Wall Street…Goldman and Greece
Before I get into the action on Wall Street and the travails of that ancient country across the way, a few words on the event that is now dominating the airwaves, the oil spill.
This week, British Petroleum announced a profit for the first quarter of $5.6 billion, more than double the pace of a year ago, as the company, like the other Big Oil operators, benefited from rising prices. But none of this matters following the disaster in the Gulf which it appears BP is responsible for from a legal and cost standpoint.
Last Saturday, posting at 2:00 AM Eastern time, from Beirut (9:00 AM local), I wrote the following, which proved to be quite prescient in terms of the issues that are now manifesting themselves. Initially, even Saturday morning, BP downplayed the spill. By Sunday, the situation was drastically different and of course has only gotten worse. I would just add to my original comments that the Obama administration should have known enough to come out in full force on Monday at the very latest, not Thursday. For this they will pay a price at the polls come November…at least that’s my first reading of the situation. And as I go to post, Saturday’s New York Times, for one, is harshly critical of the Coast Guard’s actions, it having the immediate responsibility, for not calling for more assistance from the Department of Defense.
“The Transocean oil rig disaster 50 miles off the Louisiana coast that claimed 11 lives and left 4 critically injured could have enormous implications for energy policy in the U.S. should a feared major oil spill materialize, though at last report it appeared this might not be the case. Here President Obama just took the first steps, albeit tentative ones, towards opening up parts of our coastal waters to oil and gas drilling, against opposition from environmentalists, and then this happens. It also comes as the industry itself has been touting the past few years how during the catastrophic hurricanes of Katrina and Rita, not one barrel of oil was spilled despite severe damage to some rigs, so the industry needs to pull out all the stops to keep the Transocean/BP well plugged up.”
So what did we see in the week since I wrote that, aside from what we are all now viewing? The first U.S. offshore wind farm was given the green light by the U.S. Interior Department, despite objections from the Kennedy family as the proposed project is in Nantucket Sound. Greenpeace was ecstatic as they’ve been battling to get the approval for over a decade. This is the kind of thing that the BP spill will only improve the odds of. [There are at least 11 other U.S. offshore wind projects in the development stage.]
And it needs to be noted that, according to a report in the Wall Street Journal, Transocean may have failed to install a remote-control shut-off switch that has been used in other oil-producing nations as last-resort protection against underwater spills, though experts hasten to add the installation of same would not have necessarily meant it would have worked in such a blowout. The U.S. does not require the device as some other nations do.
From a political standpoint it’s a true nightmare for the administration. From a human standpoint, it’s gut-wrenching. Once again, these good folks are going to need our help.
I watched the entirety of the Goldman Sachs Senate hearings but for about one hour and was continually sickened by it all. Not because Goldman is guilty in the case(s) being highlighted (including other funds aside from Abacus mentioned by the senators), and not because the supposedly sophisticated Senate panel kept confusing the difference between being a market maker and peddling garbage it created, but rather because as short-seller Jim Chanos keeps saying, the real criminality at Goldman Sachs and many of the other investment banks (or the likes of AIG) resides in the balance sheet shenanigans. But no one seems to know which federal agency is responsible for those kinds of investigations. What’s so frustrating is that proof of the accounting chicanery would represent the true kind of material omissions of fact that the public could best understand. As it is the main part of the story is getting lost in a pile of other merde.
But what else did we learn on Tuesday? Call this the Goldman Sachs Random Musings Edition.
–When it was announced that Goldman Sachs was an adviser to Palm, which was acquired by Hewlett-Packard, on CNBC, Gary Kaminski said, “The senators should have learned that Goldman Sachs served its customers damn well.” What does that have to do with fraud in other parts of the firm, Kaminski? [I like the guy. I was very disappointed to hear this b.s.]
–CNBC’s Jim Cramer said Goldman wasn’t acting like former Merrill Lynch analyst Henry Blodgett, who peddled securities he didn’t believe in during the tech bubble. Whaddya mean, Cramer? Goldman packaged total garbage, knew it to be such, and then aggressively sold it (and I’m not even referring to the funds discussed in the hearing).
–It wasn’t illegal, technically, but it should forever more be…the whole synthetic CDO business. Goldman’s excuse is that it was only giving its clients what they wanted. Well I’d like to have a date with Carmen Electra…. The problem, as further illuminated below, wasn’t just that the investment banks created artificial product with zero purpose for the real economy, but that this crap ended up in the portfolios of unknowing municipalities and pension funds.
–CNBC’s Larry Kudlow said Wall Street “was not really a casino.” I have correctly called it just that since day one of this column. It is nothing more than a casino. If you’re a trader, there’s also nothing wrong with playing in this cesspool. Good luck and tip the good-looking Caesar’s girls plying you with drinks.
But I’ve also consistently advised that once you know Wall Street is a casino, then you understand that for a longer-term investor, over time the fundamentals win out over the noise; i.e., the key is earnings. But you have to give it time, while constantly keeping up on your homework. So sorry, Larry. You couldn’t be more wrong.
–What the hearings best exposed is the need for real regulation and reform, and on a different note, the focus has to be on three issues…raising capital requirements for the biggest institutions, mandating limits on leverage, and transparency in the derivatives market. It’s not that difficult. Someone find me a beer coaster, I’ll draw it out for you.
“It was not in the end a decisive showdown. While the U.S. Senate’s grilling of Goldman Sachs was both lengthy and pitiless, there was no ‘aha’ moment. The proceedings will not still the debate about whether the bank did anything legally nefarious when it sold complex mortgage related securities to investors. That remains for the courts to decide.
“But if the senators failed to land a killer blow, Goldman did not come out well. The bank offered a masterclass in legalistic hair-splitting and obfuscation. Among other things, this involved senior bankers pleading ignorance of a well-known mortgage product. The most toe-curling moment came when Goldman’s chief financial officer, David Viniar, was asked if it was appropriate for a banker to refer to investments the company was selling as ‘shitty.’ Amid derisive laughter, he appeared to say that what was wrong was to express such a thought in an e-mail. Mr. Viniar was obliged to clarify that it was the thought, not the medium, that was wrong.
“The impression given is that Goldman does not get it. To the man on the street, the synthetic CDO business seems like something from a parallel universe. It bears no resemblance to traditional banking. The idea that Goldman and its hedge fund clients made money from this necromancy by selling duff securities to banks that then had to be bailed out is what infuriates the public.
“Goldman has said thank you to the taxpayer for rescuing it. It believes the banking business should be more tightly regulated. But in its public statements at least, it seems blind to the ethical dimension. The CDO case is not the first time it has faced such questions. It was criticized for selling Greece derivatives that helped the country massage its public debt figures. It later sold Greek bonds to its own clients.
“The bank’s failure to engage with the ‘how it looks’ problem could, if not resolved, threaten its franchise. Clients may conclude that it does not really put them first. The bank needs to show it understands these concerns.”
And here are some real life examples on how Goldman Sachs, and other banks, became responsible for the collapse of many a local, and even national, government.
“The doomed deal at the heart of the government’s civil fraud suit against Goldman Sachs was designed for sophisticated investors.
“But one of the main buyers of the complex toxic securities issued by the Goldman vehicle, a German bank known as IKB, paid for its share of the deal with money it collected from a number of relatively unsophisticated investors including King County in Washington State.
“In 2007, the county bought $100 million of commercial paper, a type of short-term debt, from Rhineland, a special fund created by IKB that in turn snapped up nearly $150 million of the securities created by the Goldman vehicle known as Abacus 2007-AC1.
“When the huge financial apparatus devised by Goldman went down in flames, taking Rhineland with it, King County was saved from a loss only because IKB had agreed to insure Rhineland’s debt.
“But the local government wasn’t so lucky with a similar, $50-million purchase it also made in 2007 from another IKB fund, dubbed Rhinebridge.
“The county lost $19 million when Rhinebridge collapsed – and an additional $54 million when other similar funds defaulted. About 100 county agencies in the Seattle area, including some that deal with libraries and schools, saw their budgets cut as a result. The county has sued IKB and the rating firms that put their stamps of approval on Rhinebridge.
“ ‘They invested in commercial paper that they thought was as safe as Treasury bonds,’ said James Cox, a professor of securities law at Duke University. ‘They undoubtedly thought they were investing in something much more secure.’….
“The case illustrates how complicated schemes created by Wall Street toward the end of the mortgage boom depended ultimately on Main Street’s money.
“The relationships were so tangled that some parties have since been labeled both victims and perpetrators. In the Abacus deal, the SEC suit says, IKB was misled by Goldman about the nature of the deal. King County’s suit, however, claims IKB was smart enough to realize it was buying toxic assets and hid their risk from Rhinebridge’s investors.
“ ‘What we define as sophisticated is turning out to be not all that sophisticated after all,’ said Lynn Stout, a professor of securities law at UCLA. ‘A lot of people – sophisticated and unsophisticated – had come to trust regulators to make sure that investments were honestly marketed.”
Ah yes…the marketing of all this crapola. When I was in the fund game, I learned firsthand the importance of a good compliance department. I also had to set the tone for our sales people. On the ethics front, this is where Goldman, and the Street in general, went horribly bad.
So where was the compliance in peddling the Goldman CDO crap? Why there was none needed because the banks paid off the ratings agencies for that AAA label and everything took care of itself. “I know it’s AAA, but I’m getting a yield far higher than Treasuries. What’s the gig?” “Joe, we’ve known each other a long time. S&P looked this portfolio over about sixteen different ways. Worst case, two, maybe three percent of the mortgages go bad. And that’s really a worst case…like Armageddon.”
Another note on this garbage. In Italy alone, similar deals to the one described above found their way into “an estimated 519 cities and towns (that) are facing more than $1.3 billion in losses from derivatives deals, according to a report from the Bank of Italy” (and the Washington Post). 519! In Italy!
Which brings one to Greece. This weekend we’ll learn details on how Greece is planning on containing its debt crisis, even as Athens police battle protesters objecting to severe austerity plans that will send the Greek economy into a years-long severe recession, if not outright depression. The EU and IMF are to be activating a 3-year rescue package of at least $60 billion (to as much as $160 billion) as Greece faces an immediate deadline this month to repay about $12 billion in maturing debts.
But as we’ve been discussing for weeks now, this is indeed, in economist Nouriel Roubini’s words, just “the tip of the iceberg.” As Portugal and Spain saw their credit-rating downgraded (while Greece’s was reduced to junk status), S&P estimated that Greek bondholders could lose $265 billion if the nation defaults. Certainly, in any restructuring short of that, bondholders will get back maybe 30 to 50 cents on the dollar. The interest rate on a two-year Greek piece of government paper had a yield of 25% at one point this week.
To carry it forward to the other trouble spots, though, economists at Goldman Sachs, JPMorgan Chase, and RBS estimated that the Euro nations may need to provide as much as $794 billion to solve the regional crisis. $794 billion! Germany is largely cooperating for now, but their patience is already running thin. Imagine attitudes on the continent as this drags out further. I’m dead serious. If the global economy were to double-dip over the next two years, forget the whole euro concept of peace and harmony. You’ll have war. [And having just come from there, once again it could start in the Balkans, though this time Europe couldn’t rely on the U.S. to quell what would start out as a mere firefight. In fact it looks like I got out of Tirana, Albania in the nick of time. They had massive protests against the government on Friday.]
Plus the sovereign debt crisis that PIMCO’s Mohammed El-Erian correctly posits will just be rolling from one flashpoint to another, can easily reach heavily indebted nations such as the U.S., U.K. and Japan. A vicious circle is setting itself up. A giant vortex…spinning inexorably downward into the black hole. Then…poof! Those of us left will start over with our barter economy. Some of you can then exchange your gold bars for kernels of corn. I’ll be holding worthless paper and in turn ask you if I can be your farmhand in return for a spot in the barn to sleep amidst the vampire bats.
Really…how can you possibly be optimistic? And I haven’t even begun to bring up the usual hot spots, terror threats, etc. Not one. No, this could be a terror of a different kind. Total anarchy in many parts of the world, all as a result of the economy, and the rise of truly ugly figures. We’ve seen it before. We never learn.
But next week I’ll lay down all my thoughts on the economy and the markets, including the issue of protectionism. It’s been a little hectic the past few days, catching up after my trip, so I’ll cover it all next time instead. For now, stocks suffered their worst week since January, for the Dow Jones and Nasdaq the first losing one in nine, as the Dow lost 1.7%, the S&P 500 2.5% and Nasdaq 2.7%.
It was all about Greece and Goldman, with the latter suffering mightily on Friday due to reports the Justice Department is now looking into the firm.
Ironically, industrial America, in the form of Caterpillar, Whirlpool, GE, 3M, and DuPont all gave favorable outlooks for the balance of 2010, earlier than I thought they would, and the first estimate on GDP growth for the first quarter came in at a solid 3.2%, though down from the fourth quarter’s 5.6%.
On the housing front, the Case-Shiller 20-city index for February was down 0.1% from January, though up 0.6% from a year ago in a further sign of stability but little else. The first-time homebuyer credit expired on Friday.
Additionally, in another yawner, the Federal Reserve opted to hold the line yet again on interest rates, though it said the labor market is “beginning to improve.”
Street Bytes
Yields fell in a flight to safety, while President Obama is set to name Janet Yellen as vice chairwoman of the Fed, a nomination that would be subject to Senate approval. Obama will also fill two other vacancies on the board. Yellen is considered a dove on monetary policy, meaning she’s more concerned with unemployment than any rise in inflation.
–Editorial / Wall Street Journal…on the Goldman Sachs hearing.
“If yesterday’s hearing had any value, it was the recognition, even by the Senate inquisitors, of the real root causes of the crisis: too many bad mortgage loans with poor underwriting, and too many pools of these bad loans carrying a triple-A rating.* Exploring the creation of junk loans should lead Senate investigators to the same place where most of the taxpayer losses are occurring – Fannie Mae and Freddie Mac.
“Former Fannie Mae Chief Credit Officer Edward Pinto calculates that as of June 2008, the toxic twins and other government entities were responsible for more than $2.7 trillion in subprime and Alt-A mortgage exposure. Goldman’s mortgage business was small potatoes in comparison; in fact this figure is three times Goldman’s entire balance sheet.
“The Senate’s pending financial-regulation bill has no reform of Fannie and Freddie. Fresh off their meeting yesterday with the marketplace, the committee members might start on the road to useful reform by insisting on a rewrite.”
*The New York Times’ Paul Krugman had the following this week.
“(Of) AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent – 93 percent! – have now been downgraded to junk status.”
Consumer prices in the 16-nation eurozone rose 1.5% in April from a year earlier. Unemployment held at 10%.
South Korea’s GDP increased 1.8% in the first quarter over the previous one, better than expected.
China placed a moratorium on capital raising by real estate firms in yet another move to rein in property prices. The suspension allows the Ministry of Land and Resources to examine whether companies have been manipulating market prices.
Retail sales in Japan grew at their fastest rate in 13 years in March, up 4.7% from year ago levels and their third consecutive month of gains after 16 straight of declines going back to Sept. 2008. Government stimulus measures in autos, household appliances and clothing have been effective and on Friday the central bank said it would also keep monetary policy “extremely accommodative” to help fight deflation, though it also hinted that perhaps the era of declining prices is finally coming to an end, with the recovery in Asian markets leading to solid gains in exports. But for now, consumer prices in March declined 1.2% from a year earlier, the 13th straight month of declines.
Hungary, which required an IMF bailout last year, is running a deficit higher than the target set by the IMF and the new prime minister-elect, Viktor Orban, is seeking approval to widen the deficit further to boost growth.
The unemployment rate in Spain is now officially over 20%, 20.1% to be exact.
Mexico’s economy grew at an estimated 4% clip in the first quarter, its third straight quarter of growth. Inflation rose to 5%.
Australia’s five rate increases have done a solid job of slowing its housing bubble as the rate of price appreciation is coming down, though with consumer prices rising 2.9% in the first three months vs. year ago levels, there are calls for more rate increases. [But 2.9% is hardly panic city, especially with the commodities boom that has led to the Aussies weathering the storm better than just about anyone in the world.]
And in the latest estimate on the housing market in Ireland, some say prices are down as much as 60% from the 2007 peak, while in the case of Anglo Irish Bank the government is admitting that $28 billion already or to be spent in this massive bailout may never be recovered as it’s estimated it will take 20 years to wind it down. This comes just a month after the finance minister said “he could not countenance” closing the bank.
–Support for a global bank tax fell apart as Canada, Australia and Japan are staunchly opposed, seeing as they had nowhere near the banking issues the likes of the U.S., Germany and the U.K. had. Officials in Canada and Australia, for example, say the tax is punitive and would force banks to look for countries that don’t impose it. So consider the idea dead for at least a year.
–Investors who question China GDP reports aren’t the only ones. A Chinese newspaper has also raised concerns.
“In 28 provinces, municipalities and autonomous regions, the GDP grew much more in the first quarter compared to the national level [11.9%]….
“Ye Qing, deputy director general of Hubei Provincial Statistics Bureau, said the phenomenon was due to the different methods the state and regional departments used to calculate figures.
“Repetition and false data from local authorities to gain political points are other possible reasons, Ye was quoted as saying.”
None of the preceding is a surprise, especially the bit about gaining political favor, but the confusion is warranted. For example:
“Shanxi Province recorded a 19.4 percent growth rate in first quarter GDP, while it was the only province that recorded negative growth in the same period last year.
“ ‘Shanxi witnessed a negative 8.1 percent GDP growth in the same period of 2009 due to less demand for coal and electricity from southeast coastal areas along with the economic slowdown,’ said (the) executive director of Industrial Economics Research Center, Beijing. ‘The economy started to recover and demand is surging again now,’ he added.”
It’s about trends, and as I’ve noted previously, using other country figures, like South Korean or Japanese exports to China, to get a more complete picture of mainland activity.
–Barclays bank, in reporting a profit of $2.25 billion, played down its exposure to Greece, Spain and Portugal, while some experts say it is right in the crosshairs with an exposure to the three of up to $60 billion. [Not that this is what they’d lose, but you could be talking a quarter or two down the road where there is a major hit to earnings and a massive downdraft in the stock.]
–The pension furor is worldwide, not just here. A former political leader in Ireland, Alan Dukes, is under fire for refusing to give up his double $130,000 annual pension even as he earns a similar amount as the state-appointed chairman of Anglo Irish Bank. He picks up roughly $60,000 as a former finance minister and another pension of $70,000, plus he’s going to earn over $200,000 as Anglo Irish’s executive chairman.
What’s so upsetting to many is that this is a bank that will cost the state as much as $30 billion when all is said and done. Of course the graceful thing to do would be to give up his pensions until he leaves the bank chairmanship, but Irish hubris has shown itself throughout the crisis.
Back in the States, New Jersey Gov. Chris Christie, in describing his fight with teachers and their union, says there are “two classes of citizens in New Jersey: those who enjoy rich public benefits and those who pay for them.” The teachers want to keep a pay raise while at the same time paying a minimal share of their retiree benefits.
Fred Barnes of “The Weekly Standard” writes:
“According to the U.S. Bureau of Labor Statistics, state and local government salaries are 34% higher than those for private sector jobs. Okay, that’s partly because government workers tend to have white-collar jobs. Benefits, 70% higher for these workers, are the real rub. And benefits for government retirees are the most flagrant. They’ve become a national scandal, a fiscal nightmare for states, cities, and towns, and an example of unfairness of the sort liberals routinely complain about but are mostly silent about just now.”
One example of abuse comes from the “Contra Costa Times” of California.
“The final salary of one fire chief, 51, was $221,000. He was given an annual, guaranteed pension of $284,000. Another chief, 50, whose final salary was $185,000, got a pension of $241,000.”
Christie cites the example of a New Jersey retiree, 49, who paid “a total of $124,000 towards his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments and health benefits.” [The Weekly Standard]
–The Board of Massey Energy defended the company’s safety practices in the disaster at their Upper Big Branch mine that claimed 29 lives. CEO Don Blankenship said, “In the past 20 years, we have done our best to engineer the dangers out of coal mining.” But now the FBI is evidently investigating. Defenders of Mr. Blankenship are beginning to look like idiots.
[The flip side of Massey and its claim of innocence, despite hundreds of violations at the Upper Big Branch operation, was the claim of Cecil Roberts, president of the United Mine Workers, at a recent hearing. “The miners who work for Massey are scared to death. They’re intimidated. This company is run like it’s 1921, not like it’s the present day.” The problem is the regulations, and appeals process, are such that violations are often papered over as the appeals process drags out and the mine stays open.]
–Ret. Army Gen. John Shalikashvili, former chairman of the Joint Chiefs of Staff, and Ret. Army Gen. Hugh Shelton wrote an op-ed in Friday’s Washington Post calling ‘obesity’ a national security threat.
“From 1998 to 2008, the number of states reporting that 40% or more of young adults are overweight or obese has risen from one to 39.
“While other significant factors can keep our youth from joining the military – such as lacking a high school diploma or having a serious criminal record – being overweight or obese has become the leading medical reason recruits are rejected for military service.”
It’s an issue so serious that 130 retired generals, admirals and senior military leaders are calling on Congress to pass new child nutrition legislation.
“What children eat and drink during school hours constitutes as much as 40% of their daily nutrient intake. Properly managed, the school environment can be instrumental in fostering healthful eating habits among our children.”
So for starters, we must get the remaining high-calorie beverages and junk food out of the schools.
–Shanghai has kicked off its World Expo with the largest number of foreign leaders in the city since 1843, when it became an open port. Direct investment in the Expo is $4.2 billion, but including the cost of infrastructure, it’s anywhere from $44 billion to $58 billion, according to the Shanghai-based 21st Century Business Herald.
–There were a number of stories in the Chinese papers this week on the enormous trash burden that is building. Such as in Guangzhou, where the landfill (a two-hour drive away) will run out of space in two years. So officials are turning to incinerators to deal with the crisis, but while one has been built, two others have been stopped by protests, just like you see in the United States…not in my back yard. The government, worried that protests will get out of hand, is now looking elsewhere but it’s running out of time. China produces more household rubbish than any other nation and the total is increasing 6% a year.
–Who is the world’s leading supplier of laptops? Try Taiwan’s Acer, which is also now the second-leading producer of computers overall. Acer continues to gain share in the U.S. and Europe, notebooks being its strongest area of growth.
–As for Hewlett-Packard, who Acer surpassed on the laptop side, it acquired struggling Palm for $1.2 billion, some saying it’s paying too much. Personally, I finally turned my Palm smartphone on. I may actually use it in the third quarter.
–The Wall Street Journal was the only one among the top 25 newspapers to post a gain in circulation for the six months ended March 31, up 0.5% to 2.09 million. USA TODAY continued to slide along with the slump in the travel business, falling another 13.6% to 1.83 million.
Others: New York Times down 8.5%, weekdays (-5% on Sundays), Washington Post down 13%, and the San Diego Union-Tribune off 23%.
–A merger between UAL and Continental is essentially complete. I’m selfishly concerned about my huge amount of frequent flyer miles on the latter. I talked to an Emirates Airways pilot last weekend in Paris who said you’d be astounded as to the percentage of frequent flyer seats being taken up on Pacific flights in particular…like 60% on some routes.
–Dendreon Corp. won FDA approval for the first “therapeutic vaccine” for cancer to reach the market, Provenge, that is designed to attack advanced prostate cancer but which could usher in an entire new series of treatments for cancer of all sorts. We hear a lot about advances in this field but this is indeed truly groundbreaking as the process involves using the patient’s own immune system. It is also, as you would expect, expensive…$93,000 per patient…and in some cases may only extend life four months, so the debates have already begun. But it’s a very encouraging step.
“The new iPad is tempting. But what if you put the money in Apple stock instead? If the past is any guide, it might be more profitable to buy Apple shares instead of Apple products.
“For example, if in 1997 you had bought Apple stock instead of spending $5,700 on the PowerBook laptop, you’d be sitting on about $330,000.” [Ed. $5,700?! Good lord, times have changed.]
Mr. Milian got his info from a UC Berkeley computer science student Kyle Conroy who has come up with a spreadsheet on such calculations. kyleconroy.com.
–Exxon Mobil earned $6.3 billion in the first quarter, though two years ago it earned $10.89 billion for the comparable period. Both earnings and revenues fell short of the Street’s expectations. [Exxon also has reason to be concerned about the story in the Gulf. The image of all will suffer tremendously.]
–According to USA TODAY, when it comes to the IRS and enforcement of the requirement every American have health insurance starting in 2014:
“While the IRS can impose liens or levies, seize property or seek jail time against people who don’t pay taxes, it’s barred from taking such actions against taxpayers who ignore the insurance mandate. In the arsenal instead: the ability to withhold refunds from taxpayers who decline to pay the penalty, IRS Commissioner Doug Shulman said.
“Still, compliance with the health reform law will be largely voluntary.”
The IRS will be sending out notices and not much else, according to one expert. But, looking at the Massachusetts experience, which has required residents to have health insurance since 2006, in 2008, 98% of state tax filers who were required to provide health insurance information with their state tax returns met the requirement, and 96% had coverage.
But Massachusetts law gives the Department of Revenue the power to use their regular tax-collection powers to enforce the insurance mandate.
–In New Jersey, federal authorities confiscated 15,000 fake pairs of Nikes at Port Elizabeth as part of a nationwide sweep of counterfeit products. As they warned at Woodstock, “There are some fake sneakers circulating around…It’s suggested you stay away from them, but they’re your own feet, so be my guest.” Or was the guy warning about brown acid…I can’t remember.
–From the New York Post’s Page Six we learn that Lisa Maria Falcone, wife of billionaire hedge-fund king Philip Falcone, threw a party for an independent film she produced, “Mother & Child,” spending “$250,000…It was nuts,” said a source. Alicia Keys sang.
And that’s…what sim-ple folk, dooo…so they say. [Simple spouses of hedge-fund billionaires, that is.]
–Uh oh…the Financial Times reports that due to a poor crop in Ivory Coast, the world’s top grower for cocoa, cocoa prices have hit a 33-year high.
Which reminds me…I don’t know if I’ve ever had Cocoa Puffs! Really. When I was a kid, my sugar cereals of choice were Sugar Smacks and Frosted Flakes. No wonder I am the way I am. Well this is all about to change. I go shopping after posting this column (and doing my podcast, which resumes this week), and I’m buying a big box of Cocoa Puffs and going to eat them allll weekend.
–Lastly, we note the passing of Leslie Buck, designer of the cardboard coffee cup. I have to admit, I thought that cavemen invented fire to heat the coffee and thus had to have been the first to invent the cup, what came to be known as the Anthora cup of Grecian design, specifically, but boy was I wrong. It was Mr. Buck who did, and it wasn’t until the 1960s, as he worked for the Sherri Cup Company of Kensington, Conn.
Foreign Affairs
Iraq: Let the record show I said Vice President Biden and former Vice President Cheney were both fools for claiming success on Iraq prior to the vote for a new government, held on March 7, and they were indeed idiots for doing so. Iyad Allawi, whose coalition had captured the most seats, 91, out of the 325-seat parliament, has been unable to form a government in the two months since, nor has Prime Minister Nouri al-Maliki, who originally came in with 89 seats.
But what makes it far worse now is the Iraqi courts approved a recount that is destined to favor Maliki, while the courts have also been disqualifying winning candidates, mostly from Allawi’s slate, for their past political affiliations, read Baath Party. The judiciary is rightly being accused of bias and as Allawi put it, “What is going on is a theft of the Iraqi will and democracy.”
As another car bomb struck Baghdad on Friday, killing at least eight, election officials said the recount, focusing on the capital’s ballots, could take three weeks. Allawi will no doubt be screwed.
Iran: President Ahmadinejad will be coming to New York to attend the Nuclear Non-Proliferation Treaty meeting, due to the fact we’re granting him a visa (the Iranian bastards wouldn’t grant me one a few years back…and all I wanted to do was spend money), and Ahmadinejad will say the West is turning a blind eye to Israel in not allowing developing states access to nuclear technology, while Egypt is also prepared to slam Israel, which will be absent, as will India and Pakistan; the three not being signatories to the NPT.
As for a new round of sanctions on Iran’s existing nuclear weapons activities, well, I thought the deadline was last September. There appears to be little chance anything of real substance will be approved by Russia and China in the next few weeks. Obama should give both until May 15 to agree to sanctions or Washington, with possibly Britain, Germany and France, should go it alone. We aren’t talking about reinventing the wheel here. You either agree with them or not, Russkies and Chinese. And, yes, Iran’s energy industry should be targeted…though the chances of this occurring at this point are nil.
Israel: The above aside, Israeli officials are publicly saying they are committed to Washington’s sanctions efforts, this as Prime Minister Netanyahu’s government, despite his public pronouncements to the contrary, claims that a de facto freeze on East Jerusalem housing construction has been put in place to encourage the Palestinians to return to the negotiating table, which it appears Prime Minister Abbas is prepared to do.
But these days Israel is as concerned with Lebanon and Hizbullah as it is with Iran, which, along with Syria, is using Hizbullah as its proxy army.
UN special envoy Terje Roed-Larsen said on Thursday that the risk of conflict in the Middle East had eased but warned that Hizbullah’s heavy arsenal, in violation of all UN resolutions, must be addressed. Lebanon’s government, however, maintains the issue will be resolved as a result of its “national dialogue,” which is nothing more than a farce after my many years of observation.
Of course on the weapons front the big issue the past two weeks has been talk that Syria may have supplied Hizbullah with long-range Scud missiles, a game-changer if true. The day I left Lebanon, last Saturday, Prime Minister Saad Hariri’s officials were forced to tone down the rhetoric as Hariri had earlier compared U.S. talk of Scuds to the failure to find weapons of mass destruction in Iraq. That’s not what the prime minister meant, they told their U.S. counterparts, though a few days later Hariri was back to blasting the U.S., which is pretty stupid on his part. I liked his father. Rafik’s son is an imbecile.
“(We’re) at a point now where Hizbullah has far more rockets and missiles than most governments in the world, and this is obviously destabilizing for the whole region and we’re watching it very carefully.”
Hizbullah lawmaker (remember, they are in the Lebanese government) Fadlallah said Hizbullah’s weapons and those of the United States and its ally Israel are not to be compared, and he vowed Hizbullah would continue to build up its arms, which are “weapons of an honorable resistance.”
[I was in Lebanon when the Wall Street Journal’s Bret Stephens reviewed my friend Michael Young’s book, “The Ghosts of Martyrs Square,” but didn’t get a chance to read it until I returned. I’m tellin’ ya, you won’t find a better review of a book than Stephens’ take. I also made a good dent in it on my flight home and for political junkies in the region it’s a must.]
Afghanistan: A Pentagon report said the Taliban is getting stronger but the military remains optimistic the latest counter-insurgency strategy will work. The Pentagon admits, however, that the insurgency in the south may never be totally defeated, so the issue is how to establish lasting security and a unified government throughout the country even with occasional violence. The U.S. will have 98,000 troops in Afghanistan by end of August and will be launching its offensive on the Taliban spiritual capital of Kandahar soon.
Pakistan: In another embarrassing move, it appears Taliban chief Mehsud, who was supposedly killed in a mid-January airstrike, is actually alive. Unlike with other killings, such as with the first Mehsud, killed last August, the Taliban never announced Mehsud II was dead. Now U.S. and Pakistani officials are admitting he is still at large, a miraculous survivor of the strike that took out a number of his cohorts.
Separately, the New York Times is reporting that the Pakistani government may finally be coming around to the idea of attacking Taliban and al-Qaeda bases in North Waziristan from which operations are launched against Afghanistan. If so, this is a huge shift in attitude but the proof will be in the pudding.
North / South Korea: South Korean officials are formally conceding that a naval patrol boat was sunk by a torpedo in an incident that killed 46 sailors. But the hardline government in Seoul is continuing to temper its response, the right thing to do thus far.
“This migraine-inducing dilemma for South Korea (and its American ally) in dealing with a nuclear-armed North Korea throws into sharp relief the challenges the world will face when Iran – a bigger country with much greater resources and ambitions than North Korea – gets the bomb in the next few years.
“With nukes, Iran will magnify its regional power, eclipsing major Middle Eastern states like Saudi Arabia and Egypt, stirring up trouble with Shia minorities in neighboring countries and subverting small local states like Bahrain and the United Arab Emirates.
“Iran could also step up its meddling in Iraq and Afghanistan and increase its overt support for terrorist groups Hamas and Hizbullah and kindred-spirit Syria, relentlessly harassing U.S. ally Israel and thwarting Middle East peace….
“This latest North Korean provocation should serve as a cautionary tale of how far a nuclear rogue state can go, if it believes it can act with a free hand with even a small nuclear arsenal.”
“North Korea is likely to survive so long as China continues to prop it up. Since Beijing appears to prefer the status quo on the Korean Peninsula, it is unlikely to withdraw its support anytime soon. That means, in turn, that Mr. Kim has a good chance at getting away with murder – which is probably what he calculated all along.”
China: In addition to the above ‘Street Bytes’ items, the issue of water is of paramount concern. I’ve written of the severe drought plaguing parts of the country, but in general, China faces a water shortage of 201 billion cubic meters in 2030, when 300 million people will lack safe drinking water, according to a report released this week by McKinsey & Company, though there are solutions and China is working on them, including reusing wastewater for industrial use.
Meanwhile, Taiwan and China are continuing to talk on free trade and an agreement between the two could be signed in June, which is causing major consternation on Taiwan amid concerns the island will be flooded with cheap mainland goods and could be used by Beijing to pursue its stated goal of reuniting Taiwan with the mainland. Taiwanese President Ma denies this will be the case. “The goal is to make Taiwan globally competitive. We can’t have globalization without the Chinese mainland,” he said.
[From a very selfish standpoint, I just want a Taiwanese businessman to acquire my specialty chemical/biodiesel operation across the Strait in Fujian.]
Lastly, I have to acknowledge the incredibly disturbing series of attacks this week on Chinese kindergarten students in their classrooms, 3 in 3 days, injuring 50, though as I go to post no reports of any deaths. I saw a story where China has a staggering 170 million with one form of mental illness or another and basically zero services to deal with them.
Russia / Ukraine: Editorial / Financial Times…on the new era in relations between Moscow and Kiev.
“Viktor Yanukovich became the president of Ukraine promising a rapprochement with Russia. He has certainly delivered one.
“The deal Mr. Yanukovich has just signed with his Russian counterpart, Dmitry Medvedev, represents a decisive break with the policies of his predecessor, Viktor Yushchenko. By allowing the Russian navy to extend the lease over its base at Sevastopol in the Crimea, he has effectively torpedoed Ukraine’s pursuit of NATO membership. The alliance’s rules prohibit any member nation from hosting foreign bases on its soil.”
The above was written on Monday. The next day, Tuesday, fighting broke out during a session of Ukraine’s parliament, complete with smoke bombs. Thousands protested in the streets, all over the deal to extend the lease to the Russian Black Sea Fleet; both examples of the 50/50 divide in Ukraine between pro-West and pro-Russian sentimentalities. Opposition leader Yulia Tymoshenko, the defeated presidential candidate, has vowed to lead a far bigger protest on May 11, so this becomes a date that bears watching. Plus, on Friday, and out of nowhere, Prime Minister Putin suggested that Ukraine merge its national energy company with Russia’s Gazprom. This is incredible…and nuts…if Ukraine ever accepted the proposal. Far more on this next time as it’s a breaking story. [Putin may have just overplayed his hand.]
Meanwhile, in Moscow, some opposition political figures have been framed by Ekaterina Gerasimova, a modern-day Mata Hari. As first reported in the London Telegraph, “Her mission, it is claimed, is to discredit prominent Kremlin critics by luring them into compromising situations using vintage KGB honeytrap techniques.”
This is why when I’ve gone to Moscow, I always steer clear of honeytraps. [Cough cough… ahem ahem…sorry, frog in my throat.]
Continuing…because it’s salacious…and it’s Web Sweeps Week…
“Offering her body, sex, and drugs from cocaine to marijuana as an inducement,’Katya,’ as she is usually known, has tried and often succeeded in bedding at least half-a-dozen high-profile Kremlin critics and other political figures. The damage to reputations has varied from serious to negligible depending on her victim’s marital status and response.”
I only asked for premium beer, it goes without saying….oops!
But should you come across Katya, guys, know that she also goes by the name “Moo-Moo.” She is said to be “highly persistent in her advances.”
In more serious news, not that the preceding wasn’t serious if you were caught on tape with Moo-Moo and it was splashed on the Internet for your wife to see, the Moscow Times had a story about how the Kremlin may finally be prepared to act against the notorious traffic police who extort bribes, as the prosecutor general presented a report to parliament on same.
Related to the corruption game, at my Paris hotel last weekend I met the aforementioned pilot with Emirates Airways and in swapping stories, he told me of a terrifying one involving visitors to Moscow. Make sure when you get to passport control on arrival that the customs agent actually stamps the passport!
Captain Steve told me of a friend, an experienced traveler, who unbeknownst to him was trailed from the airport to his hotel. When he got there, he was confronted by “authorities” who said he was in the country illegally because his passport had not been stamped. He was then told that unless he turned over $1800 he would be hauled off!
Well, the gentleman didn’t have that kind of access with his ATM card but part of the ruse is that the hotel then pays the $1800, to get reimbursed later by the visitor/guest. [So of course the hotel is getting a little cut too, one can assume.]
And on another angle involving our Russian friends…reset! reset!…Maryland Sen. Benjamin Cardin sent a letter to U.S. Secretary of State Hillary Clinton on the case of Hermitage Capital attorney Sergei Magnitsky (Hermitage being an American operation whose president was forced into exile over bogus charges), who died last November in a detention center in Moscow. Cardin accused more than 60 senior Russian officials of being responsible, including top brass at the Russian Foreign Ministry, Federal Security Service, Federal Tax Service and Prosecutor General’s office. Cardin demanded all the individuals be denied visas to the United States.
This could become a huge issue between our two countries. Magnitsky, and Hermitage, were falsely accused of embezzling $230 million of government funds and Magnitsky was clearly denied needed medical treatment while in prison which precipitated his death.
Britain: As of Tuesday, Prime Minister Gordon Brown was running third behind the Conservatives and Liberal Democrats in polling before the May 6 election that could lead to a hung parliament. Generally, the polls were about 33% for David Cameron’s Conservatives, 30% for Nick Clegg’s Liberal Democrats, and 27-28% for Brown’s Labour Party.
That was then…this is now. As in on Wednesday, Brown, forgetting that Sky News had earlier planted a microphone on him as he went about his campaigning, caught him in an historic political gaffe.
Brown had had a five-minute confrontation on the street with 66-year-old Gillian Duffy, a Labour-supporting widow who questioned some of Brown’s policies, including on immigration from Eastern Europe. It otherwise went fine. She was a little upset, they talked it out, all seemed good. Then Brown got in his car and muttered that the meeting had been a “disaster,” blaming aides for putting him in such a position, and describing Mrs. Duffy as “a sort of bigoted woman.”
Immediately it was run on Sky News and the rest is history. Brown backtracked, spent 45 minutes inside her house, made six public apologies, buried his head in his hands when he heard the full tape in a radio studio, and it’s exit Gordon Brown from the political arena. An incredible catastrophe for the Labour Party, struggling as it was to begin with.
So Thursday’s vote is going to be wild. The way the balloting is going to work out, Clegg may finish third in terms of actual seats in parliament, but he’ll be kingmaker.
[However, regardless of the result, Britain has no money! It will be impossible to enact an aggressive agenda.]
Thailand: This country is heading towards full-scale civil war unless the government takes action immediately against the Red Shirts.
Sudan: President Omar al-Bashir was declared the winner of landmark elections even while he faces war crimes charges over Darfur. A former rebel leader won the vote in the semi-autonomous south in the first polls since the north-south war ended. A referendum is to be held in 2011 on whether the Christian dominated south can secede from the Arab-dominated, mostly Muslim north.
Venezuela: President Hugo Chavez disputed a Pentagon report that found an Iranian Revolutionary Guard elite unit has a presence in Venezuela. This should look familiar to you, a concern I first expressed about six years ago.
Belgium: Another fellow I met at my Paris hotel bar (you don’t meet any folks sitting in your room, sports fans) was from Belgium, though now residing in Dubai. He couldn’t stand his old home, complaining of all the immigrants that are destroying the place. I mentioned it was one place I hadn’t been to and he said the only destination he thought was worth a damn was Brugge.
So I bring this up because, incredibly, Belgium, split between the Dutch-speaking North (Flanders) and the French-speaking South (Wallonia), hasn’t really had a government for years, though the latest facsimile of one lasted five months, that of Prime Minister Leterme, who then resigned last week, thus plunging the country into another crisis at a time when Belgium assumes the six-month presidency of the European Union in July.
The main problem is the status of a bilingual voting district in and around Brussels, which is surrounded by Flanders and Wallonia. It’s a total embarrassment and no wonder the fellow I met, Jay, didn’t consider himself Belgian anymore.
So this is all part of a far bigger topic I will tackle next week…immigration and Europe.
Random Musings
–The Drudge Report ran a stupid headline story Friday morning about which news service would be the first to run a picture of an oil-slicked bird. Idiots. This is going to be a catastrophic disaster for wildlife and the images are going to be sickening and disheartening.
–Equally disheartening were photos from Saigon, 35 years ago, April 30, as the last U.S. helicopter left the embassy roof. We abandoned the South Vietnamese, but as a New York Post editorial notes, America nonetheless won the Cold War, of which Vietnam was a lost battle.
“(A) tribute to the determination of every president from Harry S. Truman to Ronald Reagan (though clearly some were more determined than others).
“But much credit also accrues to the millions of young Americans who, over the decades, answered their country’s call in times of crisis.
“America’s debt to them all is immeasurable – but today it is particularly appropriate to give a thought to the 2.7 million who served in Vietnam, and the 58,260 who died in combat.
–A new Gallup poll shows 39% of Americans support Arizona’s immigration law, 30% oppose it, and 31% have not heard of it or have no opinion of the measure, which grants police unprecedented authority to question and detain suspected illegal immigrants.
But the protests are gathering momentum while lawsuits are soaring, this as support for the action among some lawmakers in states such as Texas and Oklahoma builds as well. One individual particularly upset by the law is Mexican President Calderon, an ally whose support we can ill afford to lose at this moment with his nation in danger of a true meltdown should he be assassinated. [A harsh reality these days in Mexico.]
Some opinion, both sides:
“One hundred and eighteen years after her great-grandmother arrived in America, (Arizona Governor Jan) Brewer stood in the shadow of the Statue of Liberty, next in line for governor [Ed. at the 2004 Republican National Convention in New York.]
“For now that she is governor, Brewer has signed an immigration bill that spits in Lady Liberty’s face.
“The new law seeks to slam shut that golden door. It goes so far as to make it a crime not to carry papers proving you are not just some tempest-tossed soul who arrived in this country unbidden.
“ ‘Your papers, please!’ is the talk of totalitarianism.”
“Arizona’s new immigration law shows what happens when a state on the front lines of a failed immigration policy reaches the bursting point. What you get is a blunt instrument that produces lawsuits, more political polarization (if that’s possible) and the risk of hostility between the local police and the public.
“The law makes it a state crime to be in the U.S. without proper documents. It allows the police to stop anyone on ‘reasonable suspicion’ that they may be in the country unlawfully and arrest them on the spot if they can’t produce identity papers. The police aren’t required to have a search warrant or even to suspect some illegal action has occurred before questioning a person. Traditionally the federal government has enforced immigration laws, so this is an extraordinary state criminalization of a heretofore federal authority.
“Not every undocumented U.S. resident is Latino, but most are. Given that about one-third of Arizona residents are Latino, opponents of the measure fear it will raise charges of ‘racial profiling.’….
“The loud voices denouncing ‘Arizona’ should understand that the results of the nation’s failed immigration policies have come down on this state. Hundreds of local immigration measures have been enacted nationwide with the goal of restricting access to everything from housing to jobs to drivers’ licenses….
“Arizona’s police chiefs association opposed the new law. Local enforcement agencies don’t want responsibility for enforcing national immigration laws because they say it makes them less effective at their day jobs. When people in immigrant communities see the local police as deportation agents, they become less likely to report crimes and help in investigations. Conditions worsen.
“Restrictionists insist, with some justification, that these laws are shrinking the illegal population. The larger reality is that border crossings track the economy. The recent downturn has meant fewer illegal entries and more immigrants going home. Before the law, Arizona’s illegal population had fallen 18% in the past year….
“We’d support a national immigration reform that was realistic about the fact that most of these are economic migrants who will find a way to come here in any case if this is where the jobs are. The most effective way to reduce illegal entries and defuse these tensions is to expand legal channels, including guest worker programs….
“But so long as Republicans, Democrats and Mr. Obama mainly view immigration as an electoral weapon, the nation can expect more desperate laws like Arizona’s.”
“It is passing strange for federal officials, including the president, to accuse Arizona of irresponsibility while the federal government is refusing to fulfill its responsibility to control the nation’s borders. Such control is an essential attribute of national sovereignty. America is the only developed nation that has a 2,000-mile border with a developing nation, and the government’s refusal to control that border is why there are an estimated 460,000 illegal immigrants in Arizona and why the nation, sensibly insisting on first things first, resists ‘comprehensive’ immigration reform.”
–According to an AP-GfK poll, Democrats and Republicans have an equal 44% of the confidence of the people for handling the economy; the Dems having had a nine-point advantage just four months ago. Using Pew Research Center data, the last time the two parties were even on the economy was 2002. It’s all about the issue of jobs, and as one Republican strategist told the L.A. Times’ Alan Fram, “Republican candidates on the campaign trail will ask one very simple question: ‘Are you better off today than you were two years ago?’”
–Ages ago I wrote of an idiotic plan by Al Gore and others to put a laptop computer in every African child’s hands, saying that only two things mattered…clean water and good roads, from which all else (real progress) flows. Spend resources for these two, first. George W. Bush’s AIDS initiative and Bill Gates’ efforts to fight disease are along these lines as well.
“The partnership between One Laptop per Child and the East African Community aims to deliver 30 million laptops in the region by 2015.”
–Finally, British scientist Stephen Hawking warned last Sunday that aliens may exist but we should keep our distance.
“If aliens visit us, the outcome would be much as when Columbus landed in America, which didn’t turn out well for the Native Americans,” said the astrophysicist.
As part of a television series for the Discovery Channel, Hawking speaks of a universe featuring alien life forms in huge spaceships on the hunt for resources after draining their own planet dry.
“Such advanced aliens would perhaps become nomads, looking to conquer and colonize whatever planets they can reach,” he warned.
Hawking finds the probability of aliens totally rational. “The real challenge is to work out what aliens might actually be like.”
Huh. I always thought Megan Fox was an alien. But bottom line…yet another reason to sleep with one eye open.
Pray for the men and women of our armed forces, and all the fallen.
Gold closed at $1180 [$1227 record high]
Oil, $86.19
Returns for the week 4/26-4/30
Dow Jones -1.7% [11008]
S&P 500 -2.5% [1186]
S&P MidCap -3.1%
Russell 2000 -3.4%
Nasdaq -2.7% [2461]
Returns for the period 1/1/10-4/30/10
Dow Jones +5.6%
S&P 500 +6.4%
S&P MidCap +13.3%
Russell 2000 +14.6%
Nasdaq +8.5%
Bulls 54.0
Bears 18.0 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
