For the week 7/20-7/24

Last week I pleaded, “So for crying out loud, Mr. President; would you slow down?! It’s not even a matter of being ideologically pure and thinking you’ll soak the rich to pay for all your social programs. It’s plain recklessness.” I then added that some of us were “placing our fates in the hands of the U.S. Senate, where it’s hoped cooler heads will prevail enough to rein in our leader and his worst intentions,” and wouldn’t you know, that’s exactly what happened…thanks also to the concerns of the fiscally conservative Blue Dog Democrats in the House.  

But as I go to post, there are other Democrats in the House who are bound and determined to circumvent the normal committee process and bring health-care legislation to the House floor for a vote this coming week, though the Senate is once again a different matter; something about it being the more deliberative body, you understand. At the end of the day, however, one thing was certain. President Obama’s chief policy goal, reforming health-care, had hit a major roadblock, and with it his entire agenda. 

Thomas DeFrank / New York Daily News 

“Six months into his historic presidency, Obama retains the benefit of the doubt with most Americans. They like his personal style and assign him Reaganesque leadership ratings. 

“ ‘People still trust the President to do his job,’ an Obama aide said. 

“For the first time, however, doubts are growing that Obama’s trillion-dollar stimulus is too glacial and may not be robust enough to cure the sick economy. 

“Some jittery Democrats, moreover, whisper that his legislative agenda – particularly an energy bill and the health care reform package – may be too ambitious for the end-of-the-year deadline Obama has imposed. 

“ ‘I’m nervous,’ a Democratic operative close to the Obama White House admitted. ‘He’s set the bar so high that if we don’t get energy and health care, the press will eat him alive.’ 

“Another prominent Democratic consultant echoes the yips from even some true believers. 

As DeFrank notes, while it’s too soon for such apocalyptic musings, “Obama’s polls have slumped as the euphoria of his inauguration gives way to the realities of governing and economic woes. Yet a clear majority still endorses his performance, and a recent CNN poll found 70% agree he’s a strong, decisive leader.” [Ed. this is different from his general approval ratings…more below.] 

Charles Krauthammer / Washington Post 

“What happened to Obamacare? Rhetoric met reality. As both candidate and president, the master rhetorician could conjure a world in which he bestows upon you health-care nirvana: more coverage, less cost. 

“But you can’t fake it in legislation. Once you commit your fantasies to words and numbers, the Congressional Budget Office comes along and declares that the emperor has no clothes. 

“President Obama premised the need for reform on the claim that medical costs are destroying the economy. True. But now we learn – surprise! – that universal coverage increases costs. The congressional Democrats’ health-care plans, says the CBO, increase costs on the order of $1 trillion plus…. 

“(The) Democratic health plans are collapsing under their own weight – at the hands of Democrats. It’s Max Baucus, Democratic chairman of the Senate Finance Committee, who called Obama unhelpful for ruling out taxing employer-provided health insurance as a way to pay for expanded coverage. It’s the Blue Dog Democrats in the House who wince at skyrocketing health-reform costs just weeks after having swallowed hemlock for Obama on a ruinous cap-and-trade carbon tax. 

“The president is therefore understandably eager to make this a contest between progressive Democrats and reactionary Republicans. He seized on Republican Sen. Jim DeMint’s comment that stopping Obama on health care would break his presidency to protest, with perfect disingenuousness, that ‘this isn’t about me. This isn’t about politics.’ 

“It’s all about him. Health care is his signature reform. And he knows that if he produces nothing, he forfeits the mystique that both propelled him to the presidency and has sustained him through a difficult first six months. Which is why Obama’s red lines are constantly shifting.  Universal coverage? Maybe not. No middle-class tax hit? Well, perhaps, but only if they don’t ‘primarily’ bear the burden. Because it’s about him, Obama is quite prepared to sign anything as long as it is titled ‘health-care reform.’ 

“This is not about politics? Then why is it, to take but the most egregious example, that in this grand health-care debate we hear not a word about one of the worst sources of waste in American medicine: the insane cost and arbitrary rewards of our malpractice system? 

“When a neurosurgeon pays $200,000 a year for malpractice insurance before he even turns on the light in his office or hires his first nurse, who do you think pays? Patients, in higher doctor fees to cover the insurance…. 

“Tort reform would yield tens of billions in savings. Yet you cannot find it in the Democratic bills. And Obama breathed not a word about it in the full hour of his health-care news conference. Why? No mystery. The Democrats are parasitically dependent on huge donations from trial lawyers. 

“Didn’t Obama promise a new politics that puts people over special interests? Sure. And now he promises expanded, portable, secure, higher-quality medical care – at lower cost! The only thing he hasn’t promised is to extirpate evil from the human heart. That legislation will be introduced next week.” 

But with all the above, Wall Street celebrated anew, in no small part because the president was not going to have his way on his wish list, at least without major input from the opposition (both from within and outside his party), and there’s nothing the Street likes better than gridlock, though that said there were other, fundamental reasons for the major averages finishing up 4% on the week, thus extending the two-week surge to 11%+, the best showing since 2000. 

Such as a real lack of bad news. Save for a few notable exceptions, like Microsoft, earnings continued to come in better than expected and even though the revenues were often light, there is simply the growing feeling that not only have we hit bottom, but that an actual recovery, modest as it may be, is in the offing and thus the top line, sales, is due to improve in short order. One thing seems clear for the second quarter’s reports thus far; Corporate America has been cutting costs to the bone so any added revenue can only flow through largely to the bottom line. Ergo, if you happen to fall in this camp you’re pretty positive on future returns.  Moi? I’m sticking, of course, to my overall prediction for 2009, up 20%-30% by year end, but refusing to comment on 2010 as yet. Frankly, getting through this year on the right side of the ledger is enough to worry about. And I keep looking at H1N1 and its potential to be a game-changer. Certainly the word out of the World Health Organization this week, as well as our CDC, wasn’t too encouraging. 

But for now, rejoice! Rallies are good! The news on the global front has also been better, particularly in Asia, where South Korea’s second quarter GDP rose a solid 2.3%. That’s a heck of an achievement, while regarding China, President Hu Jintao said the mainland would maintain its “relatively loose” monetary stance, though adding, “We still face a lot of challenges…and the foundations of economic recovery are not solid. (Thus) the direction of macroeconomic policy should not be altered.” [South China Morning Post] Separately, Hu stressed the need to maintain social stability, though at the same time urged officials to handle protests carefully. Of course this last point has different meanings in different countries, eh? 

As for Europe, it continues to limp along, but the data is less bad, such as in a manufacturing index for the eurozone that came in at 46.8 for June, better than expected and not far from the 50 dividing line between growth and contraction. June retail sales in the UK advanced a solid 1.2%. 

And not for nothing, but back in the States, did you see the June figure for the median price of an existing home, nationwide? It rose for a second consecutive month, climbing 4% in June over May to $181,800. Didn’t your editor predict, last year, that housing would bottom in the April-May time frame? Heck, in California the median price was up 7% in June over May. Actually, it’s too soon to declare victory on this one, and I’m also sticking with the opinion we just scrape along the bottom for a while.

[I’ve also been consistently saying that as bad as the commercial real estate picture is, and it’s dreadful, this does not in and of itself move markets like housing does. You and I don’t stand around outside talking to our neighbors about plunging strip mall or office building values. We do, however, talk constantly about the value of our own home and that’s why housing has been so critical…along with the labor market. Where the commercial real estate problems come into play is in you and I trying to get loans from our banks. The bigger the commercial exposure, the less likely they’ll be extending credit to the rest of us.] 

–Nasdaq’s winning streak ended at 12 sessions, the longest since 1992, but as noted above it was another solid week for all the broader averages. And so much for the adage, “Sell in May, go away.” The S&P 500 closed at 872 on April 30 and now sits at 979, up 12%. It helps that  over 75% of those reporting earnings thus far are beating on the bottom line. 

–U.S. Treasury Yields 

Yields across the board were as close to unchanged as I’ve ever seen, week to week, which is a bit of a surprise given the ongoing rally in equities that you might think would suck more money out of Treasuries. Keeping the 10-year below 4.00%, however, remains critical to reinforcing any rebound in housing. 

–Fed Chairman Bernanke, in congressional testimony, said the consumer remains the major issue and thus the jobs picture is also crucial; but then you already knew this. Owing to the fact he looks for a punk recovery, with a consumer continuing to retrench, Bernanke thus sees no reason to tighten rates “for an extended period,” and there\’s no imminent inflation. 

–The Centers for Disease Control and Prevention estimate that H1N1 could strike up to 40% of Americans over the next two years, killing several hundred thousand, or twice the number who get sick in a normal flu season. As I’ve said before it’s about sentiment as much as anything, and how the issue is handled by governments, the media and health-care providers as to the impact on our financial markets. I was thinking this week that I have to remind myself not to fall into a Y2K-type trap, where concern is unwarranted. But at the same time you can’t discount H1N1\’s potential by any stretch. The last thing we want to see are empty malls this coming holiday season. 

–California lawmakers finally struck a deal on the $26 billion deficit and at least the days of handing out IOUs could be ending, while the state sees improvement in its credit rating. In the coming days, though, cities and counties will learn exactly how much previously allocated revenue from the state they will be losing, thus exacerbating the crisis at the local level until the economy turns around. 

“Score one for California voters. In May they rejected a bipartisan budget deal that raised taxes and debt, and the political class screamed ‘disaster.’ This week Governor Arnold Schwarzenegger and Democrats in Sacramento agreed to spending cuts that Assembly Speaker Karen Bass admitted were once ‘unthinkable.’ 

“To close a $26 billion budget gap, the deal reduces spending by $15 billion, including in previously untouchable though bloated education and health-care programs. Democrats were even forced to implement welfare reforms that most of the rest of America put in place 15 years ago: a work requirement and a four-year limit…. 

“The budget is also a triumph for what it doesn’t do: raise taxes…. 

“California is still a long way from a sustainable balanced budget. About $10 billion of the savings are one-time shots, or gimmicks, so next year could mean confronting another $20 billion to $30 billion deficit…. 

“California will only generate more tax revenues through new businesses and jobs, and that will require a tax rate much lower than its top marginal rate of 10.55%. With 50% of Golden State income tax revenue coming from the richest 1% of residents, the state needs lower rates to avoid revenue boom and bust. The liberal obsession with income redistribution has destroyed California’s tax base. (Memo to President Obama, if he’s paying attention.) 

“All of which demonstrates what can happen when the political class has its credit-card pulled by the electorate. It’s a shame it takes a fiscal crisis for this kind of discipline to be imposed, and the victories here are a long way from permanent. But if Mr. Schwarzenegger can drive more tax and spending reform in his last year in office, he can vindicate the fiscal promises he made when he first ran for Governor.” 

–Commercial lender CIT was carrying $33 billion of debt in 2003 and by 2007 that figure was $55 billion as the company kept rolling out bonds that investors then snapped up. CIT then turned around and lent the proceeds at higher rates. Good business model, eh? 

Err, not when the economy turns, as the small- and mid-size operations that represented the majority of CIT’s customer base struggled…and collapsed. No different than a subprime lender, you could say. 

So PIMCO and the other leading holders of CIT’s paper put up $3 billion in financing but while the company still may tumble into bankruptcy, the bondholder group is fine because of collateral more than five times the amount of the loan. Yes, PIMCO et al negotiated a sweet deal. As analyst Sean Egan put it, “(The) terms would make a pawn-shop operator blush.” 

–Continental Airlines announced it would be laying off another 1,700 employees, including scores of pilots, while others in the sector issued dire reports. It’s about the international traffic, not as much domestic. I know my four CAL segments between Newark and Calgary the other week were all packed. The airlines have been cutting capacity and it’s worked. But the overseas traveler has pulled back in a huge way and the airlines, at the same time, can’t as easily eliminate flights because they risk giving up valuable gates. Business class travel in particular is getting slammed. In May, the International Air Transport Association said the other day that sales in this sector were off 24%. 

And back to Continental, since Gordon Bethune left the helm, the airline has been sliding backwards. I certainly have had far more issues in just the past three years than before. CEO Larry Kellner, who is stepping down Jan. 1, has not done a good job. I mean look at the quality surveys that CAL used to top under Bethune. Continental is nowhere to be found. I’ve also written in this space that Bethune would have been a terrific presidential candidate (or a superb Veep selection). You rock, Gordon! 

–In reporting that second-quarter profits fell 29%, eBay did note highly positive results from its PayPal unit, where revenues rose 11%. That was a brilliant acquisition. 

–As of Friday\’s close, Warren Buffett had a paper profit of in excess of $2 billion on his investment in Goldman Sachs’ warrants last September. Recall, Goldman agreed to sell Buffett $5 billion in preferred shares paying 10% during the crisis, plus warrants at $115. So remember how when the market was tanking last October and November (when Goldman shares traded down to $52), and then again in early March, everyone was criticizing the guy? ‘He’s lost his touch,’ they shouted. [Not me.] And remember last spring when I was writing how I kept thinking of John Templeton…and how fortunes are made at the bottom? 

–Following China’s tiff with Rio Tinto officials, iron ore bookings have surged between the mainland and Brazil. As reported by Reuters, “Vessel bookings from Australia’s main iron ore ports to China have collapsed to 12 so far this month from an average of 40 in the second quarter and a record 55 in March, (while) shipments from Brazil…have surged to a record 31."

–China continues to prove it is committed to clean energy in the long run as the Ministry of Finance announced the government would subsidize 50% of investments for solar projects, as well as the infrastructure associated with this. Analysts estimate this could draw in $10 billion in private funding. China-based solar stocks soared on the news. 

–Related to the above, though, a Bloomberg global survey found that 48% say climate change is a major threat, but 49% call it minor or no problem at all. In Asia, 61% say higher global temperatures are an important issue. 

–China’s Investment Corp., which manages some $200 billion of the country’s $2 trillion+ in reserves, acquired a minority stake in Diageo drinks group in a signal CIC is looking to diversify over not just global markets but different asset classes. 

–Car sales in Russia plunged 55% in the first half of 2009. And Russian retail sales fell for a fifth month in June, down a whopping 6.5% over a year earlier. 

–CalPERS, California’s massive public pension fund, has lost about a quarter of its investment portfolio, which means that the state and local governments and school districts will be ponying up even more to make up the difference, all at the wrong time. The actuaries say CalPERS needs an average annual rate of return of 7.75% to meet its obligations. 

–Deflation Alert: Norman Chan Tak-lam has been selected to become Hong Kong’s new chief executive of its de facto central bank, but at a compensation package that is 32% lower than that of the retiring CEO.  

–More than $142 billion surged into hedge funds over the past three months since the industry bottomed in March, bringing the total invested to $1.43 trillion, which is still far below the peak of $1.93 trillion. 

–New York’s Observer took a look at the 10 properties in the Big Apple that were listed at $45 million and above in late 2008 and only one has sold, while half have fallen off the market without a sale. One property, a penthouse at Trump Park Avenue, was originally listed at $51 million, then taken off the market, and is now back on for $31 million. Such a deal! 

–John Barry, who took a stodgy product, WD-40, and turned it into a staple of the American household, died at the age of 84. But as reported by Douglas Martin of the New York Times: 

“Mr. Barry was not part of the Rocket Chemical Company in 1953, when its staff of three set out to develop a line of rust-prevention solvents and degreasers for the aerospace industry in a small lab in San Diego. It took them 40 attempts to work out the water displacement formula. The name WD-40 stands for ‘water displacement, formulation successful in 40th attempt.” 

WD-40 hit the shelves in 1958, and it did okay, but it was Barry’s arrival in 1969 “that jolted the company to dominance in its unusual niche market.” Barry’s first act was to change the name of the company from Rocket Chemical to WD-40. 

This is interesting. Barry was so fiercely protective that he never patented the product, “in order to avoid having to disclose the ingredients publicly.” Sales increased from $2 million in 1970 to $91 million in 1990. 

And so the above forces me to talk about two issues that will forever haunt me in my life; one of which was doable, the other not so. 

A full decade before the first 50s/60s-type music revivals on Broadway, I had the idea of putting Petula Clark’s music on Broadway with a simple little story, a la “Smokey Joe’s Café” and “Jersey Boys.” We’re talking Broadway style music, lush orchestrations, plus terrific Carnaby Street costumes. [Sexy women, for starters.] I wrote Ms. Clark in London in the early 80s and never heard back. I should have camped out at her doorstep (or producer Tony Hatch’s). 

Second, and a total pipedream, I always wanted to own Tabasco Sauce, thinking I could market it like no other. Of course the McIlhenny family has done just fine on its own. Moving right along…. 

–We also note the passing of Gidget the Chihuahua, 15. Gidget starred in Taco Bell commercials, though never saw a penny of her earnings, which is a travesty. Trainer Sue Chipperton said, “She lived like a queen, very pampered.” Yeah, but Sue, where’s the money? [By the way, you want an example of how quickly time flies? The first commercial with Gidget was in 1997, and the last 2000. Nine years ago!] 

–Speaking of dogs, a vegan advocacy group called the Cancer Project says the Oscar Mayer and Nathan’s variety should carry warning labels because regular consumption of processed meat can increase the risk of colon cancer. Something tells me this campaign won’t get too far. 

–The New York Post reported that Bernie Madoff is doing surprisingly well down in Butner, N.C. While there were initial fears he would be beaten to a pulp, and this could still happen, “other convicts have no beef with Madoff and are even a bit impressed by him and the way he has handled himself since arriving” at the complex, according to an inside source. 

“Some of his fellow inmates, in fact, respect him for being a stand-up guy who pleaded guilty without implicating any of the other people strongly suspected of helping him pull off the fraud that swindled more than 1,000 people out of more than $65 billion over two decades.” 

Memo to the source: Watch your wallet. Memo to self: Don’t do anything in life that will place you with a bunch of jerks and dirtballs. 

–U2 is holding a series of concerts this weekend in Dublin, with 240,000+ expected to attend three performances in famous Croke Park. Of course Dublin is their home (though they now live in nearby Howth…an awesome spot on the coast). The economic impact on the local economy is huge, at least $80 million, which is probably a low-ball figure. 

But wait…there’s more. As Paul Tharp of the New York Post reported, “U2 front man Bono probably should put his mouth where his money is, as the rocker/investor appears to have broken one of the most basic rules of marketing – promote your own interests, not a competitor’s.” 

So I have to admit I’ve been watching Bono’s ads for the BlackBerry and not putting two and two together. I’ve long known he was a major investor in competitor Palm and never thought about this. [I hope I’m not the only one who missed it.] As Tharp notes, this could drag Bono into all kinds of lawsuits by fellow Palm investors, and it comes as sales of the new Palm Pre have plunged after a successful initial launch, like “from 140,000 in its first week to barely 22,000 in its sixth week, according to JNK Wireless Consultant iGR.” 

–Apple’s revenues were up 12% for the quarter as it sold 5.2 million iPhones.  

–Yahoo’s ad revenue was down 13% for Q2, this after Google had previously reported its similar revenues were up 3%. 

–Yikes…the British Beer & Pub Association (ye olde BBPA), said the rate of pub closures is accelerating, “with 52 going out of business every week at a cost of 24,000 jobs over the past year,” as reported by Rebecca O’Connor of the London Times. [Love that name.] “2,400 pubs and bars have vanished from villages and towns in the past 12 months” as more and more, people decide to drink at home rather than go out to imbibe. Of course this is due in no small part to the recession. Very sad. 

–Mike Anton / Los Angeles Times 

“He’s a war hero who became a media mogul, celebrity pitchman, pop icon and philanthropist. He’s so famous he was given his own ZIP code, 20252, to handle the fan mail. He is 65 years old but has no intention of retiring. In fact, he looks fitter than ever. 

“Smokey Bear was born in August 1944, sired by a committee of ad men and government bureaucrats hoping to safeguard a key war material: wood. Smokey today remains the face of the longest-running public service campaign in U.S. history – a simple message delivered by an anthropomorphic bear.” 

Iraq: There was a disturbing report in the Washington Post, on how much the environment has changed since the June 30 deadline for U.S. troops to withdraw to bases outside the major urban areas, save a few units. Cooperation with Iraq’s top commanders suddenly ceased on July 2 and the Iraqis have placed severe restrictions on American activities, which were to include an ongoing war against the terrorists in country. 

The Iraqi order runs “contrary to the spirit and practice of our last several months of operations,” Maj. Gen. Daniel P. Bolger, commander of the Baghdad division, wrote in an e-mail obtained by the Washington Post. “Maybe something was ‘lost in translation,’” he added. “We are not going to hide our support role in the city.” 

Bolger also noted: “Our [Iraqi] partners burn our fuel, drive roads cleared by our Engineers, live in bases built with our money, operate vehicles fixed with our parts, eat food paid for by our contracts, watch our [surveillance] video feeds, serve citizens with our [funds], and benefit from our air cover.” 

But Ralph Peters comments from his perch at the New York Post: 

“We need to be the patient grown-ups in this situation. Iraqis are struggling to reconstruct an identity they can live with – after nearly half a century of dictatorship, wars, failure and humiliation. Think of them as young adults asserting their independence from mom and pop. 

“Iraqi security forces fall short in many respects. They’ll never be as good as ours. But they’re willing to step up and take responsibility for their own country – and that’s been our goal. Perhaps we shouldn’t complain too much.” 

Afghanistan: Last weekend, in an interview with the Los Angeles Times, Defense Secretary Robert Gates conceded that Americans’ patience with the war here was not unlimited, saying U.S. forces must begin to turn the situation around in the next year or face the loss of public support. “After the Iraq experience,” said Gates, “nobody is prepared to have a long slog where it is not apparent we are making headway. The troops are tired; the American people are pretty tired.” 

The problem isn’t just in the United States. As casualties hit record levels this month, with a week to go, support with our key allies Britain and Canada is waning. By a 43-50 margin, Canadians favor continued deployment, while the margin is 46-48 in Britain, so a line has been crossed. [A majority of Americans are still behind the effort, but this, too, is falling.] 

As of Friday, 63 NATO forces had been killed in Afghanistan, with a record 35 U.S. and 19 Brits. In addition, six aircraft have gone done, though it appears none were by way of hostile fire (as best as I can determine from my extensive readings). The Obama administration remains committed, however, to increasing the level of U.S. forces to 68,000 by year end, while Sec. Gates is increasing the size of the army overall by 22,000 due to the pressures in both Iraq and Afghanistan and his own desire not to keep soldiers beyond their enlistment dates. 

[Meanwhile, Pakistani officials are increasingly irritated at the surge in Afghanistan because they complain it is forcing the Taliban back into provinces such as Baluchistan, where the Pakistani military is at a disadvantage. Government policy also remains focused on India, not the Taliban, because Pakistan still sees the Taliban as a potential ally in any fight with India…and therein, friends, lies a huge ongoing problem for us. Plus isn’t it amazing that Mullah Omar is still around, forgetting bin Laden and Zawahiri? According to the New York Times’ Eric Schmitt and Jane Perlez, we know he’s in Quetta (which the Pakistani government denies) but the military protects him for the aforementioned reason; a potential battle with India. As for bin Laden, there were reports his son, Sa’ad, was killed by a U.S. missile strike in Pakistan earlier in the year, with U.S. intelligence officials being “80-85%” certain, adding he was not the intended target.] 

Iran: Secretary of State Hillary Clinton said both Iran and North Korea would face severe consequences if they don’t abandon their nuclear weapons programs, warning that Iran’s “nuclear clock was ticking.” Then she said: 

“If the U.S. extends a defense umbrella over the region, if we do even more to support the military capacity of those in the Gulf, it’s unlikely that Iran will be any stronger or safer because they won’t be able to intimidate and dominate as they apparently believe they can once they have a nuclear weapon.” 

An Israeli official, Dan Meridor, then noted that Sec. Clinton’s words signaled the U.S. was resigned to Iran having the bomb. “This is a mistake. I think it would be more appropriate not to accept the premise that Iran has turned nuclear but to try to prevent this.” 

In Iran itself, President Ahmadinejad battled it out with allies over his appointment of Rahim Mashai to be first vice president. As the head of tourism and cultural heritage last year, Mashai had angered hardliners when he said Iranians were “friends of all people in the world, even Israelis.” So you’d think Ahmadinejad would have a problem with the man, except Mashai’s daughter is married to the president’s son. Supreme Leader Khamenei told Ahmadinejad to dismiss Mashai and the president defied the Ayatollah. Very strange, seeing as the president is already under the gun after the rigged election, but in the end Khamenei did win out and Mashai is gone.

Speaking of relatives, the wife of opposition leader Mousavi said her 62-year-old brother was among those detained after last month’s election; this as Ayatollah Khamanei warned government opponents to end their protests. 

Israel: Diplomats told the Associated Press that Iran’s uranium enrichment program will yield enough material to test a nuclear bomb within six months, though the consensus appears to be it’s about the capability, not necessarily the intent, and herein lies the key debate. 

Evidently Sec. of Defense Gates is heading to Israel this coming week for talks on Iran’s nuclear program, according to the Jerusalem Post. Gates’ message will be that Israel needs to take into consideration its relationship with the U.S. in any attack on Iran. A defense department official told the Post: 

“A unilateral third-party attack on Iran’s nuclear program could have profoundly destabilizing consequences, and it wouldn’t just affect the general level of stability in the region. It would affect Israel’s security and it would affect our interests, and the safety of our forces in Afghanistan and Iraq and elsewhere.” 

The Washington Times reports that Israel hasn’t asked the Obama administration for permission for a possible strike out of fear the White House would say no. 

Separately, a joint U.S.-Israeli missile-defense test was aborted, not exactly the kind of message you want to be sent as to the reliability of Israel’s defenses against an Iranian attack. 

And Prime Minister Netanyahu last Sunday told his Cabinet there would be no limits on Jewish settlement construction anywhere in “unified Jerusalem.” “We cannot accept the fact that Jews wouldn’t be entitled to live and buy anywhere in Jerusalem.” The international community considers Jewish neighborhoods in East Jerusalem to be settlements and an obstacle to the peace process. Israel says, sorry, they are not settlements. 

Lebanon: The new government of Saad Hariri continues to have troubles in dealing with Hizbullah and Sheikh Nasrallah, who said this week that he wasn’t looking for guarantees on the militia’s arms, though he insists on “real participation” in the cabinet, and he’s urging the Lebanese people to continue to support the “resistance” against Israel. I don’t have a good feeling on this one, after the initial positive vibes following the June vote. 

North Korea: Pyongyang said it would not re-enter six-party talks to end its nuclear program. Appearing at a regional conference, Sec. of State Clinton said, “North Korea’s response (to calls to dismantle its program) in turn has been more threatening behavior.” Earlier Clinton likened the North Korean leadership to “small children” demanding attention. To which the North’s foreign ministry released a statement saying “We cannot but regard Mrs. Clinton as a funny lady as she likes to utter such rhetoric, unaware of the elementary etiquette in the international community. Sometimes she looks like a primary schoolgirl and sometimes a pensioner going shopping,” adding her comments “suggest she is by no means intelligent.” 

Ouch! Was that a knock on her pantsuits? But were I editing the statement, I would have said “Mrs. Clinton is a funny lady with a devious laugh.” 

On another matter, Clinton said the U.S. is increasingly concerned Pyongyang is transferring nuclear technology to Myanmar, for some good heroin, no doubt (I mused). 

Russia: So you know how I have been focusing on Chechen leader Ramzan Kadryrov, including last weekend? The Sunday New York Times had a story on the character, reporting, “Human rights groups have laid the blame for the bulk of the disappearances, and the killing of (Natalia) Estemirova, squarely at the feet of the regional president, Ramzan Kadyrov, and his security forces.” One fellow activist said, “Everybody calls him a small Stalin. He is getting rid of political rivals and independent voices.” Of course the Kremlin denies this is the case, and recall that Kadyrov can thank Vladimir Putin for his position. 

Mark Franchetti of the London Times reported that Estemirova was once told by Kadyrov, “You must understand there’s no place for you here. Yes, my hands are covered in blood. I’m not ashamed of it. I killed and will kill bad people. We are fighting Chechnya’s enemies.” 

On the issue of Ukraine and Georgia, Vice President Biden visited both and had different messages for each. While expressing his support for democracy, he told Ukraine to get its act together, politically, and on the energy front, while telling the Georgians, “America is with you – period – on the notion that your territorial integrity is recognized,” adding Abkhazia and South Ossetia remain part of Georgia. But he didn’t mention Russia by name and was firm that the United States would not rearm Georgia. It’s interesting that Georgians greeted Biden warmly, while Ukrainians were indifferent to his visit. 

For their part, Russian Deputy Foreign Minister Grigory Karasin said, “We are deeply concerned by the activities of the Georgian leadership to remilitarize the country, which some states are responding to in a surprisingly calm and even positive way,” referring to the likes of the Czech Republic, Poland and Bulgaria who have been shipping Russian- or Soviet-made arms to Tblisi. 

India: Sec. of State Clinton, in a rush of activity after being dormant since the end of her presidential campaign (it seems), spent five days in India and the two countries agreed on a number of defense and nuclear cooperation deals, but when it came to climate change and embracing a low-carbon future, India said, ‘Sorry, Hillary. No go.’ India’s environmental minister told Clinton, “There is simply no case for the pressure that we, who have among the lowest emissions per capita, face to actually reduce emissions. And as if this pressure was not enough, we also face the threat of carbon tariffs on our exports to countries such as yours.” To which Clinton responded, ‘Well excuuuuse me!’ [Actually, I don’t have a clue what she said.] 

Italy: Prime Minister Silvio Berlusconi’s approval rating has fallen below 50% because of the tales of his affairs, which were further enhanced by release of a purported sex tape with the rather attractive 42-year-old Patrizia D’Addario, who says to the 72-year-old Berlusconi, “You know how long it has been since I had….” [oops, not appropriate for this space. I’ll have to leave it for another column I have something to do with.] 

Japan: Prime Minister Aso dissolved parliament as prelude to national elections slated for Aug. 30. In one poll, 56% favor the Democratic Party vs. just 23% for the ruling LDP. Another poll has it 49-22. The LDP has held the majority in the lower house for basically the past 50 years, and have been pro-U.S. during this time, while the Democrats favor a more independent stance from Washington, as well as a more aggressive military posture, including a more active role in peacekeeping missions. [The leader of the party winning the parliamentary election will be the next prime minister.] 

South Africa: One of my predictions for 2009 was that this country would devolve into chaos, but the transition to President Jacob Zuma was running smoothly…until this week, when violence erupted in a number of townships because the government is failing to deliver promises of aid for the poor. This doesn’t help promote the nation for the upcoming 2010 World Cup. Zuma vowed to crack down on rioters, with the big issue being attacks on foreigners; his first test. 

Honduras: Deposed President Zelaya is determined to return as he crossed into the country from Nicaragua on Friday, only to retreat when met with force. Acting President Micheletti has threatened to arrest him. This could get real ugly as sanctions also begin to bite.

–In watching President Obama’s press conference Wednesday night, he was asked to respond to the incident in Cambridge with Harvard Professor Henry Louis Gates Jr., where Gates was arrested for disorderly conduct at his home; charges that were quickly dropped amid the media din that ensued. Obama started out that he did not know all the facts, and in that split second before he continued, I was thinking, ‘Good …avoid this one.’ But the president instead said, after acknowledging that Gates was a good friend: 

“I think it’s fair to say, number one, any of us would be pretty angry. Number two, that the Cambridge police acted stupidly in arresting somebody when there was already proof that they were in their own home. And number three – what I think we know separate and apart from this incident – is that there is a long history in this country of African-Americans and Latinos being stopped by law enforcement disproportionately, and that’s just a fact.” 

At which point if there was a camera on me, you would have seen an incredulous look on my face. I immediately thought: 

‘Why didn’t you just say, “Professor Gates is a good friend of mine, and while I heard of the incident, I simply do not know all the facts but when they do come out, I’ll decide at that time whether it’s appropriate to comment further. Hopefully it was just a big misunderstanding.” 

This is not a little story. This is the kind that will stick in the craw of many segments of white America. I think the arresting officer, Sgt. James Crowley, has thus far handled the situation beautifully. Assuming he’s right with his version of the facts, I sure as hell wouldn’t apologize for anything. If the independent panel does find Crowley didn’t follow proper procedure, much of which he established himself for the department, then the best thing that could happen would be for the two of them, Gates and Crowley, to appear together, admit both could have handled themselves a little better, shake hands, smile, and move on. I’d also allow Gates to make a harmless statement at that point on how he’d be glad to be part of a committee looking into police relations with the minority community “in the spirit of cooperation and to try to limit such issues in the future, recognizing that law enforcement, first and foremost, has to fulfill their mission of keeping the citizens safe.” 

By the way, I have Gates’ superb book, “Africana,” on my office bookshelf and have used it frequently for other columns on the site.  But guess who can benefit from this incident and the handling of it?  Hillary Clinton! 

Peggy Noonan, in her Journal op-ed last Saturday (pre-Obama screw-up) said this about Clinton and her tenure in the State Department thus far. 

“Mrs. Clinton is in a different position now. By spring it must have become apparent to her that when the nice new president came and offered her the secretary of state job, and she said yes, she got rolled. What he got was clear: He took her off the chessboard. She wouldn’t be in the Senate being a counterforce, wouldn’t be planning her next move or become the rallying point of anti-Obama Democrats. She’d be on board, part of the team and invested in the administration’s success, for now its success would ensure her future. If their relationship didn’t work, nobody would think it was his fault. 

“What she would not have known was that she would be a public face of American diplomacy – not the face but a face – and not a decisive inside power. The portfolio for key areas – Afghanistan, Pakistan, the Mideast – was day by day given to others. She was sent off to do interviews on ‘Good Morning Manila.’ In a foreign-affairs apparatus of clashing egos, she’d be just another ego. A Henry Kissinger or George Schultz would never have allowed this. She didn’t even go to the G-8 or the Russia meeting. President Obama, that canny fellow, only wants Obama in the room. It is true she broke her elbow, but they make it sound like a farming accident where her elbow was torn off from her arm as she fed the thresher. Tina Brown wrote a witty column saying Mr. Obama should let Hillary out of her burqa. 

“But you know, one thing Mrs. Clinton’s learned is how to wait. Things turn on a dime, you wake up in the morning and there’s a new headline that changes everything. Sooner or later Mr. Obama is going to get in trouble, sooner or later the trouble will take hold and settle in, and sooner or later she will be the unsullied one who quietly did her duty in spite of the slights to which she’s been subjected. And when that happens, she will emerge – reluctantly, painfully – as the Democratic alternative. The one who almost won, who knew – who learned the hard way – that you can’t do everything all at once, that it’s the economy, stupid. 

“They will look like kids playing with history. Hillary isn’t a kid. She’s experienced, and has been roughed up by history. Watch. She’ll roll right back.” 

Talk about prescient!  But little did Ms. Noonan know that Obama’s Waterloo may not be health-care, but an incredibly stupid comment that offends a lot of his white supporters.

The French now give the U.S. a 75% favorable mark. Merci, mon frères. The Brits are at 70%, with similar readings in the other nations comprising Old Europe. 

But…as reported by Matt Spence of the London Times, “Obama’s Cairo address to the Muslim world last month did little to change opinions towards the U.S. among its target audience. 

“Turkey, Egypt and Jordan had mainly insignificant gains in positive sentiment towards America, but attitudes towards the U.S. in those countries remain at abysmal levels. 

“The one place where the Cairo speech did seem to have an impact was Israel. Pew found that U.S. favorability ratings slipped 13 points after the address. In the Palestinian territories only 5% warmed to America.” 

–Back home, President Obama’s overall job approval was 55% in both the USA TODAY/Gallup survey as well as AP-Gfk; 59% in the Washington Post/ABC News poll. But in the USA TODAY one, by a 56-44 margin folks disapprove of Obama’s handling of health-care, and that\’s only going to get worse.

–Update: After all I wrote on the topic last week, the Senate did vote to kill further funding for the F-22 fighter jet by a 58-40 margin, a good thing. But President Obama made way too much of the victory, seeing as we are talking savings of just $1.75 billion and the budget deficit for fiscal 2009 will approximate $2 trillion. 

–Back in the day, when I was a wee tyke in elementary school in New Jersey, we were taught the official state song (or unofficial…can’t remember…this was pre-Springsteen after all) and the chorus went like this: 

I’m from New Jersey and I’m proud about it, I love the Garden State.
I’m from New Jersey and I want to shout about it, I think it’s simply great. 

Eegads. While there are a few things to love about my state, like its proximity to New York City and an underrated shoreline, as well as some bucolic rural areas, otherwise, New Jersey simply can not suck enough. 

And so it came to pass that on Thursday, a staggering 44 public officials and rabbis in New Jersey and New York (three or so in the latter) were rounded up in a sweeping corruption probe involving extensive money-laundering. Among those charged was Hoboken’s new mayor of less than four weeks, Peter Cammarano, 32. Recall that previously about 120 public officials had already been convicted of corruption in the Garden State in just the past few years, with current Republican gubernatorial candidate Chris Christie having been responsible for much of this work when he served as U.S. attorney.   

Cooperating witness Solomon Dwek is the man to thank as, incredibly, he posed as a developer and went around getting all these folks on tape. And, yes, now Christie has something else to hold over Gov. Jon Corzine’s head, especially since one of Corzine’s own officials was one of the gang of 44.  You’ve got to love Corzine, railing against corruption in his first statement following the arrests, even as many of us couldn’t help but think back to how he buys his own elections by dropping buckets of cash into the coffers of the state’s black ministers, as well as handing out an inordinate amount of “walking around money” to Joe and Shirley Schmo. 

–Speaking of corruption, even the New York Times’ editorial board blasted Pennsylvania Democratic Congressman John Murtha the other day. 

“One of the most favored insiders in Representative John Murtha’s rich churn of defense earmarks has pleaded guilty to criminal charges, shedding light on a twisting, pay-to-play money trail. The contractor, Richard Ianieri, admitted taking $200,000 in bribes from another big defense contractor in the Murtha orbit, and is cooperating with investigators. 

“ ‘What’s that got to do with me?’ commented Mr. Murtha, who previously lavished praise and tens of millions of dollars in contracts on the two companies caught up in the criminal investigation.” 

Obviously, a lot. The Times concludes: 

“Beyond the criminal investigation, a full-scale ethics inquiry should be pressed by House Democrats and Speaker Nancy Pelosi. If not, the Murtha money trail could lead them back to the minority.” 

–In the latest Washington Post-ABC News survey, 53% of Americans view Sarah Palin negatively, only 40% positively, her lowest level since she first appeared on the national stage. But, and this continues to baffle me, 70% of Republicans view her in a positive light. 

At the same time, 57% say Sarah does not understand complex issues, while 37% think she does. [Even 40% of Republicans say she does not understand them.] 

Meanwhile, not that this means anything at this point, overall, Mike Huckabee leads the 2012 race among GOP prospective candidates with 26%, followed by Mitt Romney at 21% and Palin at 19%. Newt Gingrich garners 10%. In other words, my fellow Republicans, we are in deep, deep merd. 

–Kathleen Parker / Washington Post on Walter Cronkite. 

“Walter Cronkite became the most trusted man in television precisely because he seemed so grown up. The CBS anchor was a pillar of maturity, reliability and unemotional accountability – just the sort of fellow who could sell you a tin of coffee by simply taking a sip. 

“During a bumpy time in our nation’s history, he filled a psychic need for order amid chaos. By showing up every night at the same time, same place – speaking simply and without drama – he conveyed a sense that someone was in charge. 

“Our nostalgia for his passing isn’t only for the death of a familiar and mostly admired individual, but also for a certain kind of man – an iconic reminder of a time when fathers knew best and the media were on the home team.” 

–We haven’t had a 90-degree day here in the New York City area since April, and I haven’t turned on my AC in the interim. [Sorry to rub it in for my Texas and Arizona friends.] As a result, I’ve been saving about $300 per month, May-July. 

–No doubt you want to be careful what kind of domestic beer you drink in China. Check this out…from the South China Morning Post: 

“Guangzhou Mayor Zhang Guangning and his Foshan counterpart Chen Yunxian led 2,000 people in yesterday’s fourth annual swimathon in the Pearl River, which looked anything but clean. 

“Gu Shiyang, deputy secretary general of the city government, admitted on Wednesday that the water was still not suitable for swimming despite repeated pledges to improve it. 

“The city’s environmental protection watchdog said the water quality was rated ‘level four,’ which meant it was fit for factory use – but not for swimming.” 

And they swam anyway! Good lord. So, again, if you see a beer that has on the can, “Made with the finest Pearl River water….” you may want to opt for Budweiser instead. 

–I have to admit, if I was registered to vote in New York City, I’d be tempted to pull the lever for the Naked Cowboy this fall, the guy having announced he was running for mayor. I think I noted the last time I was in Gotham that I saw him at his perch in Times Square and he can’t help but bring a smile to your face. You talk about an entrepreneur. Good for him. The tourists are lined up for a full block when he’s on duty, having their pictures taken, and assuming he has no problem actually getting on the ballot, he could get a full 2%.  

–Frank McCourt, the author of Angela’s Ashes, passed away at the age of 78. 

“Worse than the ordinary miserable childhood is the miserable Irish childhood, and worse yet is the miserable Irish Catholic childhood.” 

Angela’s Ashes had an initial print run of just 25,000, only to sell a million…and then some. 

–Joe Biden, in Ukraine, made an unscheduled stop at an Irish-themed pub in Kiev (good for you, Joe…though he had a Coke), and was overheard saying to President Yushchenko, “(The women in Ukraine) are the most beautiful in the world.” 

Darn tootin’, Mr. Vice President. Might as well get myself in trouble, too, so my own international, non-U.S., ranking has it…. 1. Slovenia 2. Ukraine 3. Russia (Moscow). 

–Last Saturday morning as I went to post, I considered ending by saying “Good luck, Tom Watson,” but thought otherwise of it, not wishing to jinx the man, especially with 36 holes to go. Oh well. 

Lynn Truss / London Times 

“At around 6:20 pm [local] yesterday, the veteran American golfer Tom Watson stood over a putt on the 18th hole at Turnberry.   He was winning. His ball was about 8 feet from the hole. If he sank the putt, he would complete one of the most extraordinary – and unlikely – of sporting achievements. 

“At the age of 59 he would win the 138th Open Championship, having won five of them already….He would be the oldest man by more than a decade to accomplish this feat. To do this would not just be remarkable, or a little bit interesting. It would be absolutely phenomenal…. 

“Naturally, a lot of people wanted to see him make that putt. But he didn’t. He missed. And never has the difference between winning and losing been made more graphic than when that ball slid past the hole. 

“Within an hour and a half, after a rather tragic four-hole playoff against a steady Stewart Cink, Tom Watson was receiving a standing ovation from the crowd as runner-up, and smiling a brave, generous smile, while umpteen records – records that had braced themselves for smashing – suddenly discovered themselves to be safe and sound and unsmashed after all.” 

–The U.S. Air Force, responsible for safety at Cape Canaveral, believes that Ares, the new rocket that NASA plans to use to launch man back to the moon by 2020, “has design flaws that would condemn astronauts to death should the rocket explode, as their escape parachute would be melted.” [London Times] 

–Buzz Aldrin, on the 40th anniversary of man landing on the moon. 

“Apollo 11 is a symbol of what a great nation and a great people can do if we work hard, work together and have strong leaders with vision and determination.” 

“In any era, extending humanity’s reach is always the hardest thing a society does. We stretch ourselves, and what we learn yields broad benefits. Our solar system is the new frontier; its exploration and exploitation will benefit those who take the lead in pursuing it. 

“What kind of people are we? That is the most important question we face. Are we explorers, pioneers and leaders, or will we sit back and watch others assume those roles? Are we to focus solely on immediate problems, allowing the future to happen to us, or do we want to create that future? 

“If we no longer understand the importance of defining, occupying and extending the human frontier, we can be assured that others do. Russia is building a new lunar-capable manned spacecraft, China continues to pursue a methodical, carefully crafted human spaceflight program, and India is planning to join the club in 2015. We should wish them well. But we must be there too. No one can wrest leadership in space from the United States. But we can certainly cede it, and that is the path we are on. 

“At this 40th anniversary of Apollo, we need to ask ourselves a simple question: Do we want to have a real space program, or do we just want to talk about what we used to be able to do?” 

Pray for the men and women of our armed forces, and all the fallen. 

Returns for the week 7/20-7/24 

Returns for the period 1/1/09-7/24/09 

Have a great week. I appreciate your support. 

While if you’ve read this far you aren’t likely to want to listen to my podcast, it being just a rehash of the opening of the column, don’t forget it’s available…posted around 9:00 a.m. ET when I’m in town.