I recognize I riled a few people up with my thoughts on Iran and Israel, and the threat to our financial markets last time, but before I expound further on the topic, some thoughts on the economy, as well as the dollar and health care.
The rally on Wall Street continued, thanks to more solid evidence that the global recovery is gaining steam. We didn’t need Federal Reserve Chairman Ben Bernanke to tell us that the recession is over, as he did this week, because it’s been long apparent the economy will have grown in the third quarter. The issue is how strong the recovery will be and will it be sustainable and at least here it was important to have Warren Buffett tell CNBC that there will be no double-dip recession, barring a geopolitical nightmare, of course. Buffett also averred that many of the toxic assets have already been flushed through the system, a significant positive.
This week we had a report on August retail sales, up a far better than expected 2.7%, the best pace in three years, while industrial production for the same month increased 0.8% and August housing starts rose.
On the inflation front, the core figures for August producer and consumer prices came in at a tame 0.2% and 0.1%, respectively, with the core CPI now down 1.5% over the past 12 months. To beat a dead horse, my attitude hasn’t changed when it comes to inflation. Until you can show me wage and pricing pressures, don’t waste my time. We are a long ways off from either.
The big picture on the economy, however, continues to be all about the consumer, first and foremost, and despite the pick up in August retail sales, fueled in no small part by cash-for-clunkers, consumer spending will remain punk until the labor outlook brightens. In California, for example, while there are distinct signs the recession is over there as well, the jobless rate hit 12.2%. It’s no wonder that with examples like this, savings rates continue to rise as well.
But confidence is beginning to return thanks to the powerful rally on Wall Street, and on Thursday, the Federal Reserve reported that the net worth of American households grew in the second quarter for the first time since the recession began in December 2007. As of this past March, $11 trillion in Americans’ net worth had been wiped out but with stocks rallying big in the second quarter, and now up more than 50% since March, coupled with a firmer housing market and shrinking household debt, our balance sheets look a bit better ($2 trillion better, to be exact), and it’s a question of when, not if, as to a return of the consumer.
Yet one year after the financial crisis began in earnest, where do we really stand? While there is little doubt the worst is over, assuming you’re still employed, at the same time the credit windows are still shut and some would argue many banks remain in deep trouble. Nobel Prize-winning economist Joseph Stiglitz argues:
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger. The problems are worse than they were in 2007 before the crisis,” he told Bloomberg News.
“We aren’t doing anything significant so far (in terms of reform and regulation of financial markets) and the banks are pushing back. It’s an outrage,” Stiglitz says, especially “in the U.S. where we poured so much money into the banks. The administration seems very reluctant to do what is necessary.”
“We’re going into an extended period of weak economy, of economic malaise.” The U.S. will “grow but not enough to offset the increase in the population.” And “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
Trader and author Nassim Taleb agrees with Stiglitz, telling the New York Times that the system has grown riskier because extensive government support leads investors to believe government will always prevent major banks from collapsing. Cheap money is allowing the institutions to then make risky loans and trades. “The banks will keep the profits when their bets pay off, while taxpayers will swallow the losses when the bets go bad and threaten the system.” [The definition of ‘moral hazard.’]
Yes, there are still issues out there, and another one will be highlighted at the coming G-20 Summit in Pittsburgh, that being protectionism.
President Obama’s timing on the slapping of a 35% tariff on Chinese made tires could not have been worse, but, it is true that China has been doing some dumping despite their shrill calls of “rampant protectionism” on the part of the U.S. China stretches the rules in all manner of areas.
[China exports 3Xs more to the U.S. than it imports from us.]
But in this instance China has thus far adopted a grown-up attitude as it said it would take its complaints to the World Trade Organization. Good. That’s what the WTO is for.
[As to the timing of Obama’s move, I just wish he had held a face-to-face with the Chinese at the UN prior to his decision. Instead, Obama was about to address the AFL-CIO and it was pure politics.]
Protectionism worldwide would of course kill off any recovery as we’ve all learned our history lessons on this one. The signs are troubling but not worth panicking over as yet. I’m just convinced cooler heads will prevail with so much at stake.
Speaking of China, foreign direct investment in August rose 7%, a big plus, and the stock market here had rallied back 16% off the lows before a pullback Friday.
In the U.K., commercial real estate rose in August for the first time in more than two years, but retail sales were flat for the month.
On the dollar front, last week I said the topic bored me, as well as gold, thus upsetting a few of you. My bottom line is pretty simple. I do not see the dollar collapsing. In fact I see it rallying, thus negatively impacting gold at the same time, as well as other commodities. Should we have a trade war, however, then all bets are off. In the meantime, a falling dollar is not only good for U.S. exports, but it can also benefit foreign investments in stocks and bonds. As for gold, it’s both the public and speculators moving it these days.
So…who wants to talk about health care? I saw a number of surveys of doctors this week, with most being split 50/50 when it comes to the seemingly dead public option and/or expanding Medicare to cover younger folks. What seems clear, though, is that any bipartisan deal in Congress is officially out with release of the Baucus plan, Sen. Max Baucus (D-Mont.) having finally put forward the Gang of Six’s efforts, though without the support of the three Republicans.
But President Obama may yet get something to sign by year end, though only if two simple questions get answered.
How does health reform not add to the deficit, and how will it slow the rate of health cost inflation? Until those two issues are answered, and the president hasn’t come close to doing so yet, only then can you proceed to talk about the drastic cuts to Medicare that must be enacted or the plan makes zero sense. Then you move on to the costs to employers and employees, etc.
Robert Samuelson / Washington Post
“Obama’s selling of ‘reform’ qualifies as high-class hucksterism, but in fairness, many conservative opponents match or exceed his exaggerations and distortions with low-class fear-mongering.
“These critics charge that Obama would curtail Medicare benefits or create ‘death panels’ to deprive ill seniors of desirable care. Not only are these charges mainly false (as Obama says), but they wrongly suggest that we put some important subjects off-limits. Medicare represents one-fifth of personal health spending. Why shouldn’t we debate what should be covered and who should pay? Similarly, doctors, patients and families should discuss end-of-life care. It’s not just that 25 to 30 percent of Medicare spending occurs in patients’ last year. Expensive, heroic care often compounds suffering.
“The candor gap reflects a common condescension. One side believes it must fool Americans into thinking ‘reform’ will do more than it will; the other thinks it must frighten Americans into believing that it will harm them in ways that it won’t. Given Americans’ contradictory expectations, any health-care proposal can be criticized for offending some popular goal. We refuse to face unavoidable – and unpleasant – choices.”
And now the elephant in the room…Iran. Last week I reiterated that as bullish as I have been on the year in terms of equities, a position from which I haven’t deviated, “barring a positive development (on the Iranian front) in the next 3-4 weeks, I’ll be pulling the trigger on my prediction for year end market returns.”
I have not as yet, but I ask you, what happened this past week that would have caused me to change my mind? Nothing.
While Iran agreed to hold “constructive talks” with the Group of Five plus one (the United States, France, Britain, Russia, China and Germany), President Ahmadinejad continued to say he would not discuss Iran’s nuclear “rights.”
Then the Associated Press got hold of the confidential report from the International Atomic Energy Agency that has been withheld by Chief Mohamed ElBaradei and it reveals that IAEA experts believe Iran “has the ability to make a nuclear bomb and worked on developing a missile system that can carry an atomic warhead.”
“The IAEA’s assessment that Iran worked on developing a chamber inside a ballistic missile capable of housing a warhead payload ‘that is quite likely to be nuclear.’
“That Iran engaged in ‘probable testing’ of explosives commonly used to detonate a nuclear warhead – a method known as a ‘full-scale hemispherical explosively driven shock system.’
“An assessment that Iran worked on developing a system ‘for initiating a hemispherical high explosive charge’ of the kind used to help spark a nuclear blast.”
The IAEA also concludes Iran “has sufficient information to be able to design and produce a workable implosion nuclear device based on HEU (highly enriched uranium) as the fission fuel.”
Meanwhile, President Ahmadinejad said once again on Friday the Holocaust was a “lie.”
“The pretext (Holocaust) for the creation of the Zionist regime (Israel) is false…It is a lie based on an unprovable and mythical claim,” he said. “Confronting the Zionist regime is a national and religious duty.”
If you are Israel, the combination of the above two stories certainly doesn’t make you feel any better, even if talks are slated to begin October 1.
But it was curious that Israeli Defense Minister Ehud Barak said on Thursday:
“Right now, Iran does not have a bomb. Even if it did, this would not make it a threat to Israel’s existence. Israel can lay waste to Iran.”
Israeli Prime Minister Benjamin Netanyahu said he saw “eye to eye” with his Defense minister, though adding “It is certainly a very great danger. But I think that what the Defense minister wanted to say, something that I believe, is that the State of Israel will be able to defend itself in any situation. I can say to you that we must make a great effort, and are making a great effort, to persuade the international community that this problem is not just our problem.” [Reuters]
This is clearly a lessening of the rhetoric, which makes sense ahead of the talks. At the same time, Israel knows that Iran is following North Korea’s model of obfuscation, and, like Pyongyang, is just as likely to start talks and then walk out of them, thus buying even more time.
But in terms of my own timetable, I will sit back with the rest of you and see what happens at the UN General Assembly, 9/23-9/30, and then the succeeding talks. Israel no doubt feels obligated to give the process some time, to see if Iran will not just agree to cease enriching uranium, but allow intrusive inspections at all levels in return for support for building a civilian program. And, let\’s face it, the coming weeks may also reveal more about Iran\’s governing crisis as Tehran was convulsed with further protests on Friday.
But Israel is not going to wait until December, or later, as the Obama administration is prepared to do, so with all the above in mind I am still targeting November for Israel to launch an attack, but now envision hitting the sidelines in terms of my stock market prediction roughly mid-October.
–The amazing rally continued as the Dow Jones, S&P 500 and Nasdaq all advanced more than 2.0% and now sit at levels not attained since a year ago during the financial crisis. The S&P is also up 58% since the March lows, while Nasdaq is up an even more stupendous 68%. Around the world the results are similar.
–U.S. Treasury Yields
Bonds slipped (rates rose) slightly on the strong economic numbers. This coming week we face the task of funding another $200 billion in Treasury debt ($112 billion in 2-, 5-, and 7-year paper), but to date this has not been an issue.
–The other day when President Obama gave his speech on Wall Street, commemorating the one-year anniversary of the beginning of the financial crisis with the collapse of Lehman, AIG, etc., Obama noted some guests in the audience and the biggest ovation appeared to be for former Fed Chairman Paul Volcker who is currently head of the president’s Economic Recovery Advisory Board.
Well, the Street executives might not be cheering as loudly today because “Tall Paul” is advocating that banks operate in a less risky manner and that they should be banned from “sponsoring and capitalizing” hedge funds and private-equity firms, which are largely unregulated. Volcker also said “particularly strict supervision, with strong capital and collateral requirements, should be directed toward limiting proprietary securities and derivatives trading.”
As reported by Damian Paletta and John Emshwiller of the Wall Street Journal:
“The comments reflect Mr. Volcker’s long-held view that banks should act more in line with their traditional role and not take extremely risky gambles, which could threaten the viability of commercial banks and expose the Federal Reserve and taxpayers to large risks.”
[The upcoming G-20 meeting will be focusing on compensation, and the Federal Reserve and Treasury are preparing wide-ranging new rules that focus on risk-taking and probable \’claw-back\’ provisions.]
Volcker also supports the Fed being the top regulator for financial markets, which is in line with White House thinking but against the wishes of many in Congress.
–The first doses of the swine flu vaccine could be available in about ten days, a little earlier than first estimated, and will be in nasal spray form. Some of the drug companies that have been approved by the U.S. Food and Drug Administration for the manufacture of the vaccine are Sanofi-Aventis, AstraZeneca and Novartis. The goal is to manufacture enough to inoculate 3 billion people worldwide.
The caseload for H1N1 appears to have stabilized the past week or so in the United States, though the test will be late October / November when flu normally begins to hit in a big way. In Britain, however, the number of cases doubled this past week in parts of the country; this after a lull over the summer.
–One economic indicator I’ve been charting since March 1990 is steel production, a good barometer of activity, I think you’d agree. There has been just one down week in the past 20. But while production declined over 50% from Sept. 2008 to April 2009 (a rather strong example of an economy falling off a cliff), production as of this week remains about 30% below year ago levels. [Of course the hoped for sustained recovery in the auto sector will have a lot to say as far as how quickly production returns to more normal marks.]
–The median home price in six-county Southern California rose for a 4th-consecutive month in August to $275,000 from the April bottom of $247,000. Statewide, however, home prices dipped 0.4% in August. And nationwide, with the $8,000 first-time home buyer credit set to expire November 30 (meaning you better go to contract long before then in order to close by the deadline), there is lots of talk of extending, or even expanding, the credit.
[Big week upcoming on the housing front with national sales data on new and existing homes.]
–Eli Lilly announced it would be shedding an additional 5,500 jobs by the end of 2011, though it hopes most of this will be achieved through attrition. Lilly is facing increased competition as some of its drugs come off patent protection, including Zyprexa, its best selling schizophrenia drug; which means you probably don’t want to be hanging around the company in 2011 anyway.
–New fuel efficiency standards are now in place that will lead to an average per vehicle of 35.5 miles per gallon by 2016 as the rules are gradually phased in.
–Chrysler Group LLC, the U.S. automaker run by Fiat, said nationwide industry sales are off 19 percent thus far in September after cash-for-clunkers ended. Fiat CEO Sergio Marchionne labeled the results a “disaster.” But Chrysler’s sales are also being impacted by severely low inventory levels. Most expect the numbers to bounce back in October, but it will be interesting to see how the Street takes this sudden reversal.
–Venezuela signed a $16 billion investment deal with China to raise oil output by several hundred thousand barrels per day. Along with other deals signed with both Russia and China, Venezuela hopes to increase production by a total of 900,000.
–New York Attorney General Andrew Cuomo subpoenaed five members of Bank of America’s board as part of his ongoing investigation into BofA’s acquisition of Merrill Lynch. It’s still all about the losses at Merrill and the subsequent bonus payments before the deal closed Jan. 1 and what information the board decided to disclose to shareholders that had to vote on the deal. Cuomo is set to file fraud charges against some BofA executives.
[Separately, federal Judge Jed Rakoff threw out a $33 million settlement between Bank of America and the SEC, after the SEC said BofA “materially lied” to shareholders in its communications prior to the takeover, but the judge slammed the SEC for penalizing shareholders rather than those executives involved. The settlement “does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.”]
–Until I read a piece in BusinessWeek I didn’t realize how low Switzerland’s corporate taxes were, ranging from 10.8% to 24% depending on the canton, each of which can set their own rate. As a result, BW’s Kerry Capell points out that McDonald’s is moving its European headquarters from London to Geneva, joining Kraft Foods, Yahoo, and Nissan. Meanwhile, next year the top income tax rate in the U.K. is rising to 51.5% for those earning more than $245,000.
–A USA TODAY investigation uncovered that some of the $billions a year raised through taxes on every airplane ticket sold in the United States is going to “build and maintain the world’s most expansive and expensive network of airports, 2,834 of them nationwide, with no scheduled passenger flights.” Of course these are the same airports, used by private planes, that members of Congress also use to get around their states. As the CEO of Mesa Air Group, a regional air carrier, noted, “Congressmen are spending millions building runways at these little airports. That is just a complete waste of money. There is a huge requirement to overhaul infrastructure at major airports.” The funding for such airports rose to $1 billion in 2007. And so we have yet another reason to hate Congress. [Thomas Frank / USA TODAY]
–Reader Jeff S. spends a lot of time in Las Vegas at various trade shows and Shu reports that the mammoth MGM CityCenter project continues to look like a train wreck (as it did when I was there about 20 months ago), though I have to note MGM stock, like other casino issues, has been soaring. [For mindless entertainment, Google MGM / CityCenter…neat Web site.]
–Deflation Alert: The New York Yankees are slashing some ticket prices for 2010, with the best field-level seats dropping from $325 to $250, for example, as part of season plans. [But over 80% of the seats will remain unchanged.]
–New York City’s jobless rate suddenly spiked to 10.3% in August, up from 9.5% in July. [See above on Yankees tickets.]
–The story hit that the U.S. Treasury, representing all of us, was going to be selling its 7.69 billion shares of Citigroup as soon as reasonably possible and while this isn’t earth-shattering news, it is a reminder if you’re dabbling in Citi shares, which have rallied nicely along with others in its sector, that over the next 6 to 8 months (the Treasury’s target) this huge amount of stock will be overhanging the market. Treasury’s cost basis, though, is $3.25 and the stock closed Friday at $4.25. So maybe the Government will throw us all a good party on the Mall when the shares are finally sold, assuming the current price holds.
–Rupert Murdoch is all fired up that he won’t have to deal with printer unions in the future because electronic devices such as Kindle and Sony’s Reader will ultimately replace newsprint. “Then we’re going to have no paper, no printing plants, no unions. It’s going to be great.” Maybe Rupert will throw us all a party in Sydney! [Always looking for an excuse, you understand.]
–I keep track of ad pages in BusinessWeek and while this terrific magazine seeks a new home, I’d be encouraged that the number of ads has more than doubled since the lows established about six weeks ago.
–Facebook said it passed the 300 million user mark and that it is cash flow positive, the latter a year ahead of schedule. It added 100 million users just since March and Facebook now has the scale to attract advertisers.
–With its latest round of funding, Twitter is being given a value of $1 billion. Not bad for a twit.
–CBS has supposedly sold 70% of its inventory for the Super Bowl. GoDaddy.com has already committed to two spots, which is a good thing, especially seeing as it’s not my money. Top slots are going for $2.5 million to $3 million. But there are traditional participants, such as FedEx, that are thinking twice before committing this go ‘round.
–The English soccer club Liverpool has had Carlsberg on its jerseys for over two decades, but now the sponsorship is being sold to Standard Chartered, a British-based bank, for $33 million a year starting next season.
–According to Beer Business Daily (and the Los Angeles Times), beer sales are generally off 5-6% over year ago levels.
–Bernie Madoff’s beach home on Long Island is under contract for more than $8.75 million. The buyer was guaranteed it will be worth $30 million in four years and took the claim at face value.
The Missile Shield: The White House scrapped the Bush administration’s missile defense plan for Poland and the Czech Republic, viewing the immediate threat as more one from short- and medium-range weapons from Iran, not the long-range variety the Bush shield was designed to address. Defense Secretary Robert Gates said:
“Those who say we are scrapping missile defense in Europe are either misinformed or misrepresenting the reality of what we are doing. It is more adapted to the threat we see developing.”
U.S. intelligence agencies have recently concluded that Iran is having a far more difficult time weaponizing long-range missiles than previously thought, though Iran recently successfully tested such a missile.
I have argued for months now, anticipating this move, that it was about politics and letting down our allies. I trust Sec. Gates implicitly, but the handling of this is a true disaster.
“President Obama promised he would win America friends where, under George W. Bush, it had antagonists. The reality is that the U.S. is working hard to create antagonists where it previously had friends.
“That’s one conclusion to draw from President Obama’s decision yesterday to scrap a missile-defense agreement the Bush Administration negotiated with Poland and the Czech Republic. Both governments took huge political risks – including the ire of their former Russian overlords – in order to accommodate the U.S., which wanted the system to defend against a possible Iranian missile attack. Don’t expect either government to follow America’s lead anytime soon….
“It has been the tragic fate of the countries of Eastern and Central Europe to be treated as bargaining chips in the designs of their more powerful neighbors. Their inclusion in NATO and EU was supposed to have buried that history, but Russia’s new assertiveness, including its willingness to cut off energy supplies in winter and invade Georgia last year, is reviving powerful fears. Officials in Warsaw surely noticed that President Obama cancelled the missile system 70 years to the day that the Soviet Union invaded Poland as part of the Molotov-Ribbentrop Pact with Nazi Germany….
“The European switcheroo continues Mr. Obama’s trend of courting adversaries while smacking allies. His Administration has sought warmer ties with Iran, Burma, North Korea, Russia and even Venezuela. But it has picked trade fights with Canada and Mexico, sat on trade treaties with Colombia and South Korea, battled Israel over West Bank settlements, ignored Japan in deciding to talk with North Korea, and sanctioned Honduras for its sin of resisting the encroachment of Venezuela’s Hugo Chavez.
“We’re reminded of the rueful quip, by scholar Bernard Lewis, that the problem with becoming friends with the U.S. is that you never know when it will shoot itself in the foot.”
Editorial / Washington Post
“Defense Secretary Robert M. Gates said Thursday that the Obama administration’s decision to scrap plans for a missile defense system based in Poland and the Czech Republic was based ‘almost exclusively’ on a ‘changed intelligence assessment’ about Iran’s missile capabilities and by ‘enhanced technology.’ No doubt there is much truth in that: Iran has been working harder on the intermediate-range missiles that a new system is intended to intercept, and it is more ready to deploy them. It always seemed to us that the Bush administration’s push to install a largely unproven interceptor system for long-range missiles was poorly justified.
“Nevertheless Mr. Gates’s ‘almost’ speaks volumes – because the suggestion by other administration spokesmen that the decision had nothing to do with Russia will probably not be credible to much of the rest of the world, including the Russians themselves. By replacing a planned radar system in the Czech Republic with another in the Caucasus and by ending a commitment to place 10 long-range missile interceptors in Poland, President Obama satisfies the unjustified demands of Russia’s leaders, Vladimir Putin and Dmitry Medvedev. Moscow implausibly claimed to feel threatened by those systems; in reality, Russia objects to any significant U.S. deployment in NATO countries that once belonged to the Soviet bloc. Following his meeting with Mr. Obama in July, Mr. Medvedev declared a linkage between U.S. concessions on missile defense and the conclusion of a new strategic weapons agreement….
“It may be, as the Pentagon says, that its new plan will provide better protection more quickly from the threat of Iranian missiles. And that, after all, is the point of this project. Mr. Obama has been clear in publicly opposing Russia’s neo-imperialism, and we don’t doubt his commitment to the U.S. alliance with Poland or with the Czech Republic, which he visited in April. Still, in adopting its new course, the Obama administration has clearly bruised some of the staunchest U.S. allies in Europe while encouraging the Kremlin’s hard-liners. It needs to do more to repair that collateral damage.”
David J. Kramer / Washington Post…Mr. Kramer is a former assist. sec. of state in the George W. Bush administration.
“(The) administration’s capitulation to Russian pressure is a serious betrayal of loyal allies in Warsaw and Prague whose governments pursued politically unpopular positions at the request of the Bush administration to help confront a rising threat from Iran. (Announcing this policy change on Thursday, the 70th anniversary of the Soviet invasion of Poland, added unnecessary insult to injury.)….
“The administration defends its decision by claiming that Iran is not developing a long-range capability as quickly as was previously thought. The Bush administration, however, had proceeded on the reasoning that Iran would have the capability in four or five years, roughly when the missiles and radar would be fully operational. Announcing this change ahead of an Oct. 1 meeting with Iranian officials also seems particularly unwise.
“The Kremlin started a dangerous game of chicken by linking conclusion of a post-START agreement to missile defense sites in Poland and the Czech Republic. Moscow appears to have prevailed in that contest of wills. The administration should insist on delinking these two separate issues and move forward with the missile defense plans it inherited.”
Ralph Peters / New York Post
“Still determined to ‘push the reset button with Russia,’ President Obama hit the delete key on our allies in Eastern Europe.
“Obama’s decision to abandon missile defense as we know it, cutting the throats of Poland and the Czech Republic, handed Moscow’s hard-liners their biggest win since the collapse of the Soviet Union.
“Russian strongman Vladimir Putin insisted all along that we’d never be permitted to deploy an anti-ballistic missile system in the Soviet empire. He was right.
“And Obama got nothing in return. No Russian commitments on Iran’s nuclear program. No sovereignty guarantees for Georgia. No restrictions on arms sales to Venezuela. Not even a bear hug.
“Yesterday, when Defense Secretary Robert Gates explained the rationale for ending our plan to deploy a high-tech radar system and anti-missile interceptors to Eastern Europe, every military argument he advanced was absolutely correct. But, in strategic terms, the decision’s a disaster….
“Thus it came to pass that, 70 years to the day after the Red Army invaded Poland, Warsaw’s residents heard the news of this U.S. betrayal and the implicit message that, yes, Eastern Europe still belongs in Moscow’s sphere of influence.
“If you’re a citizen of Ukraine, Georgia or even the NATO-member Baltic states, you must be shuddering. You thought NATO and the U.S. were serious about your right to live in freedom?
“Better dig that Latvian-Russian dictionary out of the attic.”
On Friday, Vladimir Putin said, “I expect that after this correct and brave decision, others will follow.” ‘Who’s your daddy?’ mused the editor.
Afghanistan: The official vote tally from the presidential election has incumbent Hamid Karzai with 55%, thus avoiding a run-off, though the U.N. continues to investigate hundreds of cases of alleged voter fraud. In no way can Karzai claim his reelection was legitimate but the U.S. and NATO are in a box, even as Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, told Congress this week that the Taliban returned because of a vacuum in governance, “a lack of legitimacy in the government at every level.” Nonetheless, the U.S. needs Karzai’s support.
The U.S. death toll in Afghanistan now exceeds 750 and this week six Italian soldiers were killed in a suicide bombing in Kabul. Separately, in the NATO airstrike incident of Sept. 4, one that was called in by a German commander, an investigation has concluded 70 militants were killed, but also 30 civilians. And Osama bin Laden released an audio tape (with a still image), not that anyone cares. It did remind us all, however, that the $50 million bounty on his head has been rather ineffective for eight years now.
“Among the worst of the countless follies that make an old soldier sick [Ed. Mr. Peters is a retired lieutenant-colonel] is the endless excuse-making for the sloth and cowardice of the Afghan National Army and the extortion culture of the Afghan Police – while Taliban warriors fight to the bitter end.
“The bottom line is that Taliban fighters are willing to die for their cause, while the Afghan soldiers we’ve tried to train don’t even show up for formation. And the NATO-trained cops are so corrupt they’ve driven Afghans into the arms of the Taliban….
“Another deadly problem for our troops stems from the Rules of Engagement, which give the Taliban the advantage. In numerous firefights, our troops have been denied air or artillery support as they fought for their lives. Why? Because the Taliban won the propaganda war with false claims of ‘innocents killed by U.S. firepower,’ convincing politically correct U.S. generals and pols that using our military might to win alienates Afghans (who just want us gone, anyway)….
“Months ago, I wrote that Afghanistan was shaping up to be President Obama’s Vietnam. But the situation’s worse: In Vietnam, whenever our soldiers or Marines got in a fight, they could call for fire support and hear an immediate response: ‘On the way!’ In Afghanistan, the response is, ‘Are you 100 percent sure there are no civilians in the area? Sorry, you’re on your own.’
“And no one in Washington cares.”
Fareed Zakaria / Washington Post
“There are three ways to change security conditions in Afghanistan. First, increase American troops. Second, increase Afghan troops. Third, shrink the number of enemy forces by making them switch sides or lay down their arms. That third strategy is what worked so well in Iraq and what urgently needs to be adopted in Afghanistan. In a few years, Afghanistan will still be poor, corrupt and dysfunctional. But if we make the right deals, it will be ruled by leaders who keep the country inhospitable to al-Qaeda and similar terrorist groups. That’s my definition of success.”
For his part, President Obama said this week he will take his time deciding on whether or not to increase U.S. forces beyond the 68,000 already authorized.
Israel: Prime Minister Netanyahu reaffirmed he will not impose a settlement freeze on the West Bank and will move ahead with projects already approved that equate to about 3,000 homes. For his part, Palestinian President Mahmoud Abbas has said there will be no peace talks unless Israel agrees to a total freeze.
Mortimer B. Zuckerman / Editor-in-chief, U.S. News & World Report
“President Obama has divided foreign opinion. In the eyes of Western Europe, he is doing just great. Support for his handling of international affairs has quadrupled by comparison with the meager levels of President Bush, according to a survey conducted by the German Marshall Fund of the United States and its partners. But that is only part of the story. In Eastern Europe, there is more skepticism about what he is doing regarding Russia, Iran, Afghanistan, and the Middle East. And the disenchantment in Eastern Europe is nothing compared with the fearful majorities in the Middle East’s most thriving democracy: Israel.
“The numbers are startling. Obama’s popularity in Israel has plunged to the point where now only 4 percent believe he is a friend. Obama should worry about this. So should we all, for the alienation has significant consequences for peace.
“American support and American credibility are crucial for Israel. It is the confidence in America’s friendship and support that will enable Israel to fulfill hopes for peace in the region. Alas, the American pressure campaign following Obama’s ascent has had one clear outcome, and not one we had hoped for: It has made a peace deal much less likely. Obama has not exerted pressure equally. He ignores what Israel has done in recent years to advance the cause of peace and what the Arabs have failed to do. The onus has been on Israel and Israel alone. This has allowed the Arabs yet again to abdicate responsibility. It has reinforced the long-standing Arab belief that the United States can ‘deliver Israel’ if only it has the will to do so, thereby reducing Arab incentives to make concessions in direct negotiations with Israel. The moderate Arab states, whose principal concern is not Israel but an expansionist Iran seeking domination in the Middle East, have been unwilling to raise a finger to advance the process – not Egypt, not Jordan, not Saudi Arabia….
“There is an erosion of confidence that the Obama administration knows how to ‘play the game’ in the region.
“As Bernard Lewis…put it, ‘A nation can make few mistakes worse than this: to be harmless as an enemy, and treacherous as a friend.’ The Obama administration will sacrifice much if this is the perception of it in the Middle East.”
And this warning from Prince Turki al-Faisal, former Saudi director of intelligence and ambassador to the United States, in an op-ed for the Wall Street Journal.
“President Obama’s speech in Cairo this summer gave the Arab and Muslim worlds heightened expectations. His insistence on a freeze on settlement activity was a welcome development. However, all Israeli governments have expanded settlements, even those that committed not to do so.
“No country in the region wants more bloodshed. But while Israel’s neighbors want peace, they cannot be expected to tolerate what amounts to theft, and certainly should not be pressured into rewarding Israel for the return of land that does not belong to it. Until Israel heeds President Obama’s call for the removal of all settlements, the world must be under no illusion that Saudi Arabia will offer what the Israelis most desire – regional recognition. We are willing to embrace the hands of any partner in peace, but only after they have released their grip on Arab lands.”
Lebanon: As expected, Saad Hariri was designated a second time to be the new prime minister and once again set about forming a cabinet. This process is embarrassing.
North Korea: Kim Jong-il told Beijing he is eager for talks over his nuclear weapons program, while at the same time there were a number of stories that Kim might have ordered a third nuclear test as a way of forcing the United States to negotiate as well as announcing the arrival of his successor, Kim Jong Un, his 26-year-old youngest son.
Russia: Back to “reset,” President Medvedev blamed the United States ahead of his appearances at the G-20 and the UN General Assembly.
“Last year, we witnessed how one country’s ill-conceived financial policies became the reason for a global financial crisis, whose effects every country…feels today.”
OK, he didn’t mention the United States by name but you’d have to be an idiot not to know who he was addressing.
And Russia agreed to lend Venezuela $2 billion to buy weapons, including 100 tanks and anti-aircraft rocket systems.
On a somewhat lighter front, I got a kick out of a story on cost overruns at the Bolshoi Theater, undergoing a huge renovation ($610 million). One firm hired for some of the work was to be paid $5.3 million but has already received $31 million. It seems the outfit kept resubmitting the same documents for compensation, a neat trick if you can pull it off.
China: With so much going on in the world these days, one of the more positive stories is being ignored, that being warming relations between the mainland and Taiwan. As further proof of this, there was a story this week that the two hope to sign a trade accord by next spring. That would be big, particularly for sentiment in the region, let alone commerce. I also have a very selfish reason for interest in this sphere; my China play is in a new port facility that represents the shortest point between the mainland and Taipei.
Meanwhile, the U.S. National Intelligence Strategy, under its new intel director Dennis Blair, has designated four key targets for espionage over the next four years; Iran, North Korea, Russia and China.
“China shares many interests with the United States, but its increasing natural-resource-focused diplomacy and military modernization are among the factors making it a complex global challenge,” the report states.
China is at the center of growing U.S. concerns over threats in cyberspace. For its part, the Beijing government was not happy, to which I’d say, “Yoh, President Hu Jintao. Give us proof we shouldn’t be concerned on all manner of fronts?” Time’s up.
When it comes to pollution, the government understands it must confront its huge problems. As further proof of this, the China Daily reported that the rate of birth defects has doubled since 1997 to 170 per 10,000 births. Environmental pollution is a major contributing factor.
Japan: The new prime minister, Yukio Hatoyama, declared the “battle starts now” with an ailing economy and high unemployment among the major challenges his new government faces. At least he starts out with a 70% approval rating as his left-of-center party shakes things up following 50 years of basically unbroken conservative rule. He has vowed to cut government waste, rein in the bureaucracy, freeze planned tax increases, remove highway tolls and focus on consumers, not business. And Hatoyama is seeking a more independent relationship with the United States, including on the disposition of 50,000 troops we have stationed there. But don’t look for any sweeping changes just yet. I’m expecting the U.S.-Japanese alliance to remain strong, though any coming negotiations over North Korea’s nuclear program will be important in defining the Hatoyama administration.
Somalia: This hellhole has been heating up as al-Qaeda attempts to shift some of its operatives here. But U.S. special forces swooped in and killed one of Africa’s most wanted al-Qaeda figures. While the Pentagon refused to comment, evidently the U.S. is doing a great job in disrupting the terror network here.
Mexico: On Tuesday, six bodies were found in a burning car in Tijuana, 15 were killed in three separate shootings, and 10 more were gunned down in a drug treatment center in Ciudad Juarez. In the latter city, across the border from El Paso, 1,300 have already been killed this year in the drug war. The total killed since President Felipe Calderon took office in 2006 is a staggering 13,500.
Northern Ireland: Sectarian violence has surged this year. For example, there have been over 65 “emergency re-housings” in just the past five months. This occurs when, say, a Catholic family is forced out of a Protestant neighborhood (and vice versa) as a result of severe harassment, like with petrol bombs or the stoning of homes and property. There have been four sectarian attacks, of all kinds, each day over the past year. This is sick.
–President Obama’s job approval ratings have stabilized, and in some cases ticked up; 56% in a Bloomberg survey, 54% in the Washington Post/ABC News poll, 50% in an AP-GfK one, 54% in USA TODAY/Gallup, and 55% in a Pew Center survey. It will be interesting to see what they are a month from now given all that’s on the president’s plate….
–…Including on the issue of race. I have my own opinions on the topic, but first various thoughts following former President Jimmy Carter’s declaration that any animosity towards President Obama is based overwhelmingly “on the fact that he is a black man,” and that there was “a belief among many white people, not just in the South but around the country, that African-Americans are not qualified to lead this great country.”
“Some people just can’t believe a black man is president and will never accept it….
“Even if he and the coterie of white male advisers around him don’t choose to openly acknowledge it, this president is the ultimate civil rights figure – a black man whose legitimacy is constantly challenged by a loco fringe.
“For two centuries, the South has feared a takeover by blacks or the feds. In Obama, they have both.”
On the other side, Fox’s Glenn Beck has labeled Obama himself a “racist” who “has a deep-seated hatred for white people.”
[Who was getting in a regular run on the Washington Mall last Saturday during the “tea party.”]
“(As) I got to where the Smithsonian museums start, I came across another rally, the Black Family Reunion Celebration. Several thousand people had gathered to celebrate African-American culture. I noticed that the mostly white tea party protesters were mingling in with the mostly black family reunion celebrants. The tea party people were buying lunch from the family reunion food stands. They had joined the audience of a rap concert….
“These two groups were from opposite ends of the political and cultural spectrum. They’d both been energized by eloquent speakers. Yet I couldn’t discern any tension between them. It was just different groups of people milling about like at any park or sports arena.
“And yet we live in a nation in which some people see every conflict through the prism of race. So over the past few days, many people, from Jimmy Carter on down, have argued that the hostility to President Obama is driven by racism. Some have argued that tea party slogans like ‘I Want My Country Back’ are code words for white supremacy. Others say incivility on Capitol Hill is magnified by Obama’s dark skin.
“Well, I don’t have a machine for peering into the souls of Obama’s critics, so I can’t measure how much racism is in there. But my impression is that race is largely beside the point. There are other, equally important strains in American history that are far more germane to the current conflicts….
“(The) populist tendency (has) continued through the centuries. Sometimes it took right-wing forms, sometimes left-wing ones. Sometimes it was agrarian. Sometimes it was more union-oriented. Often it was extreme, conspiratorial and rude.
“The populist tendency has always used the same sort of rhetoric: for the ordinary people and against the fat cats and the educated class; for the small towns and against the financial centers….
“Barack Obama leads a government of the highly educated. His movement includes urban politicians, academics, Hollywood donors and information-age professionals. In his first few months, he has fused federal power with Wall Street, the auto industry, the health care industries and the energy sector.
“Given all of this, it was guaranteed that he would spark a populist backlash, regardless of his skin color. And it was guaranteed that this backlash would be ill mannered, conspiratorial and over the top – since these movements always are, whether they were led by Huey Long, Father Coughlin or anybody else.
“What we’re seeing is the latest iteration of that populist tendency and the militant progressive reaction to it. We now have a populist news media that exaggerates the importance of the Van Jones and Acorn stories to prove the elites are decadent and un-American, and we have a progressive news media that exaggerates stories like the Joe Wilson shout and the opposition to the Obama schools speech to show that small-town folks are dumb wackos….
“It’s not race. It’s another type of conflict, equally deep and old.”
This week we also had the usual opinion writers offer that if nothing else, it was important to have this national dialogue on race. I couldn’t disagree more. As George Will says every time the topic comes up, “We have too much discussion on race!”
That said, I’d be more than a bit disingenuous if I didn’t admit to certain thoughts when I saw the bad behavior of Serena Williams, Kanye West, and the Acorn tapes. [Kanye, I decided, is simply a jerk. Serena, though, is despicable.] Every time I see a story of another kid gunned down in Newark, always black on black, I have other thoughts.
Of course there is racism in America, and it goes both ways; or about four ways when you include Hispanics and Asians.
But what ticks me off to no end when this topic comes up is the fact no one ever talks about what the situation is like around the world.
I’ve traveled a bit and I know a thing or two about the subject, but to those who have not journeyed much beyond our own borders, just understand that when it comes to people getting along with each other, there is zero comparison….the United States remains head and shoulders above the rest.
Heck, re-read my blurb on Northern Ireland above. I’ll never forget when four of us were golfing there, around 1992, a few years before things began to improve, and we had to watch what we said when we went out in Newcastle. We started in a Protestant pub, then went to a Catholic one and, boy, the two crowds didn’t mix. We gave a Catholic kid a ride home at the end of the evening and it was heartbreaking what he told us…how he couldn’t be friends with Protestants. Sadly, it appears the Irish are sliding right back to this ugly era.
In Europe you have racism of all kinds. It’s not good being a Turk in Germany these days, for example. Russia? Do I have an hour? You’ve no doubt heard the term ‘black Russians.’ Let’s just say if you are one, walking down a street in Moscow, you better watch your back.
Serbs vs. Croats…all Europeans vs. Gypsies (I loath Gypsies myself)…let alone the Middle East and the myriad of permutations there…or the hundreds of tribal conflicts in Africa…or the centuries old issues between Chinese, Koreans and Japanese. You get the picture.
But here’s my real bottom line, aside from the fact that our problems are nothing compared to everyone else’s.
The animosity directed against Barack Obama is, first and foremost, over his policies. Period. Those who instead hijack the topic for their own nefarious purposes are worthy of contempt.
Rich Lowry / New York Post
“The radical activist group Acorn is the E.F. Hutton of prostitution. It stands ready to provide discreet advice on setting up a brothel and engaging in other associated acts of criminality. When Acorn talks, pimps and hookers listen.
“This has been established by an audacious video-sting operation undertaken by guerrilla conservative documentarian James O’Keefe, 25, and his sidekick Hannah Giles, 20. O’Keefe posed as a pimp and Giles as a prostitute seeking help getting a mortgage for a brothel. In cities around the country, workers for Acorn – the Association of Community Organizations for Reform Now – happily obliged….
“The group has responded to the videos with a flurry of smears and excuses. The tapes are a distortion – even though Acorn fired the workers involved. Other Acorn offices didn’t fall for O’Keefe’s stunt – but is it a defense if only a few of your offices abet sex slavery? The video operation was imbued with racism – never mind that it was Acorn staff helping two white people exploit underage Latino girls. The Acorn workers involved were poorly trained – but how much training does it take to recoil at criminality?”
Editorial / New York Post
“(The) pattern is clear. This is the same outfit, after all, that’s being probed in numerous states for widespread voter-registration fraud. Its New York political arm, the powerful Working Families Party, has attracted attention for its shady financial dealings.
“Of course, Acorn has long won its bread by shaking down businesses with raw physical pressure and pushing the legal and ethical envelope. It’s no surprise, then, that it would attract workers eager to abet sex-trafficking scams.
“Fortunately, public officials (even on the left) are taking note. A Senate amendment to keep Acorn from getting federal housing grants passed 83-7 yesterday. The Census Bureau cut its ties with Acorn. And the Kings County DA promises to ‘take a look’ at the group’s Brooklyn office.
“Yet, stunningly, Acorn still gets to co-run city high schools. (Wonder what they teach there!) That’s unacceptable.
“Last week, 11 of [Acorn’s] workers were accused by Florida prosecutors of falsifying information on 888 voter registration forms. Last month, Acorn’s former Las Vegas, Nev., field director, Christopher Edwards, agreed to testify against the group in a case in which Las Vegas election officials say 48% of the voter registration forms the group turned in were ‘clearly fraudulent.’”
–The Federal Energy Regulatory Commission is increasingly concerned terrorists will detonate a nuclear weapon above the Earth’s atmosphere that would knock out power for much of the United States for weeks, perhaps months, and is pressing Congress to require power companies to take protective steps, including building shields around sensitive equipment. Such an attack would halt banking, transportation, food distribution, etc., and “might result in defeat of our military forces.”
–In the latest installment of “Corruption: Washington Style,” the Justice Department is investigating former Interior Secretary Gale Norton for illegally using her position to grant Royal Dutch Shell three lucrative oil shale leases on federal land in Colorado, with the company later hiring her. The focus is on whether she violated a law prohibiting federal employees from discussing employment opportunities if they are involved in decisions that can benefit the firm.
And Democratic Congresswoman Maxine Waters is the focus of the House Ethics Committee as it extended by 45 days a determination on whether her conduct was appropriate when a bank with ties to her husband received $12 million in bailout funds, three months after she arranged for a meeting between bank officials and the Treasury Department.
As for the latest on Democratic Congressman Charlie Rangel, the New York Post notes that he “reported no rental income for eight years on his rundown Harlem row house, even though public records show tenants were living there.”
One current tenant told the paper “she had lived at the building for 20 years – and paid rent during that period.”
Last year Rangel failed to declare $75,000 in rental income on his villa in the Dominican Republic.
–In a relative shock, given past experience, major crime declined in 2008 despite the poor economy, which flies in the face of traditional theory. Murder fell 4% and car thefts plunged 13%. The number of rapes was also at a two decade low.
–Speaking of murder, back in the day of Stalin the murder rate soared from pre-Stalin times, like 8000%…yet I read the other day that a Russian, Leonid Zhura, has gone to court to prove his assertion that Stalin never killed anybody and he claims to have a witness, Stalin’s 73-year-old grandson, Yevgeny Dzhugashvili. Zhura and Mr. D. are taking part in a libel action against Novaya Gazeta, Russia’s leading liberal newspaper.
Mr. D. is demanding $300,000 in damages from the paper after it said his grandfather personally signed politburo orders to execute civilians.
As noted in The Guardian and the South China Morning Post, “Author Anatoly Yablokov, who wrote the piece, said such a legal case would have been unthinkable before, but was now depressingly possible. ‘There is a change in society’s view of Stalin,’ Yablokov said at a preliminary hearing.’”
Oh brother. My last trip to Moscow, Nov. 2007, I wrote then of going into a Russian military museum for one purpose…to see how Stalin was being treated. Quite well, it turns out. Tons of pictures of both he and Putin… Putin and Stalin. Stalin’s rehabilitation is almost complete.
–Speaking of bad people, I’ve been reading a lot about the problems with the Mafia in Italy and the dumping of waste, some of it toxic, and this week the BBC reported that “A shipwreck apparently containing toxic waste is being investigated by authorities in Italy amid claims that it was deliberately sunk by the Mafia.” [The BBC uses a small ‘m’ when noting the mob. I refuse to do so.]
“An informant from the Calabrian Mafia said the ship was one of a number he blew up as part of an illegal operation to bypass laws on toxic waste disposal.”
If convicted, I defy anyone to tell me why those who ordered the operations shouldn’t be put to death. And if you think that is too harsh, understand that the informant said the sunken vessel in question contained “nuclear” material. Robot cameras have identified yellow barrels with labels saying contents are toxic. No other details have been released.
Meanwhile, for all the grief Greenpeace gets, this is one instance where they are proving to be real heroes because they have been cataloguing the ships that simply ‘disappear’ off the coast of Italy and Greece.
–ABC News deserves to be blasted for betraying President Obama’s trust the other day when, in remarks before a sitdown with CNBC, Obama was questioned about the Kanye West incident and Obama told reporter John Harwood and those hanging around that Kanye was a “jackass.”
The problem was that ABC shares a fiber optic line with CNBC to save money and this enabled ABC employees to listen in on the interview as it was being taped for later use. So the a-hole ABC employees tweeted Obama’s remarks which never should have left the room. CNBC’s Harwood said it is broadcast tradition that such pre-interview banter is off the record.
As reported by David Bauder of the AP, Obama knew immediately he shouldn’t have used the word so he can be heard saying that the remark should be kept private. “Come on guys,” he says. “Cut the president some slack. I’ve got a lot of other stuff on my plate.” At least three ABC employees spread the news, including White House correspondent Terry Moran, who tweeted:
“Pres. Obama just called Kanye West a ‘jackass’ for his outburst at VMAs when Taylor Swift won. Now THAT’S presidential.”
[Some are comparing this to Ronald Reagan’s “open-mic” when he said “the bombing (of the Soviet Union) begins in five minutes,” or when then presidential candidate George W. Bush described a New York Times’ reporter as a “major league a–hole.” No comparison. I’m with Obama on this one.]
–Summer temperatures for the Earth’s ocean surface ranked as the warmest on record, according to a report by the National Climatic Data Center. When the Earth’s land areas and oceans are included, the three-month June-August period measured as the third-warmest summer, with records going back to 1880. Experts say it’s a combination of global warming and El Nino.
–But if you think it is warm here, check out a new planet astronomers have discovered outside our solar system, a rock planet, like Earth…not some gas ball.
The planet is called Corot-7b and it does have some issues, chief being the surface temperature is more than 3,600 degrees Fahrenheit. So, undoubtedly there is much we can learn from the Corotbians (the ‘t’ is silent).
–Back on Earth, according to the U.S. National Snow and Ice Data Center, where the beer is always chilled to a refreshing 42 degrees, the summer’s melt of Arctic sea ice has not been as bad as the last two years and 2007’s record low. This will be watched closely next summer because the ice is still so fragile that a return to 2007’s temps and it could all go poof!
–Lastly, in my ongoing effort to point out just how pitiful the United States is when it comes to prospects for further manned space exploration, this week China broke ground on its fourth space center, one that given its location close to the equator makes it ideal for deep space exploration and future lunar missions. So China will continue to perfect its technology over the coming decades, the same technology that of course has troubling military applications, while the U.S. is reduced to watching Chinese, Indian, Japanese and Russian pictures of their own manned missions as we bitch that we can’t find $3 billion to fund NASA’s once grand plans.
I also have to add to those who are touting that the United States privatize space exploration, you are absolutely nuts. Look how far existing efforts in this regard have gone, such as with Richard Branson….nowhere fast. Unless you tell me that Warren Buffett and Bill Gates are suddenly going to shift their fortunes from charity to space exploration, then just like in the area of defense, future missions will require the kind of capital that only government can supply.
President Obama still has time to rectify this situation, but I’m not holding my breath.
Pray for the men and women of our armed forces, and all the fallen, the latter including the newest Medal of Honor winner, Jared Monti.
God bless America.
Gold closed at $1008…unchanged on the week
Oil, $71.75
Returns for the week 9/14-9/18
Dow Jones +2.2% [9820]
S&P 500 +2.5% [1068]
S&P MidCap +3.3%
Russell 2000 +4.1%
Nasdaq +2.5% [2132]
Returns for the period 1/1/09-9/18/09
Bears 24.4 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
