Wall Street and the Deepwater Horizon Disaster
I arrived in New Orleans on Monday afternoon for a quick trip to see the National World War II Museum and get some sense of what is happening along the coast with the BP drilling disaster. And, of course, I sought to act as a one-man economic stimulus program for Bourbon Street, where I was staying for three nights, and I managed to accomplish virtually everything I set out to do.
My first task upon arriving at the hotel was to ask the barmaid if she knew of anyone that would want to earn some major cash to take me on a little trip down to Grand Isle on Wednesday and she asked Ryan, the bellman on duty when I checked in. Ryan had Wednesday off and when I mentioned what I would pay him he said, “I can do that.”
So assured of my ride for Wednesday, on Tuesday I went to the WWII Museum. Now I had been here just two years earlier but knew they made quite a few changes since then, including the introduction of what proved to be a spectacular film, “Beyond all Boundaries,” and I could come here every two years the rest of my life and always pick up something new, or have a principle or two reinforced. Do yourself a favor. Bring the family down to this place. Your kids will thank you. [Lock the kids in their room at night, however, while you go out and have a good time.]
After the first big carrier conflict of the war in May 1942, the Battle of the Coral Sea, which was essentially a draw, Admiral Nimitz sprang his trap at Midway. But Nimitz needed the USS Yorktown, heavily damaged in the Coral Sea, and was told it would require 3 months to repair. Nimitz said, “Get it done in 3 days.” It was…though hundreds of engineers were aboard, putting on finishing touches as the Yorktown streamed to Midway where the United States dealt the Japanese a crushing defeat that began to turn the tide in our favor. We got things done back then. Not always the first time, but few can argue with the results.
Today? I don’t really need to answer that, do I? Almost nine years after 9/11, forget bin Laden, we can’t even find one-eyed Mullah Omar. [Nine years later, we don’t even have a suitable memorial at Ground Zero…it’s pitiful.]
Well, on Wednesday, I hopped in Ryan’s beaten up car for the long ride from New Orleans to Grand Isle. I had never been to the Louisiana coast, though spent time post-Katrina in the Biloxi area across the way, and I have to admit I had no concept of the distance but Grand Isle was a good 2 1/4-hour drive, a boring one, until you got close to Grand Isle and the coastal waterways. Luckily the talk shows were interesting, including Garland Robinette’s, the fellow some of you have seen on the national newscasts the past few weeks.
As we approached Grand Isle, the narrow road is surrounded by marshland with nothing on the horizon but sky and you really get a sense of the fragility of it all.
And as we crossed the causeway connecting the island to the rest of Louisiana, there they were, the booms, and I looked at Ryan and said, “Those aren’t holding anything back.” The water (unlike what you saw on Obama’s trip to Grand Isle on Friday, which was perfectly calm) was lapping over the booms and of course we’ve all learned that the oil is going underneath as well.
It was also at this time Ryan and I saw a potential problem on the horizon…very dark clouds. As in I said to him, “Our timing sucks, my man.”
So we’re driving down the main drag, with the signs that all the beaches are closed, and I’m taking in the fact that most of the homes are built on stilts that would have made Jack, of Beanstalk fame, proud.
But it was getting darker, lightning was flashing in the distance, and I told Ryan to pull over as I ran up the sand dune to peer down the beach, knowing full well I wouldn’t have time to get to the ocean (the beaches were closed but at this particular entrance no one was there to stop me) when the storm hit in force and I hightailed it back to the car. I swear, in five minutes the main road there was flooding, the place is so flat. Forget hurricanes…you need a house 20-feet in the air just to prevent water damage from thunderstorms.
So we went to a restaurant I had noticed on the way in and as it was about noon, all the workers were eating there, some not bothering to take off their life jackets. [These were the guys laying the boom.]
I ended up seeing a number of staging grounds, and lots of National Guard troops and heavy vehicles, so work is getting done, but a lot of it will be ineffective should any of the main plumes and patches of oil actually invade the area, as has been the case on a somewhat limited basis thus far as this slow-motion disaster continues to unfold. [Grand Isle had a fair amount of oil on the beach just a week ago but the slick stayed offshore the past few days, which was why the pictures for Obama weren’t any different than what you see at the Jersey shore, only there the president would have been picking up medical waste.]
No, I didn’t actually see the spill, nor, thankfully, pelicans covered in oil. But I was glad I took the trip down there and I repeat, it’s amazing how fragile the marshlands are.
It’s also easy for the rest of us to say, well, why would you live in a place like this where, forget oil, one storm with a surge of ten feet would go miles inland because there is essentially nothing to stop the water?
Because it’s home. It’s not more complicated than that. This isn’t a case of, say, vacation houses along the New Jersey or North Carolina coasts where you have little sympathy if they are destroyed in a storm. True, Grand Isle has some of that as well but there is a longstanding community here, too, as there are others just a few miles inland. If your livelihood is fishing, there is no better place to be. And if you make your living working the rigs offshore you want to live close by as well. [Many of the people do both jobs.]
But for the record, let me dispense with some facts before sharing further opinion.
April 20 explosion
April 22 rig sinks
April 24 first oil leak detected…though no one can say definitively whether it started April 20 or anytime in between.
The Gulf coast is responsible for 73% of the nation’s domestically produced shrimp and 59% of its oysters. The restaurants I went to were not running out of either, almost 40 days after the spill, but shortages are coming soon.
In Louisiana alone, an analysis of the commercial fishing licenses leads one to believe there are about 30,000 who attempt to earn a living on the water, and of course many times that in other industries, including the restaurant business.
BP has offered to pay each fisherman $5,000 a month in compensation but is dallying on handing out checks. You can also imagine that not everyone’s motives are pure. There are men receiving checks who haven’t fished in years yet are working on the new prevention teams designed for the real fishermen.
Before it was announced on Thursday and Friday that the estimate of the amount of oil that has been leaking was not BP’s initial 5,000 barrels per day but rather 12,000-19,000 (and maybe up to 25,000), I saw others taking it to 30,000-40,000. With all the reading I’ve done on the topic, I think it’s the latter.
The spill exceeds that of the 1989 Exxon Valdez disaster.
There is little doubt that BP was grossly negligent, witness the argument taking place between senior managers of Transocean and BP just 11 hours before the well blew because of shortcuts BP was taking by replacing heavy drilling fluid with saltwater, which no doubt played a significant role in the accident.
BP’s liability is now estimated by Wall Street analysts at anywhere from $12 billion to $20 billion. I am in the camp that the disaster represents an existential threat to the company itself.
It’s also important to remember that Halliburton was responsible for the cementing of the well, Transocean was the maker of the rig, and Cameron International made the failed blowout preventer.
Deepwater Gulf activity, until the accident, was expected to account for 30% of total U.S. oil production by 2013.
Now, President Obama suspended planned exploration along the coasts of Alaska and Virginia, as well as 33 wells underway in the Gulf, along with a moratorium on issuing new permits.
In a Gallup survey, 53% believe Obama is doing a poor or very bad job of responding to the mess.
Democratic strategist and longtime Louisiana native James Carville said, “Why do we still not know how much oil has been pumped out? Why did it take us 30 days to get the pictures? Who’s running this show?”
Presidential historian Douglas Brinkley said, “There is no sense President Obama has taken charge.”
As of a week ago, 600,000 gallons of the chemical dispersant Corexit had been sprayed on the water, with another 55,000 gallons down at the source of the blowout. BP was told by the EPA to come up with an alternative, but BP said there is no alternative in sufficient quantities. The government has never done a study of the impact of Corexit used at such levels. We are totally flying blind.
Between the oil and the dispersant, while eventually nature would break down much of the oil on the surface, once it reaches the marshes it poisons the plants, and with the plants poisoned, you eventually destroy the roots, and with nothing to anchor the ground, the first big hurricane rushing in is up against little more than sand. Maybe it’s 10 or 20 years from now, but with a dead marsh, in theory the water could rush in for miles and miles.
Frank Pope of the London Times was evidently the first to go out in the spill last weekend and dive into it.
“Eighteen miles out and the stink of oil is everywhere. Rashes of red-brown sludge are smeared across vast swaths, between them a swell rendered faintly psychedelic with rainbow-colored swirls….
“Wreathed in neoprene and with Vaseline coating the exposed skin around our faces, we slip into the clear water in the lee of the boat. Beneath the mats of radioactive-looking, excrement-colored sludge are smaller gobs of congealed oil. Taking a cautious, shallow breath through my snorkel I head downwards. Twelve meters under, the specks of sludge are smaller, but they are still everywhere.
“Among the specks are those of a different hue. These are wisps of drifting plankton, the eggs and larvae of fish and the microscopic plants and animals that form the base of almost all marine food webs. Any plankton-eating fish would now have trouble distinguishing food from poison, let alone the larger filter-feeders.
“Onshore, small landfalls of the same sludge have started to cause panic among locals as they coat the marshes. Here, just a few feet beneath the surface, a much bigger disaster is unfolding in slow motion.
“ ‘This is terrible, just terrible,’ says (Dr. Susan Shaw of the Marine Environmental Research Institute). ‘The situation in the water column is horrible all the way down. Combined with the dispersants, the toxic effects of the oil will be far worse for sea life. It’s death in the ocean from the top to the bottom.’….
“(What) worries Dr. Shaw most is the long-term potential for toxic chemicals to build up in the food chain. ‘There are hundreds of organic compounds in oil, including toxic solvents and PAHs (polycyclic aromatic hydrocarbons), that can cause cancer in animals and people. In this respect light, sweet crude is more toxic than the heavy stuff. It’s not only the acute effects, the loss of whole niches in the food web, it’s also the problems we will see with future generations, especially in top predators.”
“I don’t see how the president’s position and popularity can survive the oil spill. This is his third political disaster in his first 18 months in office. And they were all, as they say, unforced errors, meaning they were shaped by the president’s political judgment and instincts.
“There was the tearing and unnecessary war over his health-care proposal and its cost. There was his day-to-day indifference to the views and hopes of the majority of voters regarding illegal immigration. And now the past 40 days of dodging and dithering in the face of an environmental calamity. I don’t see how you politically survive this.
“The president, in my view, continues to govern in a way that suggests he is chronically detached from the central and immediate concerns of his countrymen. This is a terrible thing to see in a political figure, and a startling thing in one who won so handily and shrewdly in 2008. But he has not, almost from the day he was inaugurated, been in sync with the center. The heart of the country is thinking each day about A, B and C, and he is thinking about X, Y and Z. They’re in one reality, he’s in another….
“The disaster in the Gulf may well spell the political end of the president and his administration, and that is no cause for joy. It’s not good to have a president in this position – weakened, polarizing and lacking broad public support – less than halfway through his term. That it is his fault is no comfort. It is not good for the stability of the world, or its safety, that the leader of ‘the indispensable nation’ be so weakened. I never until the past 10 years understood the almost moral imperative that an American president maintain a high standing in the eyes of his countrymen.
“Mr. Obama himself, when running for president, made much of Bush administration distraction and detachment during Katrina. Now the Republican Party will, understandably, go to town on Mr. Obama’s having gone only once to the Gulf [Ed. until Friday], and the fund-raiser in San Francisco that seemed to take precedence, and the EPA chief who went to a New York fund-raiser in the middle of the disaster.
“But Republicans should beware, and even mute their mischief. We’re in the middle of an actual disaster. When they win back the presidency, they’ll probably get the big California earthquake. And they’ll probably blow it. Because, ironically enough, of a hard core of truth within their own philosophy: when you ask a government far away in Washington to handle everything, it will handle nothing well.”
Turning to Wall Street, here’s Julie Andrews, aka Guenevere.
Tra la! It’s May!
The lusty month of May!
That lovely month when ev’ryone goes
Blissfully astray.
The S&P 500 fell 8.2% as the major averages all slid into negative territory for the year, as well as meeting the threshold on May 20 of a correction, a decline of 10% or more from the highs set a month earlier. The Dow Jones lost 7.9%, its worst May since 1940, and Nasdaq lost 8.3%. Throw in the burgeoning oil disaster, the euro crisis, and increased tensions on the Korean Peninsula and it was all pretty lousy stuff.
I’ll have more on this last bit later but as for the euro crisis, at week’s end Spain’s credit rating was downgraded by Fitch and uncertainty over whether BP’s attempt to end the leak would be successful led to a downdraft on Friday after Thursday’s stupid 3% rally on no news.
This week, four banks in Spain were combined as the IMF said Spain’s central bank must act quicker to identify risky institutions. Then Spain’s parliament, following the rest of the continent’s austerity kick, passed a new round of spending cuts, but only by one vote…169-168. One minority bloc abstained rather than vote no, which was quite royal of them. Virtually all members of the Euro-16 are trying to shore up the currency by appearing to tame their deficits, but it’s just not that easy when you’ve partied at the trough for so long. The European Union has been exposed as nothing but a sham organization from the standpoint that while it talked of not exceeding the 3% mark when it came to budget deficits, virtually all are well over the figure today and the EU has never imposed a single fine for violating the limits. The rules have been flouted.
Of course you have this ongoing issue that when it comes to austerity programs and reducing future pension liabilities, who is going to stand up to the unions? Germany recently raised its retirement age from 65 to 67, but French President Nicolas Sarkozy can’t get his people to accept a hike from 60 to 61. France’s deficit is 8% of GDP, with only Ireland, Spain and Greece being higher. French workers went on strike in many industries on Thursday and more protests are planned. Civil servants in France get paid 75% of their final six-months’ salary, after all. Gotta protect that right.
And in the UK, the new coalition government is facing a severe deficit crisis of its own, with the estimates on civil service job losses ranging from 300,000 to 700,000 over the next few years.
Europe isn’t alone when it comes to this pension game, though in the States the two camps are increasingly split, such as in California where the private sector is rebelling against the largesse handed out by Arnold Schwarzenegger’s predecessor, Democrat Gray Davis…aka Mr. Union Man.
Here in New Jersey, new Republican Gov. Chris Christie continues to pound away at the public sector and the unions are fighting back as protests grow against proposed pension and job cuts. It’s getting uglier and uglier.
On a different matter, last week I talked of how there is a severe deficit in presidential leadership on the foreign policy front, what with increasingly failed efforts in Afghanistan and Iraq (funny how these two are nonetheless ignored by voters, which is idiotic), as well as the crises on the Korean Peninsula and Iran.
So last Saturday, President Obama spoke to the graduating class at West Point, saying in part, “The burdens of this century cannot fall on American shoulders alone.”
But it is, with few exceptions. And then in the May 24 issue of Defense News I saw some of the following headlines.
“UK to Review Spending Decisions Since Jan. 1” [when Gordon Brown was trying to curry favor by packing the budget with defense goodies]
You get the picture. Who benefits from the above Euro-centric headlines? Russia. Who will bear the brunt of the costs should there be a problem with the Kremlin? The United States. Europe is looking to slash deficits and defense is an easy target.
So President Obama, you’re wrong. The burdens of this century will indeed fall on American shoulders, unless we pull in, which would only make matters worse.
Street Bytes
— For the week, the Dow Jones lost 0.6% to 10136, but the other major averages were up. Volatility has been sky high.
The economic news, though, hasn’t been outstanding recently. The estimate of first quarter GDP was surprisingly revised downward to 3.0%, putrid for a recovery off a near depression. Personal consumption for the month of April was also unchanged when a decent increase was expected. Yours truly is not surprised in the least by this development. It’s been my thesis all along for the second half of the year.
On the real estate front, April existing home sales rose at a better than expected clip, but this was clearly due to a last push for the first-time home buyer credit, as was the case with an improved new home sales picture for the month. As for the Case-Shiller 20-city home price index for March, prices fell 0.5% from February, not the best sign in the world. The only positive news for homeowners is that mortgage rates are back down below 4.80% so there are reports of a surge in refinancings.
But on a broader front, the Organization for Economic Cooperation and Development forecast that worldwide growth would hit 4.5% in both 2010 and 2011. The U.S. is expected to grow 3.2% both years. Many of us would take both figures in a heartbeat.
–U.S. Treasury Yields
6-mo. 0.22% 2-yr. 0.77% 10-yr. 3.28% 30-yr. 4.20%
–Goldman Sachs is reportedly getting closer to reaching a settlement with the SEC on the fraud charges levied by the agency. The Financial Times says any fine could be $hundreds of millions. At issue, though, would be whether or not Goldman is able to get the charges lowered, which would enable Goldman to limit the damage from investor lawsuits. Goldman would also be able to use the standard that it is neither admitting nor denying wrongdoing. The bank has until June 16 to settle or file a defense.
–In a good sign, U.S. ad spending rose 5.1% in the first quarter, the first jump in two years; this according to Kantar Media, a tracking firm. Television and radio were the chief beneficiaries.
–Johnson & Johnson may face criminal penalties and other sanctions from the Food and Drug Administration over its handling of a recall of millions of bottles of liquid children’s Tylenol and other pediatric medicines as the FDA goes after the company’s McNeil Consumer Healthcare unit and quality control lapses. Among the issues is whether bottles of pediatric Tylenol, as well as Motrin and Zyrtec, contained metal debris, and how McNeil handled product recalls going back to 2008. This is a major black eye for J&J.
And in a separate move, the FDA warned doctors and patients that popular heartburn drugs such as Nexium and Prilosec may cause bone fractures if used for more than a year.
–In a further sign of improved trade relations between China and Taiwan, 100 direct passenger flights and 20 more cargo flights a week are being added, bringing the totals to 370 and 48, respectively. It is expected that a free trade agreement will be reached next month. I was also pleased to learn this week that my China holding in Fujian province is doing some business with Taiwan, which I’d like to think will only grow.
–Speaking of China, this week, Taiwan’s Hon Hai Precision Industry announced it was raising wages at its massive Foxconn unit in China by 20% in an attempt to deal with the financial pressures faced by workers, at least 10 of whom have committed suicide this year. That’s a heck of an increase.
And Honda was forced to suspend production at its manufacturing plant in China after more than 1,000 workers at a parts factory in Guangdong Province went on strike demanding higher pay. Workers then evidently rejected a $52 per month proposed increase.
This issue bears watching for those of us investing in China as higher wages obviously hurt margins, and my specialty chemical/biodiesel company has pretty slim margins to begin with. It could also give some companies an excuse to check out even lower-cost providers, like Vietnam. And…it’s a big reason why China is scared to death that North Korea will implode, which as I’ve noted before would make it the true low-cost manufacturer of choice over time.
–In reading a story on proposed tax legislation in China, I picked up these nuggets. China makes up 4% of global GDP, but consumes 31% of the world’s coal, 8% of the oil and 10% of all electricity.
–Ford Motor Co. is winding down its Mercury line after 70 years with sales having fallen 74% since 2000. The timing depends on how quickly Mercury dealers can be convinced to close or merge with Ford showrooms. Seems like a pretty easy decision to make. Merge! Like yesterday. Start selling the Fusion, know what I’m sayin’?
After a correction, Ford shares have been rebounding nicely. My friend Jimbo asked if it was appropriate to drink premium this weekend, he having a 300% or 400% percent profit on his investment. Totally so, I replied.
–Pequot Capital Management and its hedge-fund firm’s founder, Arthur Samberg (a member of Barron’s Roundtable), is being forced to pay $28 million to settle claims going back to 2001 that he illegally tapped information from a Microsoft employee prior to betting on the company’s stock. Samberg agreed to be barred from working as an investment adviser.
The case had initially been dropped and it was only after pressure from Iowa Rep. Sen. Charles Grassley that it was reopened, and then e-mails were discovered on a hard drive in possession of the Microsoft employee’s ex-wife.
–Las Vegas tourism officials report there was a 1.5% increase in visitors in the first quarter vs. year ago levels, with a 3% increase projected for the year overall. In 2009, convention attendance dropped 24%, gambling revenue fell 10%, and average room rates declined 22%.
–There is little to say on the financial reform legislation front until the House-Senate conference committee completes its work on reconciling their two versions, but some say the most important provision could be the issue of fiduciary responsibility. The House version demands a high standard for all advisors, while the Senate version doesn’t.
In a nutshell, the House bill would require that financial advisers, regardless of their description, put their clients’ interests ahead of their own. As the Los Angeles Times’ Kathy Kristof sums up:
“You thought that was already true? Think again…Under current law, brokers and insurance agents only need to show that the product they sold you wasn’t blatantly wrong for you. That’s a far cry from being compelled to show that the product they recommended was right for you.
“In fact, these ‘advisors’ can now sell you products that pay them big commissions, without advising you that there might be a far better (and cheaper) alternative – it just wouldn’t be as good for them.”
–Bank of America and Citigroup misclassified $billions of their debt, just as Lehman Brothers had done, recent regulatory filings reveal. Repurchase agreements, or “repos,” were classified as sales when they should have been defined as borrowings. While the amounts are relatively small for the banking giants, and they claim the moves were unintentional, it’s yet another example of how you just can’t trust the numbers in the financial industry, though this is finally changing some for the better.
–On Friday, the Wall Street Journal had the headline, “Android Emerges as Big Rival to iPad,” referring to Google’s operating system. One researcher said, “The tablet trend is clearly going toward Android.” Acer, for example, the No. 2 PC maker behind Hewlett-Packard, said it would use Android in a seven-inch tablet PC that it expects to launch in September or October. Others, such as Sony, may follow.
The above, though, is also about how a third player, Microsoft, has been left in the dust. The Journal pointed out earlier in the week that under CEO Steve Ballmer’s watch, since he took over for Bill Gates in January 2000, Microsoft’s market cap has been more than halved from $556 billion to $219 billion as of Wednesday’s close. At the same time, Apple’s has gone from $15.6 billion to $221 billion over the same period, passing Microsoft in market value on Wednesday. Under Ballmer, Microsoft has done little to capitalize on digital music, for example, while the iPod, iPhone and now iPad take over. In between Apple’s run, you then had Google’s emergence.
–The National Highway Traffic Safety Administration said it now has 6,200 reports of unintended acceleration in Toyota vehicles from 2000 through May 20, including allegations of 71 crashes in which 89 people died. A previous study talked of 52 deaths. However, the numbers are unconfirmed.
–Pilot error would appear to be the cause of the Air India disaster in Mangalore (southwest India) that claimed 160 lives. The Serbian pilot issued no distress signal and seems to have just overshot the runway.
–Here’s an underreported story. Foot-and-mouth disease is decimating the livestock business in Japan, forcing a halt to all Japanese beef and pork exports for the past month and crippling the premium beef industry.
For example, did you know there are only six bulls left remaining for the sought-after “Miyazaki beef,” with 49 other seed bulls having been put down?
According to Kyodo News, “The six (remaining) bulls (one of whom is infected) account for about 90% of artificial breeding in the prefecture.”
–Uh oh…the Dept. of Agriculture is warning of a grasshopper invasion for Wyoming, Montana, Nebraska and the Dakotas this summer, which could cause major damage to rangelands and crops.
–So much for the “American Idol” juggernaut for News Corp.’s Fox division. Wednesday’s finale was watched by the smallest audience for a finale since the series began in 2002. Yes, it’s still the most-watched show on TV but the trend has to be a little disturbing to Fox executives, especially with Simon Cowell departing.
–Thanks to the renewal of big Wall Street bonuses, the average sale price of a Hamptons home is up 33% from a year before.
–The National Oceanic & Atmospheric Administration is predicting a 70% chance there will be 14 to 23 named storms this hurricane season, with 3 to 7 major ones. Of course these guys, and others of their ilk, are seldom right but the numbers are far above the averages and folks like NOAA, having been burned often in the past, you’d think would want to be conservative, which makes their projections all the more disturbing. Personally, I’m as convinced as I ever have been on an investment that you will see a double in many natural gas plays (including through call options…which I’m doing) before the hurricane season runs its course. I’ll go so far as to say it’s a layup, a phrase I don’t think I’ve ever used. [I’m also fully aware nat gas inventories are at historic levels…it’s just going to be another case of sentiment trumping fundamentals.]
Foreign Affairs
North / South Korea: The situation here is increasingly dire and the key is Beijing. This past week the North suspended all ties with South Korea, except for a critical joint commercial center near the border called Kaesong where some 120 South Korean companies employ 45,000 North Korean workers as part of the former sunshine policy between the two countries.
How much will Beijing pressure Pyongyang? If China doesn’t help, war could break out at any moment and while this would spell the end for North Korea, within days (the use of a nuclear weapon on the North’s capital could not be ruled out), the ability of North Korea to inflict catastrophic damage on Seoul cannot be underestimated. It has the potential to be the most horrific 24-72 hours of warfare in history. That’s just a fact. But Chinese Premier Wen Jia-bao is in the midst of discussions on the crisis with South Korean President Lee.
South Korean President Lee said his country would step up propaganda measures and once again officially recognize the North as its “principal enemy,” with the South’s combat capabilities “reinforced drastically.” South Korea conducted extensive submarine exercises with the United States.
One figure who is intriguing in this crisis is UN Secretary General Ban Ki-moon, who is a former South Korean foreign minister.
For its part, American intelligence officials are convinced Kim Jong-il himself authorized the torpedo attack on the South Korean naval vessel that precipitated the crisis, with Kim aiming to secure the succession of his youngest son
Iran: The New York Times reported that last September, General David Petraeus was authorized to step up military intelligence gathering in Iran in preparation for potential attacks on Iran’s nuclear facilities, so you would expect that the U.S. is good to go should, as now expected, Iran pull out of its fuel-swap agreement with Turkey and Brazil as a result of new UN sanctions being introduced.
Influential conservative Iranian politician Ali Larijani said, “If the Americans want to seek adventure, whether in the UN Security Council or in [the U.S.] Congress, all the efforts of Turkey and Brazil will be in vain and this path will be abandoned. In this situation Parliament will make a different decision over Iran’s cooperation with the IAEA.”
But then President Mahmoud Ahmadinejad stupidly blasted Russian President Dmitry Medvedev for his seeming support of UN sanctions. The little guy with the ugly windbreaker said:
“If I were the Russian president, when making decisions about subjects related to a great nation [Iran], I would act more cautiously. The Iranian nation doesn’t know: are they [the Russians] our friends and neighbors? Are they with us or are they looking for something else?”
Then he added: “I am hopeful that Russian leaders and authorities will pay attention to these friendly words and take corrective action and not let the Iranian nation consider them among the ranks of its historic enemies.”
First off, Iran desperately needs the S-300 air-defense system that Russia has promised to sell it but as yet has failed to deliver (for all sorts of reasons), and second, Russia had promised to open the Bushehr nuclear facility it has built for Iran this summer but could now easily back off if it feels threatened and unduly pressured.
The foreign policy advisor to President Medvedev responded:
“Our position is Russian: it reflects the interests of all the peoples of greater Russia and so it can be neither pro-American nor pro-Iranian. It would be good if those who are now speaking in the name of the wise people of Iran…would remember this.”
Sergei Karaganov, head of the Russian Council on Foreign and Defense Policy, said, “(Iran) is digging their own grave” through Ahmadinejad’s remarks. [Financial Times]
Separately, Iranian opposition figure Mahdi Karroubi blasted Ahmadinejad, saying, “The present head of government, with his strange behavior, has humiliated the Iranian nation.” Karroubi also said of the judiciary, “Instead of providing security to the people, the judiciary has turned to intimidation and imprisonment.”
About a dozen opposition figures have evidently been sentenced to death, and more than 80 others who have taken part in demonstrations have received prison terms ranging from six months to 15 years. [Jerusalem Post]
Israel / Lebanon / Syria: The London Times has been shown secret arms depots in Syria from which arms are being given to Hizbullah, the weapons then transported through the Bekaa Valley in Lebanon (as I noted when I was there recently). This is no surprise, except that when intelligence has identified specific sites, they become a potential target, plus it would then be easier to follow where vehicles exiting the facility go in the ride through Lebanon to Hizbullah’s bases in the southern part of the country.
Of course none of this happens without the support of Syrian President Bashir Assad, who seems to have stepped up his relationship with Hizbullah, and thus could easily become directly involved in the seemingly inevitable next clash between the terrorists and Israel. Syria claims that any depots are for its own purposes, not as a transit point for Hizbullah. There are also persistent reports that Syria has delivered some Scud missiles (perhaps two).
As to the Israeli reaction to all this, Minister Uzi Landau said any country or group that launched an attack on Israel would be sent “hundreds of years backward,” with Landau saying he was directly referring to Syria for its moves in Lebanon.
Meanwhile, Lebanon’s tenure as the head of the UN Security Council ends this month and it’s not known how it would vote on sanctions for Iran. [Reminder…Hizbullah is part of the government.]
Iraq: One of the 91 elected members of former prime minister Iyad Allawi’s coalition was assassinated, in yet another disturbing development following the March 7 vote. I thought an editorial in the Daily Star summed up the situation perfectly.
“Three months have passed since the people of Iraq voted in parliamentary elections, and as of today the country still has no government. This story will sound all-too familiar to the Lebanese, who themselves faced an agonizing wait when protracted negotiations followed our own elections last year.
“But Iraq is not Lebanon. While paralysis and leadership vacuums have become expected fixtures of Lebanon’s political process, six months with no government in Iraq, where al-Qaeda is openly and actively engaged in a massive effort to topple the country’s government, is an incontrovertibly dangerous prospect. Worse yet, we have seen no signs that either side is capable of ending this crisis.
“After meeting with Iyad Allawi on Sunday, Grand Ayatollah Ali al-Sistani made it clear that he would not influence the balance of power in Iraq, and that no politicians should be excluded from government. His comments signal the recognition that the situation is precarious at best. [Ed. recall that Sistani is the most respected figure in Iraq and could play kingmaker if he thought it appropriate.]
“The more time that passes without Iraq’s politicians finding a solution by themselves, the more the sway of regional power brokers becomes a deciding factor. We can expect to see powerful countries exerting their influence over their weaker neighbors if this power vacuum continues – Iran supporting one side, Saudi Arabia the other, Syria with its shared border, and Turkey of course will want to make its voice heard on the Kurdish region….
“What Iraq needs is leaders with more than a thirst to rule, but a thirst to rectify the country’s ills; leaders with a vision for their country rather than a vision for themselves. We have yet to see this from the current crop of politicians vying for power.”
Afghanistan: There is little cause for optimism here as well. The upcoming offensive in Kandahar, spiritual capital of the Taliban, is fraught with danger as the Taliban has been assassinating any locals working with foreigners or the Afghan government. Aside from the obvious, this is important because the offensive is not going to look like a classic military operation, rather the U.S./NATO effort will be one of attempting to win over hearts and minds with a flood of aid and development projects, for which you need local support. At least 32 Americans have died in country this month and the official toll for the war is now over 1,000.
Japan: The United States and Japan agreed to keep a contentious Marine base on Okinawa, which represents a broken campaign promise on the part of Japanese Prime Minister Hatoyama. Over 47,000 U.S. troops are stationed there under a 50-year-old security pact and Hatoyama realized there was no viable alternative in the immediate future. Now, with the developing Korean crisis, this force is vital as they would be the first ones sent in should war break out (on top of the 28,500 U.S. troops already stationed in South Korea).
Thailand: Calm has returned to Bangkok but the crisis is far from over. The red shirts failed to accept Prime Minister Abhisit’s offer of early elections and now Abhisit, having seen the violence following his offer, is reluctant to put it back on the table. And ousted former prime minister Thaksin, living in exile to avoid a prison term for corruption, is making waves about coming home, which would be a disaster at this point. At the same time, many in the red shirt movement merely blended back into society and now threaten to launch attacks against the tourism industry, which as calm is restored has a chance to rebound some but one high-profile incident and this critical sector is dead for years to come.
India: To some of us it’s unfathomable that India has had little success in combating a decades-old Maoist insurgency and on Friday, the rebels struck again, bombing a train that was then flung into the path of a speeding train in the opposite direction. At least 70 were killed.
Pakistan: A horrific terror attack in Lahore on Friday as well as a minority Muslim sect known as the Ahmadis was targeted and at least 80 were killed, with the Pakistani Taliban being suspected of carrying it out.
Mexico: President Obama is sending up to 1,200 National Guard troops to help secure the border, a so-called “bridge to longer-term enhancements,” according to a senior adviser to the president.
Meanwhile, if you go to Cancun, the mayor there was arrested on charges of organized crime, including involvement with the drug cartels and money laundering.
Jamaica: Druglord Christopher (Dudus) Coke is reportedly ready to surrender, but only to New York officials who have been seeking his extradition because he’s afraid of going to a Jamaican jail. At least 70 have been killed in the government’s efforts to capture Dudus, who is seen by the people in Kingston’s slums as a hero because he is the only one providing social services.
Poland: The investigation into April’s plane crash that killed Poland’s president and 95 others is nearing completion and it’s clear the pilots were distracted as one of the passengers, a general, was in the cockpit with the door open, inquiring about the schedule when the crew was notified by alarm they were too close to the ground. The crew then failed to take action to lift the plane for 13 seconds and by then it was too late.
Colombia: Presidential election here on Sunday as a successor is chosen for President Alvaro Uribe, the heroic leader who is unable to run for a third term. Both candidates are pro-U.S. and market friendly, with both also calling for staying the course when it comes to battling the insurgency.
South Africa: Well whaddya know. This week the U.S. government issued a travel alert for Americans heading to this place for the World Cup. “There is a heightened risk that extremist groups will conduct terrorist acts within South Africa in the near future.” Granted, I first said this over a year ago.
Random Musings
–President Obama’s performance at his press conference on Thursday was truly pathetic.
–Want another example of the Obama administration and its lack of competence? Check this out. It’s a little dense, but important.
“The United States has gone nearly 18 months without an ambassador to the international organization that monitors compliance with the Chemical Weapons Convention.
“The absence threatens to hurt U.S. standing with the Organization for the Prohibition of Chemical Weapons, where in two years the Obama administration will have to explain why the United States missed the deadline for disposal of banned warfare materials, experts said.
“ ‘We’re going to get such a black eye if we don’t have the right representative there [soon],’ said Eric Javits, who from 2003 to 2009 served as U.S. ambassador to the organization in The Hague, Netherlands.
“The United States is running the risk of being ‘entirely bare’ on OPCW representation once the last of his former staff departs at the end of June, Javits told Global Security Newswire.
“This is especially problematic, he said, as the treaty deadline for the elimination of the U.S. chemical arsenal – April 29, 2012 – is fast approaching. Washington will need an experienced and knowledgeable mission staff to address complaints and concerns from other nations about the missed target date, Javits said.”
You see, sports fans, the United States will eventually be deemed not in compliance with the convention, at a time when we’re telling everyone else what to do on a large number of other issues. It’s symptomatic of the incredible disarray at the White House. Imagine the kinds of expertise you need for this post.
The United States, along with Russia, has until April 2012 to eliminate its original stockpile of 31,500 tons of chemical weapons agents. However, it has acknowledged that disposal operations are likely to continue for nine years after that date.
The administration is working to get around certain federal and state laws that have been impeding the destruction of the stockpiles, but it’s this lack of an ambassadorial presence that displays our incredible arrogance on matters of this kind. It’s no wonder then that when we most want help, many of our once loyal allies will increasingly tell us to “F-off.”
–2/3s of Americans describe themselves as “angry” about the way things are going in the U.S., the highest percentage in a decade, according to the latest USA TODAY/Gallup poll. By 2-1, they’d also rather vote for a candidate who has never served in Congress over one with experience.
But far more worrisome for Democrats should be the finding that 50% of Republicans are “extremely motivated” to vote this year, while only 30% of Democrats are. There’s your Obama factor.
–For his part, it was a tension convention when President Obama met with Senate Republicans the other day as he pressed for bipartisanship on immigration, energy and other issues. Sen. Bob Corker, R-TN., said Obama “talked a great deal about bipartisanship” while pushing “very partisan” proposals.
“I asked him how he was able to reconcile that duplicity,” said Corker. “I just found it pretty audacious that he would be here…as we move into election season using Republican senators as a prop.”
Sen. Pat Roberts, R-Kan., told reporters that Obama “needs to take a Valium before he comes in and talks to Republicans. He’s pretty thin-skinned.”
At least Senate Minority Leader Mitch McConnell, R-Ky., said “Coming up and talking is always a good sign.”
–I’m invoking my “24-hour rule” in the Joe Sestak case until I read more about it, which is yet another reason why you won’t ever find me on talk radio.
–Then there’s GOP Kentucky senate candidate Rand Paul, a not ready for prime time player if there ever was one. Tied closely to the Tea Party movement, his comments on the 1964 Civil Rights Act were the prime topic of discussion on last Sunday’s talk shows. An editorial in USA TODAY summed it up.
“For the Tea Party, the risk is that these and other positions of dubious merit will likely define the movement if it does not do a better job of defining itself. To survive in the long run, it needs to go beyond vague notions of smaller government and produce some practical ideas for putting Washington on a sounder financial footing.
“As neither Republicans nor Democrats have done so, this presents a real opening for the Tea Party. It certainly would be more useful than idiotic ideological musings about segregation.”
George Will commented about Paul, “He doesn’t understand his job is to win a senate seat.”
–Just a week after he “misspoke” about his military service, Democratic Connecticut Attorney General and gubernatorial candidate Richard Blumenthal has surged back into the lead. Like a big surge…56 to 31 over Republican Linda McMahon. In the immediate aftermath of Blumenthal’s lies being revealed, it was close to a dead heat.
This is incredible. Following my comments last time, George Will agreed with me on “This Week” that equally disturbing about Blumenthal are his lies about being captain of the Harvard swim team when he wasn’t even on it.
Are Connecticut voters that freakin’ stupid?! Oh, I know…it’s also about Ms. McMahon’s lack of relevant experience, and her days running the Worldwide Wrestling Federation, but Blumenthal, that fraud?
“America is a nation at war, and its public has responded to that in a way that contrasts strongly with the national mood during the intensely divisive Vietnam conflict. Now, American soldiers on leave from Iraq or Afghanistan are applauded in the streets; folks in restaurants or in airport lounges will give up their seats for them. Now, the aspirant Democrat politician will want to let the voters know that he is at one with the soldiers; that he identifies with what they have gone through and are continuing to endure. Besides which, there are thought to be up to 2.6 million Americans who really did (unlike Blumenthal) serve in Vietnam; no longer ignored, these men now constitute a significant political lobby in themselves.
“Something else has changed since the 1970s: thanks to the Internet it is now possible for anyone to log onto YouTube and see, over and over again, amateur film from 2008 of Blumenthal telling a group of veterans that, like them, he served ‘in Vietnam.’ As often as the politician protests that he merely ‘misspoke,’ the public can see and hear the truth. Amazingly, however, many will still prefer to believe the lie.”
–Meanwhile, in neighboring New York, Democratic Attorney General Andrew Cuomo finally entered the race for governor and he’s seen as a savior by many on both sides of the political aisle. Personally, I like him.
“If (Cuomo wins), he will take custody of a drastically diminished state – its circumstances constrained by decades of profligacy; its politics crippled by corruption and complacency and its expectations arguably at their lowest ebb ever.
“Why anybody would want the job is a bewilderment, but Cuomo does and this can only be a good thing.
“That is not to be taken as an endorsement, but rather an acknowledgement of the fact that – by virtue of experience, energy, inclination and native intelligence – Andrew Cuomo is indisputably well qualified to seek New York’s highest office.”
–Congress is close to passing legislation ending the Pentagon’s ban on gays serving openly in the military, but what’s stupid is that the chiefs of all four military services say they believe a Pentagon report on the issue due out later in the year should be completed before any legislative moves are enacted, which only makes sense. As it is, the bill that’s been approved in the House and has gone through Senate committee is a total mishmash designed to please everyone.
–Awhile back I wrote of an Army Times study of drug abuse in the military. In the May 31 issue, Andrew Tilgham and Brendan McGarry report:
“At least 32 soldiers and Marines assigned to their services’ most-supervised medical units for wounded troops have died of accidental prescription drug overdoses since 2007….
“Most of the troops had been prescribed ‘drug cocktails,’ combinations of drugs including painkillers, sleeping pills, antidepressants and anti-anxiety drugs, interviews and records show. In all cases, suicide was ruled out.” [emphasis mine]
Despite an internal review, the number of fatalities continues to rise.
One mother of a victim, Army Warrant Officer Judson Mount, a former enlisted tank commander who deployed to Iraq twice but was found dead of an overdose, doesn’t blame the Army, but rather “a pharmacist or a doctor or something…somewhere in the system, somebody has failed or messed up.”
It’s this endless prescribing of meds for everything we do these days, and with the real health issues combat veterans go through, it’s only worse.
–Guess what is making a comeback in African, Asian and even some European countries, according to the World Health Organization? Measles. Since 2008, funding cuts for vaccination campaigns have allowed it to spread where previously it was close to being eradicated.
Interestingly, deaths among young children fell to 118,000 in 2008, compared with 1.1 million in 2000.
But suddenly there has been a surge in countries ranging from Zambia to Ethiopia, to Indonesia, Thailand and Bulgaria. Britain experienced a serious outbreak recently.
In the case of the UK, there is an easy answer…publication of what many believe was a flawed paper linking autism to the combined measles, mumps and rubella vaccine.
–So I asked my driver in New Orleans, Ryan, how he handled Katrina. “I stayed in a restaurant for 8 days, then I was helicoptered out to Amarillo, then I was sent to Phoenix, then Colorado where I finally hooked up with family. But I was back in New Orleans by Thanksgiving.” Talk about a trooper.
–Finally, at one point in our drive to Grand Isle, we hit this small town where it appeared a kindergarten graduation had just concluded and the parents were walking their kids across the street in front of us as we stopped. The kids were wearing their finest and were pumped. But Ryan and I agreed that it was probably best not to tell them that this was as good as it gets.
Pray for the men and women of the armed forces, and all the fallen this Memorial Day.
God bless America…and Dwight D. Eisenhower.
Gold closed at $1215
Oil, $73.97
Returns for the week 5/24-5/28
Dow Jones -0.6% [10136]
S&P 500 +0.2% [1089]
S&P MidCap +1.7%
Russell 2000 +1.9%
Nasdaq +1.3% [2257]
Returns for the period 1/1/10-5/28/10
Dow Jones -2.8%
S&P 500 -2.3%
S&P MidCap +5.0%
Russell 2000 +5.8%
Nasdaq -0.5%
Bulls 39.3 [56 three weeks ago]
Bears 29.2 [Source: Chartcraft / Investors Intelligence]
Have a great holiday weekend. I appreciate your support.
Brian Trumbore
*Dr. Bortrum has posted a new column.
