I told Doug in handing him his latest Christmas deposit, “I wish I ran my own money in 2008 the way I did yours.” 

And so you’ve just read my ‘confessions of a sophisticated investor who wants to bang his head against a wall for a week.’ 

I’ve always said, there is nothing more stimulating than the investment world. And you’re never too old to learn. At least the past week has seen the crapola in my portfolio rebound nicely. 

Israel: Just as I was going to post last week, Israel launched a ferocious assault against Hamas in Gaza that has killed at least 430 thus far, including the taking out of two of the top officials (terrorists) in an ongoing operation that threatens to spill into a ground assault. It turns out Israel had been collecting intelligence the past year on targets in Gaza and utilized the element of surprise to hit weapons dumps and tunnels used to smuggle materiel into Gaza from Egypt, as well as other high-profile targets such as parliament (also little more than a weapons dump and bomb factory, a la the “Islamic University,” another that was hit). Despite the inevitable international criticism of the operation, Israel is taking extraordinary measures to minimize civilian casualties. For its part, Hamas continues to fire rockets, including some that have reached further into Israel than ever before, thus putting the nuclear site at Dimona and Tel Aviv potentially in range. [Watching all this on the Lebanese border is Hizbullah, which has greatly improved its own missile force, some 30-40,000 rockets, since the 2006 Israeli/Lebanese war; a very scary thought.] 

Hamas blamed Egypt for acquiescing in the attack as the Egyptian foreign minister blamed the Hamas government for precipitating the assault with its constant rocket barage on Israeli towns since the six-month ceasefire ended. The bottom line is that Hamas, which won parliamentary elections in January 2006, won’t recognize the Jewish state and is rightly branded a terrorist organization by Israel, the United States and the European Union.  

Saudi foreign minister Prince Saud, in attempting to be balanced at a meeting of the Arab countries on Wednesday, said “This terrible massacre would not have happened if the Palestinian people were united behind one leadership, speaking in one voice. We are telling our Palestinian brothers that your Arab nation cannot extend a real helping hand if you don’t extend your own hands to each other with love.” 

The timing of the attack comes as Israel prepares to select a successor to Prime Minister Olmert in February and should there be a ground offensive, the inevitable Israeli casualties will have a major impact on shaping public sentiment and the election result. 

“Hamas believes, in short, that while Israel will do many things, and do them well, it will not do the main thing. And that, in turn, means that as Israel exhausts its target list, as eventually it will, the storm will pass. Then the green flag of the movement will fly defiantly over the tallest building left standing, its prestige hugely boosted – and Israel’s commensurately diminished – throughout the Muslim world. 

“Does all this also mean that Israel’s attacks amount to a fool’s errand? Outgoing Prime Minister Ehud Olmert likes to point out that no Hizbullah rockets have fallen on Israeli soil since August 2006 – never mind that Hizbullah is both politically and militarily more powerful today than it was before the war. A similar outcome in Gaza would be equally disastrous. 

“This is not a counsel of restraint, of which Israel has shown more than enough through years of provocation. It is merely to point out that no ingenious conceit can disguise the fact that war offers no outcome other than victory or defeat. This is one big thing that Hamas understands, and that Israel must as well. The fox cannot beat the hedgehog. But the bigger hedgehog can – and in this case must – defeat the smaller one.” 

Jackson Diehl / Washington Post 

“Israel’s new battle with Hamas in Gaza means that Prime Minister Ehud Olmert will be remembered for fighting two bloody and wasteful mini-wars in less than three years in power. The first one, in Lebanon during the summer of 2006, punished but failed to defeat or even permanently injure Hizbullah, which is politically and militarily stronger today than it was before Olmert took office. This one will probably have about the same effect on Hamas, which almost certainly will still control Gaza, and retain the capacity to strike Israel, when Olmert leaves office in a few months. 

“The saddest aspect of all this is that Olmert, a former hard-line believer in a ‘greater Israel,’ was more committed than any previous Israeli prime minister to ending the country’s conflicts with Syria, Lebanon and the Palestinians. Thrust into office in January 2006 by the incapacitation of Ariel Sharon, Olmert won his own mandate by promising to unilaterally withdraw Israeli soldiers and settlers from most of the West Bank. When that project was undermined by the Lebanese war, he launched into one-on-one negotiations with Palestinian President Mahmoud Abbas in which he discussed terms for a two-state settlement going well beyond those previously ordered by an Israeli government. He also initiated indirect talks with the Damascus regime of Bashar al-Assad over the objections of the Bush administration…. 

“[But] Olmert badly miscalculated in launching the 2006 offensive against Hizbullah – and he’s probably making the same mistake in Gaza, which will cost many lives and subject Israel to another round of international opprobrium while distracting attention from the more serious threat of Iran. Despite his bold intentions, Olmert proved unwilling or unable to stand up to the Jewish settlement movement in the West Bank; his government failed to dismantle even those outposts it has repeatedly declared illegal. 

“But Olmert is not the only one to blame. President Bush hosted a Mideast peace meeting in Annapolis last year but never fully invested himself in Olmert’s attempt to negotiate with Abbas. Secretary of State Condoleezza Rice traveled to the region 16 times in 21 months but proved feckless as a broker. Arab states proclaimed their commitment to peace with Israel as part of a two-state settlement but were unwilling to take any tangible action to make it happen. 

“Worst of all, Abbas followed in a long tradition of previous Palestinian leaders by reacting to a far-reaching Israeli offer with an uncourageous demurral. Olmert has never publicly disclosed the terms he discussed with Abbas, but sources say he went well beyond what Israel agreed to at the Camp David talks of 2000, previously the closest approach to a deal. I’m told Olmert offered to support the groundbreaking concession of allowing thousands of Palestinian refugees to ‘return’ to Israel over a period of years; he also agreed to divide Jerusalem between Israel and Palestine. Abbas, like Yasser Arafat at Camp David, refused to sign on to a compromise that the world would have hailed. 

“So Olmert, like Ehud Barak eight years ago, will end his term as prime minister by bombing rather than liberating Palestinians. He will be remembered for his wars – but it may be many years before Israel again has a leader as willing to make peace.” 

Iran: Israeli President Shimon Peres had an interesting statement concerning President-elect Obama. Peres said Obama should not initiate any negotiations until after Iran’s June elections as it could give President Ahmadinejad an edge if he’s seen being diplomatic. Peres also told a Japanese news agency that Israel would not attempt to take out Iran’s nuclear threat. 

Iraq: The U.S. formally transferred control of the Green Zone, the most potent symbol of the U.S. invasion and occupation, to the Iraqi military on New Year’s Day; a date that  Prime Minister Maliki has proposed will mark the restoration of Iraq’s sovereignty in a new holiday. 

2008 marked a year of greatly reduced violence. Still, 314 U.S. soldiers were killed in Iraq during 2008, down from 904 in ’07. The total toll since the war began is 4,220. 

Iraqi civilian deaths due to violence declined to somewhere between 8,300 and 9,000 last year compared to an estimated 26,500 in 2006. 

Despite the successes, a big political hurdle needs to be cleared with provincial elections on Jan. 31. Who wins in Basra among various Shia factions in this oil-rich, strategically important city, is going to be watched with interest for clues to the country’s future. 

Afghanistan: I saw various figures on the increasing toll here in 2008, but according to one report, a record 270 foreign troops were killed in combat, including 127 Americans. [Other figures you may see can include non-combat deaths.] The biggest single loss of life was in August when 10 French soldiers died in an ambush.  

The resurgent Taliban were responsible for 2,000 roadside bomb blasts in ’08, and the terrorists killed 20 Afghan police in an attack this past Wednesday. For this reason the U.S. is surging an additional 20-30,000 troops over the next 18 months. 

Russia: The gas dispute with Ukraine came to a head on New Year’s Day and Gazprom cut off gas to Ukraine over Kiev’s failure to make full payment of that owed Gazprom, though Russia said it would increase supplies to the rest of Europe. The thing is 20-25 percent of the EU’s gas supply is carried through Ukraine’s pipelines, this as 80 percent of Russia’s gas exports go to Europe. 

While it would appear there could be a resolution before the continent sees real pain, Russia has once again showed itself to be an unreliable supplier of energy and it comes after the controversial Georgian War. 

Meanwhile, Gazprom itself is in deep trouble as it struggles with falling prices, the reduced ability to invest in drilling and exploration, and massive debts. As a Russian-dedicated hedge fund operator, James Fenkner, put it, “They were as inebriated with their success as much as some of their investors were. It’s not like they’re going to produce a better mousetrap. Their mousetrap is whatever the price of oil is. You can’t improve that.” [Andrew Kramer / IHT] 

And this week Russian President Medvedev signed a constitutional amendment extending presidential terms from four to six years, the first substantive amendment to the post-Soviet constitution since it was adopted in 1993. 

So will Vladimir Putin now swoop back into office for what he hopes would then be two new six-year stints? The law allows it. Or will an increasingly sour populace, owing to the sick economy, treat Putin like New York Mayor Michael Bloomberg, who himself has to be surprised by the lack of enthusiasm for his decision to run for a third term and break the city’s existing term limits statute (since overturned by the City Council)? 

Former Soviet leader Mikhail Gorbachev warned Russia faced “unprecedentedly difficult and dangerous circumstances” and could be “heading into a black hole” due to the financial crisis. 

Former prime minister Mikhail Kasyanov, who now leads an opposition movement, told the Financial Times that an unspoken contract between the government and the people, ‘swapping political freedoms for prosperity and consumer goods,’ had broken down. 

“It was a deal,” he said. “But it has fallen apart and that is why people are appearing on the streets. The process has started…Things could spin out of control when people wake up and realize their neighbors have lost their jobs and they are at risk of losing theirs.” 

At least Josef Stalin didn’t win a six-month long contest to select the greatest Russian of all time. Stalin finished third to winner Grand Prince Nevsky and runner-up Peter Stolypin. Behind Stalin were Pushkin, Peter the Great, and Lenin. 

Personally, I would have gone with goaltender Vladislav Tretiak, but then no one asked me. 

Pakistan: A government investigation admits Lashkar-e-Taiba had a connection to the Mumbai attacks, a sensitive topic as Pakistan’s intelligence agency established Lashkar 20 years ago, but India’s defense minister said Pakistan is still failing to crack down on militants. “I don’t think (there is) any noticeable change in the attitude of Pakistan,” said A.K. Antony. “Statements are not important, actions are important.” 

The Pakistani government suspended supplies going to foreign troops in Afghanistan as security forces launched an offensive against the Taliban in the Khyber Pass region. 75 percent of U.S. supplies are shipped through or over Pakistan, including 40 percent of its fuel. 

Separately, the Taliban have moved into Pakistan’s main tourist haven, the Swat Valley, where as one report put it they are “beheading and burning their way through” it. What’s significant is this region is far from the tribal areas where the Taliban has been thriving. 

China: President Hu Jintao for the first time called for talks and military cooperation with Taiwan. Hu also called on Taipei’s opposition party to give up its pro-independence stance. Taiwan’s military welcomed the message to establish ties with its Chinese counterparts. 

For the mainland, though, it was quite a year, what with the Sichuan earthquake, the Tibetan protests and the Beijing Olympics, let alone the first spacewalk by a Chinese astronaut. 

But the country’s reputation suffered a grave setback with the melamine tainted milk scandal. [This week a group of dairy companies agreed to pay $160 million in compensation to the victims.] 

As for 2009, it’s all about the economy and staving off mass unrest. 

[Jan. 1 marked the 30th anniversary of the establishment of diplomatic ties between China and the United States. President Hu, in noting the historic achievement, said “In a time of deep and complex world change, China is willing to join with the United States in facing new opportunities and challenges.” I mused; just keep funding our debts, Mr. President.] 

North Korea: Kim Jong-il appeared at a large public event and then on New Year’s, Pyongyang repeated its pledge to rid the peninsula of nuclear weapons, hinting it wants to work with the Obama administration. Of course at least once a year they say this and then act differently. 

But consider this factoid. The North’s economy is now smaller than it was 20 years ago. Ergo, it needs the fuel aid the U.S. has called on its allies to halt just as Washington supposedly has. 

John Bolton had the following in a Journal op-ed on both North Korea and Iran’s nuclear programs and the failure of Bush administration policy. 

“Neither North Korea nor Iran is prepared to voluntarily give up nuclear or ballistic missile programs. The Bush policy was flawed not because its diplomacy was ineffective or disengaged, not because it was too intimidating to its adversaries, and not because it lacked persistence. Mr. Bush’s flaw was believing that negotiation and mutual concession could accomplish the U.S. objective – the end of proliferation threats from Pyongyang and Tehran – when the objectives of our adversaries were precisely the opposite. They sought to buy valuable time to improve and expand their nuclear programs, extract as many carrots as possible, and play for legitimacy on the world stage…. 

“How can Mr. Obama do better? For starters, he could increase the pressure on China, which has real leverage over North Korea, to press Kim Jong-Il’s regime in ways that the six-party talks never approached. Options on Iran are more limited, but meaningful efforts at regime change and assisting Israel should it decide to strike Iran’s nuclear facilities would be good first steps. 

“Sadly, the chances Mr. Obama will adopt these policies are far less than the steadily dwindling possibility that the Bush administration might yet come back to reality. Mr. Obama’s handling of the rogue states will – at best – continue the Bush policies, which failed to stop nuclear proliferation. Get ready for a dangerous ride.” 

Thailand: Some disasters are so stupid they just leave you shaking your head. Such was the case New Year’s Eve in Bangkok when about 60 people were killed at a fire in a popular nightclub. The cause was fireworks that were tossed onto the main stage and there was only one exit, leaving many trapped inside. [If you see a report on television, turn away from the pictures. They’re horrific.] 

So it’s a good excuse to remind your kids that when they go into a crowded club, first check out where the exits are. 

Meanwhile, new Prime Minister Abhisit was forced to give his first policy speech at the Foreign Ministry, rather than parliament, because of new protests. Now it’s pro-former Prime Minister Thaksin supporters doing the protesting. Before, it was the anti-Thaksin crowd that shut down the airports and forced out the government. 

Mexico: An officer in the presidential guard was accused of being a spy for the drug cartel in selling information on President Calderon’s movements in exchange for payments of $100,000.  

Cuba: Incredibly, New Year’s marked the 50th anniversary of the Castro revolution. Oh yeah, that’s been real successful. 

But in terms of “hot spots,” how did I do with my predictions for 2008? 

In Iran, I thought a fight between the moderates and hardline supporters of President Ahmadinejad would lead to his resignation “as the people revolt over soaring inflation.” Well, that obviously didn’t occur, but the people are increasingly angry over inflation running at 25%. 

I thought Palestinian leader Mahmoud Abbas would be “taken out, while scandals force out Israeli Prime Minister Olmert from office as he also comes under increasing pressure from Israeli conservatives to step down over what they’ll see as appeasement of the Palestinians (before my projected Abbas incident).” Actually, not that far off. Olmert was indeed forced out…he just got to stay on as caretaker, and now warlord.  

But then I said Israel would attack Iran’s nuclear program and was adamant all year this would happen in 2008. 

Regarding Russia, “You will begin to hear more and more of Kremlin infighting among the former KGB factions that have set up shop there. It could get dicey for the tsar [Putin].” A better prediction for 2009. 

I said of Kim Jong-il, he “will die, or be incapacitated to the point where his son will have to take over. The world will shudder as South Korea gears up for war until the generals who have been behind Kim all these years reveal their hand…” I’ll take a ‘C’ on this one. 

I thought the moderates would win in Taiwan in March, and the independence referendum be defeated, which was the case with both, though I can’t say this was a great prediction worthy of Kreskin. 

But regarding China, I thought an issue that never came up was going to be a big deal; that being the U.S.-EU arms embargo that was imposed on China following the 1989 Tiananmen Square massacre. I don’t know what happened on this front, actually. I expected this to really impact the Summer Games. So this one gets a big, fat ‘F.’ 

I also thought South Africa would devolve into chaos, but just postpone this one a year, into 2009, as I began writing over the course of ’08. 

Other predictions for 2009, for the record. 

Iran: The presidential election is in June, but before then Israel has theirs in February to elect a new prime minister. The combination of an expected Obama peace initiative, combined with the possible election of hardliner Benjamin Netanyahu in Israel presents all sorts of issues, though Netanyahu’s election is nowhere near as certain as it appeared to be just two weeks ago. Should he win, however, pressure will intensify on Israel to do something militarily because it is very clear Iran will have the bomb, even if through a rudimentary test, by December. This remains the number one wildcard for the year. But as Shimon Peres said above, he doesn’t want to see any action, including negotiations with Tehran, until after the June vote there. 

Israel/Lebanon: Hizbullah will continue to build its considerable arsenal that is capable of inflicting tremendous harm on Israel. This, almost as much as Iran, needs to be a major focus of Secretary of State Hillary Clinton, but it’s already too late. Hizbullah will not stand down. We blew our opportunity in 2005. 

Pakistan and India, despite another high-profile terror attack on Indian soil by Pakistani militants, will somehow avoid full-scale war. 

Russia: There will be a change in leadership, but it won’t necessarily be Putin replacing Medvedev as president. The Kremlin will be forced to launch a major crackdown on dissent as unrest over the economy leads to massive protests. 

China: The government here will avoid major unrest as it pulls out all the stops to keep the economy from totally imploding. By mid-year the efforts will show some success. 

North Korea: There is speculation the regime will hold a second demonstration of its nuclear weapons ability to test Barack Obama and increase leverage in negotiations. If it hasn’t happened by March, it won’t at all because China will have pressured North Korea to wise up. 

Back to South Africa, political turmoil will wrack the nation, due in no small part to ongoing chaos in Zimbabwe and a flood of refugees. But with the removal of Robert Mugabe by mid-year, some of the tension in South Africa will be ameliorated. Nonetheless, the international community will question whether South Africa can safely hold the World Cup in 2010. 

As for Iraq and Afghanistan, the former will have its share of terror attacks but the political process will be largely uneventful. A final solution on the status of Kirkuk, though, will continue to be put on hold. Regarding Afghanistan, the U.S. troop surge will bear fruit by fall and the second half of ’09 will see greatly reduced violence. This in no way means, however, that Afghanistan will be anywhere near being a truly viable nation capable of standing on its own. Al Qaeda leader Zawahiri, incidentally, will be taken out by a drone. The fate of bin Laden will be unknown. 

Regarding our two neighbors, the Mexican government will finally begin to make some progress in the drug war, but watch Jan. 27 and the submission of a new budget in Canada, the cause of yearend confusion there. Nothing to worry about in terms of the U.S. and national security, mind you, but interesting nonetheless. 

Lastly, one of the big issues facing President Obama will be his decision on modernizing the nuclear force. The likes of Defense Secretary Robert Gates will impress upon Obama how important it is to do so, beginning with the fact 30 nations are under our protective nuclear umbrella. Should they lose confidence in the United States’ deterrence, the likes of Japan and South Korea could easily begin developing their own. All are in agreement this would be deeply destabilizing. Obama will side with Gates and tick off the left wing of the Democratic Party. 

–Embattled Illinois Governor Rod Blagojevich named former state lieutenant governor Roland Burris to fill Barack Obama’s senate seat, against the wishes of all Democrats, state and federal, thus forcing a confrontation. Hot Rod played the race card as well, or rather Cong. Bobby Rush did at the news conference announcing Burris’ appointment. Rush (who bears a striking resemblance in both appearance and manner to Grady from “Sanford and Son”) scolded the press and viewers. “I would ask you to not hang or lynch the appointee as you try to castigate the appointor (sic).” [I had to include his clear pronunciation of appointor because I got a kick out of the press correcting it to “appointer” in their stories. Note to the press. That’s not what he said.] 

“Recall that federal prosecutors had gone public with their criminal complaint against Mr. Blagojevich earlier this month expressly to deter him from making such an appointment. Mr. Obama had then declared that the Governor should not make an appointment, and Senate Democrats had said they wouldn’t seat anyone Mr. Blagojevich did appoint. Majority Leader Harry Reid repeated that pledge yesterday regarding Mr. Burris, who lost to the Governor in a primary in 2002 but then was vice chairman of his transition team.” 

But state Dems won’t allow a special election, afraid Republicans might win, so they have to dump Blago and replace him with one of their own so that individual can then pick Obama’s successor. 

–I got a kick out of Caroline Kennedy and her first interviews that were punctuated by a stream of “ums” and “you knows.” I have a thing about “you know” because I once answered a professor’s question at Wake Forest with a “you know” thrown in and he said to me, “Mr. Trumbore, no, I don’t know!” I swear, it left such an impression I would bet I haven’t used it more than three times in my life since then…know what I’m sayin’? 

The New York Post calculated that in their 41-minute interview with Ms. Kennedy, she uttered “you know” 235 times. 

All kidding aside, Caroline Kennedy is not qualified to be a United States senator.  

[By the way, in an earlier interview Kennedy said she was “dismayed” by her record of missing more than a dozen votes in elections over the past decade, adding she has no “good excuse” for it.] 

“I think it is fair to say that 2008 has been the worst year in the history of the Republican Party. Every conservative columnist in America has weighed in with a theory on how to rescue the right. So here’s mine: Stop treating the young people the way Bernie Madoff treated his investors. A lot of people have been comparing the Ponzi scheme allegedly run by Madoff to the Ponzi scheme run by the U.S. government, also known as Social Security. 

“The federal government…never tried to make the Social Security system work. The feds didn’t invest the money in the market. They took the money that we gave them and lent it to themselves, promising themselves interest. To be paid by themselves…. 

“The only major-party presidential candidate who ever addressed this issue honestly was Republican Barry Goldwater in 1964. He wanted to make Social Security voluntary and he was opposed to Medicare, which was then in the planning stages. 

“Goldwater lost in a landslide. It’s not hard to see why. Everyone who voted in that election was on the winning side of the Ponzi scheme.” 

And in 2008, Mulshine continues, Republicans “treated Texas congressman Ron Paul as a pariah in the presidential primaries for reviving the Goldwater worldview. But the oldest candidate in the GOP field had the youngest supporters. So that should be a word to the wise.”  

–Vicki Iseman, the lobbyist at the center of a New York Times hatchet job concerning John McCain and a supposed affair between the two, has sued the Times for the Feb. 2008 article. Even the Times’ public editor, Clark Hoyt, said the story “raised one of the most toxic subjects in politics – sex” without offering any proof that “McCain and Iseman had a romance.” 

–For the record, Gov. Sarah Palin is now a grandmother as 18-year-old daughter Bristol gave birth to “Tripp Easton Mitchell Johnston” on Saturday. Father Levi Johnston, 18, and Bristol are still supposed to get married at some point, this as Levi dropped out of high school to seek fame and fortune working the North Slope oil fields as an apprentice electrician…not that there is anything wrong with this. 

–For those of us who read newspapers, including the online variety, it’s been a depressing yearend as more than a few opinion writers and reporters exit the scene due to cutbacks and buyouts. I gave my rant two weeks ago on the topic of blogging and the Internet, but we can not let the collapse of our print press go much further or we truly risk the end of our democracy. Those who believe otherwise – that the Net can fill the role left by an admittedly left-leaning print establishment – are sadly mistaken. Thus far, the fall of the newspapers has been like a slow-motion train wreck. Expect the debate on the topic, however, to explode by the second half of the year, if not sooner. 

–U.S. News & World Report had a story on “50 Ways to Improve Your Life.” I’ll leave out the author’s name of the following particular idea because I’m not out to embarrass him. 

“Getting your news and literature digitally might just be as good for the environment as it is for your pocket. You benefit directly, because most websites offer free access, and you also get the breaking news updates and value-added features like podcasts and videos…. 

“Reading online helps the planet because it reduces your carbon footprint….so getting your news digitally should become even more practical.” 

Again, per the preceding story, people just don’t get it. Who is going to be left to report the news that we all like to read? 

–I admit to not reading all the local stories on casualties of Iraq and Afghanistan but this one, from Sharon Adarlo of the Star-Ledger, caught my eye. 

“From the Iraq army base where he was stationed, Dr. John P. Pryor never failed to call his wife and kids each day at their home in Burlington County. 

“So when his wife, Carmela Calvo Pryor, didn’t receive that daily phone call on Christmas day, she assumed her husband, a trauma surgeon, was busy trying to save the life of a patient. After all, she had seen a report on CNN about a deadly mortar attack at the Mosul base where he was staying. 

“Pryor, a 42-year-old Moorestown resident, was killed Christmas morning in his sleeping quarters when a mortar round struck his trailer, killing him instantly, said his brother, Richard Pryor.” 

–I maintain Barack Obama can have a major impact on the Pentagon budget in terms of the massive corruption that exists therein if he would select John McCain, in a highly publicized role, to go after the $100s of billions that us taxpayers constantly shell out in cost overruns and unnecessary projects; Senator McCain’s past criticisms on this front being one of his true legacies. Lord knows we need to find money somewhere to pay for the bailouts and stimulus program to come.  

This in no way means we must cut the size of the military. Everyone is in agreement we need to add more troops and come up with a new mission statement for our Reserves. But as Dana Hedgpeth of the Washington Post reported, “The Government Accountability Office found that 95 major systems have exceeded their original budgets by a total of $295 billion, bringing their total cost to $1.6 trillion, and are delivered almost two years late on average.” 

–A survey for Military Times reveals 60% of active-duty service members say they are uncertain or pessimistic when it comes to their feelings about Obama as their new commander in chief. But I must say, in reading some of the responses, a few of those concerned cite the 16-month timetable Obama set for troop withdrawals in Iraq. We’re basically following that plan already as cited above. Don’t blame Obama at this point.  

–The issue of drug abuse in this country should be front and center, but there is a drawback to the Obama presidency. He has zero credibility on the topic given his admitted past usage. If he were to go before the American people and say, as I’ve urged in this space over the past year, “Folks, could we please stop taking drugs for even just one week in order to break the backs of the Mexican drug cartels?!” he’d be laughed at. 

–In a new study by Professor James Alan Fox at Northeastern University, the murder rate among black teenagers has been rising steadily since 2000 even as murders by young whites have held steady or declined in some places. 

For example, among juveniles ages 14 to 17, in 2000, 539 white and 851 black juveniles committed murder. In 2007, the number for whites was 547, while that for blacks was 1,142, up 34 percent. In Milwaukee, over the same period, murders by whites ages 14 to 24 rose by 4 percent, while those by blacks rose 62 percent. 

–Matthew Dowd, a former pollster and chief strategist for President George W. Bush, said Hurricane Katrina “was the tipping point” for the Bush presidency. 

“The president broke his bond with the public. Once that bond was broken, he no longer had the capacity to talk to the American public. State of the Union addresses? It didn’t matter. Legislative initiatives? It didn’t matter. P.R.? It didn’t matter. Travel? It didn’t matter.” 

Lawrence Wilkerson, top aide and later chief of staff to former Secretary of State Colin Powell, on the topic of Vice President Cheney. 

“He became vice president before George Bush picked him. And he began to manipulate things from that point on, knowing that he was going to be able to convince this guy to pick him, knowing that he was then going to be able to wade into the vacuums that existed around George Bush – personality vacuum, character vacuum, details vacuum, experience vacuum.” [AP] 

–I posted an old piece of mine on the great political scientist Samuel Huntington, who died this week, on my “Hot Spots” link if you want to re-immerse yourself in his “Clash of Civilizations” theory. 

–I’m awful at New Year’s Resolutions, but I am determined to stick to the only one I made this time…listen to more music in the office rather than the endless drivel on CNBC.  

–Over the past two years there has been expansive repaving of some of the major roads in my neighborhood and I marvel at how, after just one snowstorm, the same roads appear to have been ripped to shreds. I’ve been all over the world, and there is no doubt we build the absolute worst roads of any developed nation. Somewhere, Caesar and his ilk are laughing. 

[Along these lines, I was reading a piece on Ireland and there they like to comment, ‘How can we have made these terrific walls that divide property, ones that have lasted literally hundreds of years, yet our homes are incredibly shoddy?’] 

–Scientists are a bit concerned at the recent earthquake activity in Yellowstone National Park, where close to 250 small tremors hit over the course of a three-day period ending Monday. [I didn’t see any update since then.] According to Robert Smith, a professor of geophysics at the University of Utah who is in charge of monitoring the area, “We haven’t had earthquakes in this energy or extent in many years.” 

“This is an active volcanic and tectonic area…Could it develop into a bigger fault or something related to hydrothermal activity? We don’t know.” 

Uh oh. 70,000 years ago there was a volcanic eruption at Yellowstone. 

Gold closed at $879…$884 12/31
Oil, $46.34…$44.60 12/31 

Returns for the week 12/29-1/2 

Dow Jones +6.1% [9034]
S&P 500 +6.8% [931]
S&P MidCap +7.1%
Russell 2000 +6.1%
Nasdaq +6.7% [1632] 

Here’s to the New Year. May it be a prosperous one. Also, support your state and local newspapers! 

Note: My weekly podcast is being posted around 9:00 a.m. ET on Saturdays; perfect for those dog walks.