On the Precipice of Depression
One week to go in the 25-day honeymoon for President Barack Obama that I mentioned last time. That’s it. By next weekend, it will be 25 days into a presidency and it’s already sink or swim time. One more week to button up a stimulus package, get it through conference between the House and Senate, and on Obama’s desk for signature. One more week for Treasury Secretary Timothy Geithner to sell his new financial-recovery plan, to be unveiled on Monday.
President Obama will hold a prime time press conference on Monday evening, another first test for our new leader, with so much to talk about in what to that point will be all of 20 days. The world sits on the precipice of outright Depression, and while on some matters nothing but time will heal our wounds, it is also a period that is crying out for global leadership and Obama must answer the call.
The IMF\’s Dominique Strauss-Kahn said on Saturday in Malaysia that advanced economies are already in a depression and the financial crisis may worsen unless the banking system is fixed. "The worst cannot be ruled out. There\’s a lot of downside risk."
PIMCO’s Bill Gross said earlier in the week the government must spend $trillions to avoid a “mini depression.” “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars,” he said.
General Electric CEO Jeff Immelt warned, “Unlike the other downturns that I’ve been a part of…Once you break through ’74-‘75, you don’t stop ‘til you get to 1929.”
The bleak nature of the financial news around the world continued unabated. Germany announced industrial production in December declined 4.6%, the worst single month performance since reunification in 1990. Corporate bankruptcies in the U.K. soared 51% in the fourth quarter over year ago levels. South Korea’s exports for January plunged 33%. Japanese stalwarts Panasonic and Hitachi are facing losses of $3.9 billion and $7.8 billion, respectively, for their fiscal year. Even when the market saw a shred of good news, a better than expected reading for China’s purchasing managers index for January, it was still a contraction. The IMF cut its growth forecast for China to 6.7% in ’09 (well below the magic 8% level we’ve all become so familiar with), while for the rest of Asia the IMF is looking for growth of just 2.7%, down from a previous forecast of 4.9% just last November. And, disconcertingly, labor unrest, be it in Russia, France, Britain or China, continues to percolate; one step removed from spilling over into something far more flammable.
Then you have the jobs picture in the United States. Friday’s release of January employment saw nonfarm payrolls decline a whopping 598,000, the most since January 1974 (the stock market didn’t bottom until December that year, I can’t help but add), and the unemployment rate rose to 7.6%, the highest reading since late 1992. As PIMCO’s Mohamed El-Erian pointed out, the one-year rise in this figure from 4.9% to 7.6% is extraordinary, and highly worrisome. Manufacturing (minus 207,000 jobs) and construction (minus 111,000) once again led the way. Since December of 2007, 3.6 million have lost their jobs in America.
Aside from the jobs picture, December factory orders fell a greater than expected 3.9%, personal income was down 0.2%, personal consumption off 0.9%, credit card delinquencies hit a record 3.75%, and consumer credit for the latest reporting period, November, fell by a record $11 billion, the biggest drop in this category since records began in 1943. With the jobs picture as bleak as it is, the consumption figures are hardly a surprise.
But the ISM numbers for January manufacturing and the service sector were both a little better than expected, and December pending home sales rose 6%, though the latter continues to be influenced by sales of foreclosed properties.
All of the above makes for enough of a combustible brew, but then you have this protectionism angle that was oh so predictable, though at the same time it is still hoped cooler heads will prevail, whether it is the U.S. Congress, the Russian Duma, or the Chinese Communist Party. British Prime Minister Gordon Brown warned of the “implicit protectionism” he saw creeping through the debate, while the World Trade Organization is scrambling to keep up with new tariffs being levied from all quarters.
Barron’s Thomas Donlan reminds us of the lessons we should have learned from the past, in looking back to a major cause of the Great Depression.
“Without a doubt, the Smoot-Hawley tariff worked: Imports fell 66% between 1929 and 1933, while exports declined 61%. Gross domestic product fell 50%, with the trade decline partly cause and partly effect. Only a madman would want this, but fear made many madmen in those days.
“By 1933, it was a breeze for Congress to enact a ‘Buy American’ law, which established preferences for U.S. goods and services in any government project.
“Lest we think that the days of madmen are past, important vestiges of the Buy American Act have never been repealed….
“(And) the House of Representatives last week added more weight to the nationalistic chains that rattle behind us and drag down the economy.”
So that brings us to the $800 billion+ stimulus program that will be hashed out in conference this coming week, after the Senate appears to have reached a compromise, and we wait to see how it may or may not contribute to the global protectionist debate.
“What Americans expect from Washington is action that matches the urgency they feel in their daily lives – action that’s swift, bold and wise enough for us to climb out of this crisis.
“Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double figures. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.
“That’s why I feel such a sense of urgency about the recovery plan before Congress. With it, we will create or save more than 3 million jobs over the next two years, provide immediate tax relief to 95 percent of American workers, ignite spending by businesses and consumers alike, and take steps to strengthen our country for years to come.”
Editorial / Washington Post
“Ideology is not the only reason that senators – from both parties – are balking at the president’s plan. As it emerged from the House, it suffered from a confusion of objectives. Mr. Obama praised the package as ‘not merely a prescription for short-term spending’ but a ‘strategy for long-term economic growth in areas like renewable energy and health care and education.’ This is precisely the problem. As credible experts, including some Democrats, have pointed out, much of this ‘long-term’ spending either won’t stimulate the economy now, is of questionable merit, or both. Even potentially meritorious items, such as $2.1 billion for Head Start, or billions more to computerize medical records, do not belong in legislation whose reason for being is to give U.S. economic growth a ‘jolt,’ as Mr. Obama himself has put it.”
“One of the more egregious provisions in the Senate bill is a $166 billion bailout plan for the states that rewards bad budgeting at the state level. Simply sending cash to states without asking for appropriate sacrifices is grossly irresponsible. States will no longer have the incentive to live within their means, because they’ll assume the federal government will be there to bail them out.”
“The American economy is on the edge of catastrophe, and much of the Republican Party is trying to push it over the edge.”
Personally, I’ve just been sitting back, letting things sort themselves out as part of my ‘wait 24 hours’ mantra before unloading one way or the other. I’m giving President Obama the benefit of the doubt for at least one more week, but that could be it. It’s really quite simple. He can prove he’s the pragmatic leader we need for these times and stand up to Democratic leaders Harry Reid and Nancy Pelosi (who are hardly pragmatists in their own right), while seeking compromise with moderates on the Republican side to forge a consensus the majority in this country can agree on, recognizing none of us can get everything we want…or…Obama caves to Pelosi and Reid, ignores the Republicans’ better intentions, and thus sets the stage for four more years of the same at a time when the nation, and the world, can ill afford it…nor will the people stand for it.
Harry Reid and Nancy Pelosi do not represent the views of the majority of Americans, the 65-70 percent that are generally moderate and straight down the middle on a broad spectrum of issues facing this nation. Yet President Obama thus far has been all over the map, and it’s here I’m forced to bring up his change theme; that he would end Washington business as usual. On one hand he made a lot of good selections for his cabinet, but on the other he either received very bad information from his transition team, i.e., Bill Richardson, Timothy Geithner and Tom Daschle, and/or the nominees themselves didn’t come clean during the initial vetting process.
“I screwed up,” Obama was forced to tell five network anchors that interviewed him the other day after Daschle proved to be a supreme embarrassment, so much so the editorial board of the New York Times, not the president, forced the former senator to withdraw from consideration for the post of secretary of HHS.
“It’s important for this administration to send a message that there aren’t two sets of rules – one for prominent people and one for ordinary folks who have to pay their taxes…This is a self-induced injury that I’m angry about, and we’re going to make sure we get it fixed.”
We’re living in a time where you can’t help but dissect each day, and it’s the same situation around the world. Ordinarily, a new president gets a pass for his early mistakes, a true 100 day honeymoon, as tradition would have it. But not now, as unfair as that may be.
Just a word or two on this whole issue of executive compensation, particularly as it pertains to Wall Street. For starters, the Obama plan to cap compensation at $500,000 for senior executives of firms that accept government funds, from this day forward (but not retroactive), is not as onerous as it sounds since there are all manner of loopholes on additional compensation, such as in the form of restricted stock, let alone rearranging titles. [Back when I was on Wall Street, I worked for a company that had (has) a rather high-profile figure and when new disclosure rules came out, his title was shifted so that he didn’t appear on the mandatory list of top five executives and their comp, even though he was easily paid the most.]
One of the good things about the Obama plan is that there will certainly be more disclosure, particularly on items like executive perks, and shareholders will probably have more of a say on whether a 3rd or 4th company jet is necessary. [I think it is absurd, however, to do away with the concept of a corporate jet altogether, as some would have it.]
But I just want to give you a few outside opinions on comp before I give mine.
“Wall Street traders are…extremely reluctant to give up the ‘eat what you kill’ mentality that has dominated their profession these past two decades. There is no sense of shared enterprise at most firms, and no belief among the rank and file that they should have to pay a price if the firm is drowning in losses and needs government support. That is why they are so blind to how they appear to the rest of us. They just want theirs. That is the culture they have created.
“Indeed, Ira Kay, a top executive consultant with Watson Wyatt, told me that this bonus season has been akin to ‘war’ inside many Wall Street firms. ‘It is a small group of people who cause the problem,’ he said. But other bankers had very good years – and all over New York they are now complaining about their smaller bonuses, completely tone-deaf to how this sounds outside their Wall Street silos. You can make a pretty convincing argument that that culture – and the bonuses that flowed from it – had a lot to do with creating the financial crisis. If Wall Street can’t bring itself to admit as much, the new administration and the Democratic Congress are going to be more than happy to point it out.”
I was watching “Meet the Press” last Sunday and CNBC’s Erin Burnett gave an embarrassing performance, as others quickly pointed out Monday morning. When questioned about compensation, Ms. Burnett allowed (and I’m going to clean up the transcript some):
“There is a fundamental misunderstanding. The taxpayer money isn’t being taken and paid out in the form of bonuses. It goes in a separate pool, a separate account for banks. So maybe people don’t care about that distinction, but it is there.”
Oh brother. She also said, “The rise in populism…has been amazing. I mean, just the rhetoric (employed) by Barack Obama and Joe Biden this week…using the words ‘shameful’ and ‘outrageous’ to refer to Wall Street practices.”
And here I have to add that this debate is frustrating for some of us who worked on the Street, yet now observe from afar.
It is not all black and white. Few issues today ever are, much to the chagrin of those on the far left and far right.
President Obama was totally correct in saying, “What gets people upset…are executives being rewarded for failure. Especially when those rewards are subsidized by taxpayers.”
There are so many who aren’t particularly talented on Wall Street, but nonetheless rode the wave to riches and instead of thanking God for their good fortune and preparing for the other side of the crest, act like their comp is a lifetime entitlement, unlike the way they would be treated in virtually every other industry in the world.
Something changed on Wall Street this past decade. I remember when I started out, in the fall of 1982 (remember, I was a bull market baby), I had a good idea what people were being compensated and it was a very select few who made the truly big bucks, as it was supposed to be. Others who may have been compensated well were in sales or on trading desks, and both were entitled to thrive during the good times.
But I thought CNBC’s David Faber put it best the other day. Wall Street evolved from a time when it truly paid the best people well, to an era of “expectation,” where everyone expected top dollar, regardless of position or success. I talk all the time about the place where I grew up and have my office today, Summit, N.J., home of Jim Cramer, as he’s fond of saying, and countless Wall Street chieftains. I left PIMCO in 1999 and have been observing the shift in attitudes up close and personal with a jaundiced eye. I’ve seen how this town I grew up in, a great place to raise a family, a place with a real sense of community in the day, has changed to one that, frankly, is loaded with clueless elites for whom I have little respect.
I have to end this segment, though, with a plea to those who may not be too familiar with Wall Street’s ways when evaluating the bonus issue. For every highly-compensated Master of the Universe, there are four or five who lead middle-class lives just like the majority of you (and me these days). In the bonus discussions they are being tarnished unfairly. It wasn’t right when the now infamous $18 billion figure came out from the standpoint that many of the recipients were in actuality receiving little extra remuneration, and, by coincidence, the New York Daily News ran a story on Friday that helps put things in perspective.
“(A) study, released Thursday by the Center for an Urban Future, shows that New York City is hands-down the most expensive place to live in the country. Among the findings:
–Income levels that would enable a very comfortable lifestyle in other locales barely suffice to provide the basics in New York City.
–Researchers said the combination of skyrocketing costs, stagnant wages and a deteriorating quality of life forced hundreds of thousands of New Yorkers to flee the city for cheaper areas during the boom years from 2002 to 2006.
The bottom line is you need to earn nearly six figures to make middle class in the Big Apple and its immediate surrounding environs.
No doubt, Wall Street’s support staff that does the dirty work of the elite are suffering during this market meltdown, many having lost their jobs. They are no different than anyone else in the country. Thus reserve your scorn for the clueless, the incredibly overrated, and often corrupt, Master Class of this Great Gatsby II era that we’ve all been enveloped in.
–Stocks finally broke through, with the major averages rising for the first week in five this year, sloughing off the dire economic news and uncertainty in the halls of Congress and at the Treasury Department. Cisco Systems, a tech bellwether, announced that its current quarter revenues would decline 15% to 20%, yet the stock ended up. Bank of America was hit by rumors all week that it would be nationalized (and common shareholders thus eviscerated), but it rallied smartly as CEO Ken Lewis said it would require no further government assistance. Disney reported disappointing earnings, yet it rallied back some by Friday’s close. And while retail chain-store sales figures for January were miserable, save Wal-Mart’s two percent increase, retailers also did well for the most part.
For the week the Dow Jones gained 3.5% to close at 8280, the S&P 500 advanced 5.2%, and Nasdaq surged 7.8% to 1591. Nasdaq is already back in the black for the year, up almost one percent.
So was it short-covering? Excitement over the stimulus package? Confidence a real bank rescue plan is in the offing? A little of all three. We just have to see what kind of follow-through, if any, there is during this coming tumultuous week.
–U.S. Treasury Yields
Aside from the bank rescue package to be unveiled on Monday, the Treasury is going to be selling some $67 billion in securities next week, the largest ever quarterly refunding, which weighed on the bond market. The mammoth amounts of supply are going to make it hard for the long end of the yield curve in particular to rally, unless the Fed steps in and buys a ton of paper itself to keep rates low. It’s the only way mortgage rates will stay reasonable at this critical juncture. Thankfully, at least for now, it appears the Chinese, with their massive holdings of Treasuries, will behave and not start dumping their reserves on the market.
[The Bank of England lowered its key rate to another all-time low, 1%, while the ECB kept its target rate at 2%.]
–In Saturday\’s New York Times, Floyd Norris has a piece talking about the 10-year period through January. "An investor holding the stocks in the S&P 500, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation." This is the worst such stretch in the 82-year history of the index, including the Great Depression.
–Auto sales cratered again in January. Chrysler’s U.S. sales were down 55%, Ford’s 40%, GM’s 49%, Toyota’s 32%, Honda’s 28%, and Nissan’s 30%. Toyota warned its expected loss for the fiscal year ending in March could be as high as $5 billion, or three times its most recent forecast from December. In November, it had actually forecast a profit, to give you yet another picture of the swiftness of this economic tailspin.
But there was a bit of good news in the sector. Subaru’s U.S. sales were up 8% and Hyundai’s up 14%, the latter helped by an offer whereby customers can return a car within 12 months if they are unable to make the payments.
–The auto-parts supplier industry is seeking a $mega-million bailout. About 40 U.S. suppliers filed for bankruptcy last year.
–200,000 workers in California were forced to take their first unpaid day off amidst that state’s fiscal crisis. California’s credit rating is now the lowest among all 50 states, according to Standard & Poor’s. Gov. Schwarzenegger and state lawmakers continue to battle over how to close a projected $42 billion budget deficit. State Treasurer Bill Lockyer blasted S&P, saying it was unnecessary as the state had never defaulted on its general-obligation bonds.
–Ireland’s economy continues to crash. According to one analysis, Dublin offers the worst real estate investment prospects among 27 European cities, with commercial values in Ireland overall (including offices, shops and warehouses) having declined a staggering 37% in 2008; 17% in the fourth quarter alone. [Investment Property Databank Ltd.]
So Ireland’s struggling (and despised) Prime Minister Brian Cowen just slashed public-spending $2.6 billion in an attempt to shore up state finances, more than half of which will come from increased pension levies on 350,000 public-sector employees…a pay cut, in actuality.
I’m guessing we could be shocked by the level of violence we see this spring on the Emerald Isle, as 1,500 workers a day join the “dole queues.” The unemployment rate could easily hit 12% by year end, this while government debt explodes, leading to further cutbacks and tax hikes. The trade unions are ready to erupt. We could have another Easter Uprising.
–Britain’s postal service is looking to reduce payrolls by 16,000, or about 10%.
–The number of homes in Hong Kong in negative equity has risen more than threefold the past three months, while an hour’s high-speed ferry ride away on Macau, the level of visitors for the month of January fell for the first time in 5 ½ years, back when SARS was an issue. Arrivals to the gambling mecca from the mainland declined 4%.
–Fraud investigator Harry Markopolos testified before a House committee Wednesday that the SEC’s “financial illiteracy” was to blame for failing to heed his warning about Bernard Madoff. For a decade, Markopolos was warning the SEC that Madoff was operating a Ponzi scheme, but time and time again, the SEC blew him off. Markopolos also warned there are a number of private foreign operations that were acting as feeder funds of Madoff’s and have sustained large losses. These particular investors haven’t been identified as yet, but Markopolos said they included Russian mobsters and Latin American drug cartels.
Separately, a list naming 13,567 customers of Madoff was filed in bankruptcy court. Among the new names we learned of was Hall of Famer Sandy Koufax, a boyhood friend of New York Mets owner Fred Wilpon, the latter having earlier come forward as a victim.
–PNC Financial, in reporting a relatively mild loss of $248 million, plans on cutting 5,800 jobs as it continues to digest its acquisition of National City Corp., like an anaconda swallowing a cat.
–Former Lehman Brothers CFO Erin Callan, who moved onto Credit Suisse after being ousted at Lehman, is taking a leave of absence to deal with being summoned by a federal grand jury looking into the stunning collapse of her former employer. 24 other Lehman employees have also been summoned.
–Rupert Murdoch’s News Corp. posted a $7.6 billion loss on the heels of an $8.4 billion pretax write-down of the value of its television stations, newspapers and other businesses. Mr. Murdoch said the results were a “direct reflection of a recession that’s deeper than anyone predicted. While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought.” News Corp. is instituting “rigorous” across-the-board job cuts. When asked about the future, Murdoch said: “We may never return to record levels.”
–525 U.S. and Canadian magazines went out of business in 2008. Travel magazines lost 18 titles; home and automotive lost 17 publications each. Actually, 591 went out of business in 2007.
–Josh P. passed along some great stats from Purchasing Magazine and Jefferies & Co. regarding pricing in the metals sector. In $/ton, for example, hot rolled sheet steel is down from $1,033 in Q3 ’08 to $509 in Jan. ’09. Shredded scrap, $514 to $245. Stainless steel, $4,158 to $2,565.
I’ve been telling you from time to time of the steel production figures I’ve been keeping on spread sheets (handwritten, so don’t bother asking for it) since 1990 and steel production in tons (000s) has fallen to 1,025 from 2,100 a year ago. Amazing.
–Scary story involving Fannie Mae, as if the past management of the operation wasn’t scary enough. A disgruntled contract employee was set to unleash a computer virus that would have destroyed all of Fannie’s data. The native of India, here in the U.S. on a work visa, was indicted. The fellow had been fired on Oct. 24, so that day he allegedly inserted a malicious code into a routine program that ran each morning and was set to go off Jan. 31.
–SAS Group, parent of Scandinavian Airlines, plans to eliminate 3,000 jobs and scale back its route network, though in selling various divisions abroad, another 6,000 positions could be impacted.
–Most airlines have been burned with their fuel hedges, many of which were set with floor prices of $90 to $100 a barrel and designed to protect from further increases above the $147 high of last summer. But when the price crashed below the floor, the airlines were on the hook for a collective total in the $billions.
However, the airlines could offset the losses by buying in the physical market at today’s low prices.
–The mood in most brokerage firms, the large ones, isn’t good these days. Aside from culture clashes, like that of Bank of America with the integration of Merrill Lynch, you also have the raiding of top brokers that is taking place between the few remaining big players. UBS has been offering some top producers bonuses of 260% on trailing revenue to jump ship, but Merrill Lynch brokers were offered ‘only’ 100% retention bonuses to stay under the Bank of America umbrella. So you have some Merrill reps looking for greener pastures, while you also have existing UBS reps more than a bit jealous of the money being shelled out to the new hires. It’s an old, old game on the Street.
–Fortunoff, a jewelry-store chain that started in 1922 in Brooklyn, New York, filed for bankruptcy protection and will join Circuit City and Linens ‘n Things in total liquidation.
–Deflation Watch: Josh P. noted Bombardier is eliminating overtime pay for its 6,500 unionized aerospace workers, a rather significant pay cut.
My example of deflation involves the Somali pirates, who sought a $20 million ransom for the Ukrainian ship loaded with tanks and other weapons, but only received $3 million.
–Interesting that Republican Senator Richard Lugar, one of the three or four most respected leaders in Washington, joined a growing chorus for a “net-zero gas tax” proposal, as put forward the other week by Charles Krauthammer, that would match, dollar for dollar, an increase in the federal gas tax with a decrease in payroll tax, which is paid by every working American. “Because it represents no net tax hike, it would bring the benefits of reduced consumption while putting money into the hands of Americans.”
“The auto industry would benefit from knowing that it could invest aggressively in high-mileage technology without worrying that consumers might turn back to inefficient gas guzzlers.” [Lugar’s comments were in the form of a Washington Post op-ed.]
–Goldman Sachs is looking to repay money it received from the TARP in order to put a stop to the intense scrutiny it’s under as a result of being forced to take the money from the government. But now that the feds have wormed their way in, it’s like trying to get rid of cockroaches; it’s just not that easy.
Of course for its part, Goldman wants to keep the spotlight off its long secret, evil offshore arm, KAOS, which is bent on global domination while paying its employees $mega-million bonuses. Goldman certainly has enough moles in the government already to create further mayhem.
–Meanwhile, Goldman, Morgan Stanley and others of its ilk are canceling incentive trips and market conferences left and right, leaving tens of thousands of resort and airline employees facing unemployment. The award winners in particular face further wrath at home when they try to explain to furious spouses why they aren’t going to Casa de Decadence this year.
–Citigroup is under pressure to pull its $400 million, 20-year deal with the New York Mets for naming rights to its new stadium Citi Field.
And then the New York Post reported on former CEO Sandy Weill’s holiday jaunt with his family in one of Citigroup’s corporate jets this past New Year’s to Los Cabos. While Mr. Weill has to compensate the company for any charges incurred, the timing was rather poor, to say the least.
–Between 6 a.m. and 2 p.m., Tuesday, Denny’s served up two million Grand Slam breakfasts for free following its Super Bowl commercial announcing the deal. I love Denny’s, but we don’t have one near me. Great, greasy burgers.
–A man in Guangzhou, China, died after he put a new battery in his cellphone and it exploded, severing a major artery. As of this writing, it’s not known what the make and model of the phone and its battery were. Local reports said it was the ninth recorded cellphone explosion in China since 2002.
The Shin Min Daily News published advice for consumers on how to avoid mobile phone explosions.
[London Times…err, one of the above wasn’t really on the list]
–Motorola’s sales in the fourth quarter were down 26% from a year ago, reflecting its dwindling cellphone business. Shares, once $60 in early 2000, are now trading below $4.
–After much internal debate, I decided to re-up my Sirius XM subscription, despite the fact the signal could go down one night as a result of the company’s crushing debt load. Sirius has over $900 million coming due between Feb. 17 and the end of the year (over $3 billion in debt total), though now EchoStar (Dish Network) has been acquiring some of the paper as a possible prelude to a takeover and then a merger of the assets of both satellite systems.
–Just having fun here. Arch Crawford, author of Crawford Perspectives, is a veteran in the market strategist game and uses the stars to divine trends. In a recent newsletter he picked Feb. 9 and Feb. 23 as perfect days to open new long positions (with his customary -5% stop once established). So I just wanted to get these dates down to see how he does.
“We are going to ‘go with the flow’ of astro-energy and BUY on the Lunar Eclipse at OPEN, probably on some horrible news over the weekend and a large down Gap, and BUY the 2nd position on the Bradley Model low on Monday’s close, February 23.”
[I’m not sure if the Bradley Model has to do with former New York Knicks / New Jersey Senator Bill, or General Omar Bradley.]
–I loved the story of the Financial Times suing Steve Schwarzman’s Blackstone Group for sharing a single subscription (nearly $300 a year) among all its employees. Heck, I’m paying as much as Blackstone.
What’s funny is that the FT picked up on it when it noticed that the Blackstone employee with the account had accessed thousands of articles between 2006 and 2008, “far more than an individual would normally access,” the lawsuit alleged.
This is the same Steve Schwarzman who threw a $3 million 60th-birthday party for himself.
Now this is a common scam on the Street, particularly with industry newsletters, but c’mon, Blackstone. I’m sure the FT would have cut you a substantial volume discount. [Kaja Whitehouse / New York Post]
–As for Blackstone’s actual business, the private-equity game, a Barron’s cover story by Andrew Bary highlighted how little value remains in many of the deals struck the past three years, including Blackstone affiliated deals such as Michaels Stores, Hilton, and Freescale Semi.
–Bruce Springsteen, who is furious over how difficult it has been for his fans to order tickets to his upcoming tour online, is also saying he made a “mistake” to exclusively release a greatest hits album through Wal-Mart, after some fans complained about Wal-Mart’s labor practices.
–Mattel, in announcing 4th-quarter profits that fell 46%, said sales of Barbie were off 21%. She needs to stop living in a fantasyland.
–I was watching CBS’ “Sunday Morning” last week and an interview with Christie and Hugh Hefner and Christie said her father “made his money with integrity.” As Hugh added, “no hypocrisy.” Not bad…not bad at all.
–In light of the Steelers’ 27-23 thrilling win in the Super Bowl (and thanks for the Terrible Towel from the game, Jeff B.), I just have to mention my proprietary Super Bowl market indicator…in case you didn’t see it in a recent “Wall Street History” piece. The stock market has never declined in a year in which the loser scored 20 points. 10 for 10 thus far…and you can look it up. Throw in the fact that the market has registered double-digit gains each of the Steelers’ previous five Super Bowl triumphs, as well as its lone loss, and we have some special karma working in our favor. Wave your towel.
Iraq: The provincial elections went off with limited disruptions as Prime Minister Nouri al-Maliki’s party scored a solid victory, an amazing comeback for a politician who was ripped for being incompetent just a year ago, but President George W. Bush stood beside him. Maliki’s coalition won by a landslide in the two key provinces, Baghdad and Basra. It is now likely Maliki will run for a second term in the general election to be held in about a year.
The election took place in 14 of Iraq’s 18 provinces, with no vote held in the disputed province of Kirkuk, as well as the three provinces comprising semi-autonomous Kurdistan. The only major dispute occurred in Sunni-dominated Anbar province where tribes that aligned themselves with the U.S., the Awakening, accused the incumbent Iraqi Islamist Party of election fraud.
So now it’s up to Barack Obama to decide how quickly he wants to begin removing a large portion of the 140,000 troops there, even as he meets resistance from most of the commanders in the field who want to exhibit patience, especially until after the general election.
Separately, the New York Times reported of an ugly dispute involving the next United States ambassador to Iraq. Gen. Anthony Zinni, the former top American commander in the Middle East, said the Obama administration offered him the Baghdad job late last month, but withdrew the appointment without explanation, apparently in favor of veteran diplomat Christopher Hill; though there has been no formal announcement as yet.
Iran: In a disturbing development, Iran launched its first home-built satellite. As part of 30th anniversary celebrations for the Islamic revolution, 1979, Iranian news agencies released the statement: “With this launch, the Islamic Republic of Iran has officially achieved a presence in space.” President Ahmadinejad said the satellite carried a message of “peace and brotherhood” to the world. The government tried to convince the West that the satellite was for monitoring the environment.
Western experts, though, say there is an undeniable link between the launch and Iran’s ballistic missile program. The launch further complicates President Obama’s coming efforts to significantly reduce nuclear stockpiles in Russia and the United States, because Russia will demand Obama scrap the planned U.S. missile defense shield. It’s pretty difficult to abandon the shield, however, if Iran continues to prove why it’s necessary.
Meanwhile, the leaders of France and Germany, Nicolas Sarkozy and Angela Merkel, said they would support “new, very resolute sanctions if necessary” to contain the Iranian threat, reiterating in a joint statement, “We will not permit an Iranian nuclear bomb because this would threaten world peace.”
I just feel it’s already too late and that Iran is long past the point of no return.
Israel: The election is Tuesday, Feb. 10, and Benjamin Netanyahu is slated to become the next prime minister as his Likud Party has widened its lead over Foreign Minister Tzipi Livni’s Kadima. The surprise has been the surge in the polls for Avigdor Lieberman’s Our Home party. Lieberman is known for hard-line stances such as threatening to level Tehran if it acquires nuclear weapons, as well as anti-Arab statements.
For his part, Netanyahu, a former prime minister, supported the Gaza war but once it ended went into campaign mode, saying the current leadership did not go far enough. “The next government,” says Bibi, “will have no choice but to finish the work and remove the Iranian terror base for good.”
In Gaza itself, the U.N. relief agency accused Hamas of seizing supplies intended for desperately needy families, this as Hamas emerged from its holes to take back control.
Separately, Turkish Prime Minister Erdogan, in an interview with Newsweek, said that in his role as mediator between Israel and Syria in secret talks, Israeli Prime Minister Olmert and Syrian President Assad appeared to be close to an agreement to meet face-to-face, but then just hours later, after Olmert left Erdogan with a good feeling, the Gaza operation began. Assuming this scenario is true (and there is little reason to doubt it off what we already knew about the negotiations), you can see why Erdogan has been acting the way he has in the past few weeks with his diatribes against the Israeli government. At the same time, though, Turkey has local elections coming up and this dispute plays well at home.
Afghanistan: I have written of how NATO is not stepping up to add more troops as Europeans say the economic crisis must take precedence over this hellhole, and on Sunday’s “This Week” program, George Will said “NATO may die in Afghanistan.” It is disconcerting how intractable the Afghan situation appears to be. Among the casualties this week were 20 Afghan police officers in a Taliban suicide bombing.
Ralph Peters / New York Post
“Regarding Planet Afghanistan, we still hear the deadly cliché that ‘all human beings want the same basic things, such as better lives and greater opportunities for their children.’ How does that apply to Afghan aliens who prefer their crude way of life and its merciless cults?
“When girls and women are denied education or even health care and are executed by their own kin for minor infractions against the cult, how does that square with our insistence that all men want greater opportunities for the kids?
“What about those Afghan parents who approve of or even encourage suicidal attacks by their sons? This not only confounds our value system, but defies biological reason.
“So: These humanoid forms with which we must deal don’t all want or value the same things we do. They form different social aggregates and exchange goods and services within wildly different parameters (and exhibit hypocritical sexual tastes that diverge from procreative mandates – ask our troops about that).
“These alien tribes seek to destroy physical objects and systems valued on Planet America. They perceive time differently. They treat other life forms more harshly than we do. Their own lives are shorter, with different arcs. They quite like our weapons, though….
“The point isn’t to argue that Afghans are inferior beings. It’s just that they’re irreconcilably different beings – more divergent from our behavioral norms than the weirdest crew member of the starship Enterprise.
“As an analytical exercise, try to understand Afghanistan as a hostile planet to which we have been forced, in self-defense, to deploy military colonies. How do the bizarre creatures on that other planet view us? What do they want? What will they accept? Is killing us business, pleasure – or both?….
“This is a ‘war of the worlds’ in the cultural sense, a head-on collision between civilizations from different galaxies.
Pakistan: A Pakistani court declared that nuclear scientist A.Q. Khan is a free man. Khan had been under house arrest since 2004 after confessing to selling nuclear secrets to Iran, North Korea and Libya. “He will have all rights available to people under the constitution and the Quran,” said the court.
While the house arrest was a joke because Khan was able to see visitors the past year, the declaration is nonetheless highly troubling on the proliferation front.
Meanwhile, insurgents killed two alleged spies in North Waziristan, bringing to 24 the number of suspected U.S. spies killed in recent months. You wonder how much is real, while at the same time thinking of the tremendous heroism some of our contractors are displaying. [Someone will do a terrific movie on this aspect.]
North Korea: As noted above, A.Q. Khan helped Pyongyang with its own nuclear program and this week there were increasing signs the North was preparing a ballistic missile test as a way of not just further rattling South Korea’s cage, but also getting President Obama to pay attention.
“The belief that North Korea is not an imminent danger is closely related to the fallacy that it is ‘merely’ a threat to peace and security in Northeast Asia, a longstanding State Department fixation. In fact, North Korea is an urgent threat in the Middle East, both because of its nuclear program and its strenuous efforts to proliferate ballistic missile technology there.”
China: Premier Wen Jiabao told the Financial Times his government may take “further new, timely and decisive measures” on the economy as the crisis deepens and unemployment swells. A recent survey revealed that 20 million of the nation’s 130 million migrant workers are now without work.
But a different matter took center stage here this week, a massive drought in a key agricultural area, with authorities scrambling to get water to over 4 million people and 2 million head of cattle. About 43 percent of the country’s winter wheat crop is at risk as some areas haven’t seen rain for 100 days or more.
On the pollution front, the number of babies born with birth defects is rising sharply. One expert in China said a child was born with physical defects every 30 seconds, solely due to the environment.
And then you have the story that there is increasing evidence the Sichuan earthquake that killed 70,000 was exacerbated by the heavy waters weighing on fault lines from the massive Zipingpu dam. Over the years, there is undeniable evidence water pressure in some parts of the world has increased the level of intensity of quakes and Sichuan is probably no different.
Lastly, in a new survey of global attitudes across 21 countries, China’s positive rating fell to 39% (40% negative), while Russia’s negative rating jumped to 42%. 43% still felt the U.S. impact was negative, however. Germany fares the best with 61% viewing it positively. Iran, Israel, Pakistan and North Korea were rated most negatively. [BBC News]
Russia: Speaking of this place, thousands did indeed protest across the country last weekend, calling for President Putin to step down and/or blasting the government’s economic program as distress spreads rapidly. At times like these, as Putin tries to come up with the right bailout formula for the banks, he needs to maintain control over the airwaves. But whereas the United States and virtually every other nation are launching stimulus programs, Putin is slashing the federal budget in an attempt to shore up finances.
Back to the nuclear weapons front, as alluded to above, President Obama will be convening the most sweeping arms control talks since the 1980s as he seeks a new treaty that would slash each country’s nuclear warheads to 1,000 from the current 5,000 level. Again, Russia will drive a hard bargain, while I have to add my writings on modernizing the U.S. nuclear force are all the more pertinent so it will be interesting to see what Secretary of Defense Robert Gates says about it all. Obama is hoping deep reductions will encourage the likes of Iran not to continue with their own programs.
[By the way, I just have to add that IBM has been contracted for to build a new supercomputer, with the processing power of two million laptops, to help manage the United States’ nuclear arsenal. The goal is to achieve a performance speed of up to 20,000 trillion calculations a second. Really. So pretend you’re playing touch football, and you have to say “One Mississippi…two Mississippi…three Mississippi, before rushing the passer.” Ergo, 20,000 trillion “One Mississippis” in one second. That’s fast…real fast.]
Kyrgyzstan: In a big blow to U.S. anti-terror efforts in the region, the Kyrgyz government is shutting a U.S. air base that has been a critical staging area for forces fighting in Afghanistan since 2001. Russia, ticked off by the continuing U.S. presence in its sphere of interest, offered Kyrgyz leaders a grab bag of cash and prizes, including the forgiveness of $180 million in debt. Once parliament approves the measure, the U.S. has 180 days to close the base.
[The U.S. will probably move its Kyrgyz operation to a Gulf base or expand its existing facilities in Afghanistan.]
Zimbabwe: To counter an inflation rate that economists calculated at 5,000,000,000,000,000,000,000 (five sextillion) percent…seriously, I can’t make this up…the “world’s most disastrous central banker,” as labeled by the London Times, Gideon Gono, knocked off 12 zeroes from the currency to make the value of a Zimbabwean dollar 250 to one U.S. dollar, from $250 trillion to one.
On the cholera front, the epidemic has claimed 3,300 lives and the toll is likely to double.
–Eric Holder became the nation’s first black attorney general as he was approved 75-21 in the Senate, despite objections over his role in the Marc Rich pardon scandal.
–Robert Kagan / Washington Post:
“Pentagon officials have leaked word that the Office of Management and Budget has ordered a 10 percent cut in defense spending for the coming fiscal year, giving Defense Secretary Robert Gates a substantially smaller budget than he requested.
“(The) Obama administration is right to want to begin negotiations with Russia over missile defense and arms control. But it is a poor opening gambit to announce a cut in American defense spending before negotiations even begin. If Russian leaders believe that the United States is looking for a way out of weapons systems – a missile defense in particular – they will negotiate accordingly. They might ask why they should make a deal at all….
“At a time when people talk of trillion-dollar stimulus packages, cutting 10 percent from the defense budget is a pittance, especially given the high price we will pay in America’s global position….(Barack Obama) didn’t promise defense cuts. On the contrary, he called for additional forces for the Army and Marines. He insisted that the American military needs to remain the strongest and best-equipped in the world. In his inaugural address, President Obama reminded Americans that the nation is still at war. That being so, this is not the time to start weakening the armed forces.”
–We are going to have a fascinating gubernatorial race in New Jersey this year as Democratic Gov. Jon Corzine seeks reelection. The favorite on the Republican side is former U.S. Attorney Chris Christie, who leads Corzine in an early poll, 44-38.
–Supreme Court Justice Ruth Bader Ginsburg is expected to make a full recovery from surgery to remove a small cancerous tumor on her pancreas. Thankfully, it appears it was discovered early enough as part of a routine exam.
–Georgia authorities have opted not to conduct a criminal investigation of the peanut company responsible for the salmonella outbreak, and, at last count, eight deaths. No, instead they are leaving it up to the Feds.
“Can We Swing It?…Baby boom may be ending as parents wonder if they can afford children.”
Pretty self-explanatory. According to the BabyCenter, it cost $348,418 to raise a child through college. $418,702 if the kid goes to a private school.
–The FBI has reopened the 1982 Tylenol poisonings case as it zeroes back in on James W. Lewis, long a suspect but convicted only of sending an extortion note to Johnson & Johnson demanding $1 million to “stop the killing.” “Advances in forensic technology” are being cited by the bureau’s Chicago office. Seven people died who took the cyanide-laced drug. When you read Lewis’ rap sheet, you forget just what a horrible person this guy was, regardless of his role in the case.
–Thanks to a reduction in driving, U.S. traffic deaths for the first 10 months of 2008 were down 10%.
–Ann Scott Tyson of the Washington Post had an interesting story concerning the number of injuries U.S. soldiers are suffering due to the weight of equipment they are carrying. “As injuries force more soldiers to stay home, the Army is having a harder time filling units for upcoming deployments to Afghanistan and Iraq, said Gen. Peter W. Chiarelli, the service’s vice chief of staff.”
“ ‘You can’t hump a rucksack at 8,000 to 11,000 feet for 15 months, even at a young age, and not have that have an impact on your body, and we are seeing an increase in muscular-skeletal issues,’ Chiarelli told reporters.”
What it all means is there is a call out for lighter body armor. Get this.
“Individual Marine combat loads – including protective gear, weapons, ammunition, water, food and communications gear – range from 97 to 135 pounds, well over the recommended 50 pounds, a 2007 Navy study found.”
In Afghanistan, soldiers often carry loads of up to 150 pounds.
–This is disturbing. As reported by Michael Hill of the AP, “A mysterious and deadly bat disorder discovered just two winters ago in a few New York caves has now spread to at least six northeastern states, and scientists are scrambling to find solutions before it spreads across the country.”
Why is this troubling? Because “if bat populations diminish too much, the insects and crop pests they eat could flourish.”
–It was a week of fire and ice. A volcano erupted near Tokyo, though with no major damage, while the worst snowstorm in 20 years crippled London and much of the rest of Britain.
–Speaking of Britain, city officials in the second-largest city of Birmingham have decided to drop apostrophes from all street signs, saying they are confusing and old-fashioned. Just another sign of the apocalypse, as well as the fact the world is peopled with idiots.
–You can’t make this up. “Police in Cleveland say a man called 911 because he felt he was in danger – then asked the dispatcher to hold on while he made a drug deal….
“Police said Alejandro Melendez called 911 late Saturday and reported that two men with guns were watching him.
“Police records show he hung up, so the dispatcher called back.
“Melendez answered and asked the dispatcher to hold on, but the dispatcher could still hear what was being said.
“A voice can be heard on the recording of the call saying: ‘What you need? A 10-pack? You need a 10-pack? All right.’” A 10-pack is slang for a bundle of heroin.
–Former Illinois Gov. Rod Blagojevich, who often acts as if he just injected a 10-pack himself, was all over the airwaves following his impeachment. I liked how David Letterman opened his segment with Blago. “Why exactly are you here, honest to God?”
–Goodness gracious. “A report claims that many of the top employees of the National Science Foundation spent long periods during their work day looking at Internet pornography,” according to USA Today and the Daily News. I feel dirty just typing this…moving along.
–Michael Phelps screwed up royally and his endorsement empire is at risk of crumbling following the revelation he was doing bong hits at the University of South Carolina. Phelps acknowledged his behavior was “regrettable,” but Kellogg’s nonetheless said it wouldn’t renew its sponsorship contract with Michael, seeing as we’ve never seen Tony the Tiger doing bong hits, come to think of it. USA Swimming also suspended Phelps for three months, but this will only impact one meet he was scheduled to compete in, though it does set the stage for a dramatic return in July at the world championship’s in Rome. You might see some ratings for this one.
–Happy 75th birthday to Hank Aaron. Kind of ironic in a week where we learned evidence appears to prove that the man who supplanted him as home run king, Barry Bonds, tested positive for steroids (though the judge in Bonds’ case may not allow the evidence in his upcoming perjury trial…drat!)
–45 years ago this week, the Beatles came to America, thus launching the British Invasion and the best period ever for rock and roll.
–It’s been an awful winter in much of the country, including here in New Jersey, but in a few days…it’s pitchers and catchers!
–I’ll be glued to the tube Sunday evening to watch the “60 Minutes” interview with Captain Chesley Sullenberger, our hero for the ages. The transcript and audio of US Airways Flight 1549’s final minutes are riveting, as he calmly told air traffic control, “We’re going to be in the Hudson.”
Not surprisingly, Virgin Atlantic CEO Richard Branson said he’d love to offer Sullenberger double his salary and make him one of the astronauts in Branson’s intergalactic spaceship company. “The man can write his own ticket with me,” said Sir Richard.
And you have to love how Captain Sullenberger, according to the New York Daily News, is “jittery about an overdue library book.” A book he took from the local Danville, Calif., library, on ethics, of all things, was lost. Officials at the library said Sullenberger called to tell them the book is in the cargo hold and could he get an extension and a waiver on overdue fees.
Sullenberger’s picture should be in all our nation’s elementary school classrooms. It would spur the kids\’ imaginations and sense of wonder.
Returns for the week 2/2-2/6
Dow Jones +3.5% [8280]
S&P 500 +5.2% [868]
S&P MidCap +6.4%
Russell 2000 +6.1%
Nasdaq +7.8% [1591]
Returns for the period 1/1/09-2/6/09
Have a great week. I appreciate your support.
Happy Birthday to my brother and Lamb in Command creator, Harry, who turns Johan Santana (well, Santana’s uniform number, that is).
*And I’ve received a number of notes over the past few months that some Wall Street firms are blocking this site. I’ll hold my comments, except to say try any of these addresses to be able to access S&N.
btwir.net, btwir.com, weekinreview.net
