Wall Street
The rally resumed and almost seven months into the year, the major averages are unchanged for 2010. Stocks put on a solid display behind some legitimately good news on the earnings front, and more importantly decent guidance as to the future. But while the likes of Caterpillar and UPS, two solid bellwethers, touted their prospects, it seems like those who were issuing positive outlooks were playing up opportunities in emerging markets more so than those in developed ones, least of all here at home. It was also a deceiving week in that while many a company beat on the bottom line, the top line (revenues) was either just in line or a little light. So when you take it all as a whole, ranging from the poor revenue numbers on behalf of the money center banks owing to a rough trading environment as well as soft investment banking activity, to IBM’s clear struggle to build any kind of sales momentum, yes, corporate America is on solid ground but it’s far from ‘Happy Days Are Here Again!’ After all, if it wasn’t for Asia, the news just isn’t that great.
But stocks are certainly not overvalued these days, nor are they undervalued. Given the uncertainty, they’re basically where they should be and I only forecast a down 6 to 12 percent year because of geopolitical concerns that have failed to materialize as yet. I’ve been focused on what would sap confidence while, on a related matter, you can hardly build a case that the Street’s advance the past three weeks has been built on a return of the individual investor. To the contrary, the little guy remains firmly on the sidelines while the big boys line the craps tables.
I have not fallen into the double-dip camp, barring a geopolitical flareup, because I simply believe we’ll just muddle through for a very long time, just as the housing market has been doing since we bottomed in that sector in the spring of 2009. The deleveraging process will continue for years, and it’s not without reason that Federal Reserve Chairman Ben Bernanke said this week that the U.S. economy faces “unusually uncertain prospects.” Morgan Stanley economist Stephen Roach sums up my feelings perfectly.
“The U.S. is in the early stages of what is a very protracted sluggishness of domestic internal demand.”
For each piece of good news, such as from a Caterpillar, I can give you two or three sour items, such as the ever-worsening financial pictures of state and local governments, or still rising levels of foreclosures, or a Europe that, despite its joke of a bank stress test, faces wrenching changes that are bound to result in some social disorder.
This malaise, with severe underemployment a leading symptom, is going to be playing out for years, and the increasing volatility in the financial markets isn’t going to help matters. There’s no reason for the little guy to return in a big way.
And it’s still about housing and jobs…jobs and housing. On Friday, the Obama administration reported that it is now estimating the unemployment rate will remain above 9% into 2012. All the CEOs on CNBC talked about increasing hiring, but with few exceptions this hasn’t yet materialized.
Economist Kenneth Rogoff addressed the crux of the matter in an op-ed for the Financial Times.
“Unfortunately, much of the world is going to be facing huge macroeconomic uncertainty for years to come. There is uncertainty about regulation, sovereign debt, the state of our banking and healthcare systems as well as about political fallout from the financial crisis. In this environment, measures to gradually stabilize debt burdens – to restore normality – surely make sense. If things turn radically worse for a sustained period, then yes, absolutely, further action will be necessary. But until then, a panicked government fiscal surge is far more likely to destabilize the nascent recovery than to nurture it.”
It’s about uncertainty over the tax code, across the board. Here we sit, on July 24, and there isn’t one person who can tell you what tax rates are going to be next year; from ordinary income and capital gains rates to estate taxes. There are rumblings among a few Democratic senators and congressmen to extend the Bush tax cuts another year or two for the high-end folks.
Lastly, you have the issue of President Obama’s seeming anti-business stance. The London Times’ Irwin Stelzer commented on why the president needs to call a truce.
“He is out of ammunition. No, not military ordnance, but money. With the deficit at the center of voters’ concerns as the November polls approach, he is finding it increasingly difficult to pry from a nervous, vote-seeking Congress the extra, deficit-swelling billions his economic advisers are telling him he needs to create jobs. Meanwhile, indebted and frightened consumers are unwilling to step up spending sufficiently to whittle down the unemployment rate.
“So, with some 16.7% of workers unemployed [Ed. referring to the ‘unofficial’ rate], too discouraged to look for work or involuntarily working only part-time, Obama needs the nation’s businesses, sitting on some $2 trillion of excess cash, to start spending and creating jobs.
“Unfortunately, the president has not been listening to those of his advisers who have been telling him that his rhetorical assaults* on business, the prospect of rising health-care and energy costs, the uncertainty created by the FINREG bill and the regulations to come, and the knowledge that taxes on high-earning small-business owners will rise, are combining to discourage job-creating investment.
“The president’s new-found desire for a truce is heightened by the fact that businessmen have finally, reluctantly, accepted that he is not their friend, and is somewhere between hostile to, and uncomprehending of, the role they play in creating wealth and jobs.”
“This predilection to blame business is manifest in the unnecessary and provocative anti-business sentiment revealed by President Obama in a recent speech that was supposed to be seeking the support of the business community for a doubling of exports over the next five years. ‘In the absence of sound oversight,’ he said, ‘responsible businesses are forced to compete against unscrupulous and underhanded businesses, who are unencumbered by any restrictions on activities that might harm the environment, or take advantage of middle-class families, or threaten to bring down the entire financial system.’ This kind of gratuitous and overstated demonization of business is exactly the wrong approach. It ignores the disappointment of a stimulus program that was ill-designed to produce the jobs the president promised – that famous 8% unemployment ceiling.
“But it’s not just the rhetoric that undermines the confidence the business community needs to find if it is to invest. Consider the new generation of regulatory rules, increased bureaucracy, and higher taxes created by the Obama administration. For example, the new financial regulation bill includes nearly 500 ‘rule-makings,’ studies, and reports, compared with just 14 in total for the controversial Sarbanes-Oxley bill, passed after the financial scandals of Enron and WorldCom….
“The chief economist of the NFIB (National Federation of Independent Business), William Dunkelberg, put it clearly: Small business owners ‘do not trust the economic policies in place or proposed.’ He also said, ‘The U.S. economy faces hurricane force headwinds and the government is at the center of the storm, making an economic recovery very difficult.’
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There are some signs of stability. The critical Southern California economy, for example, is showing signs of strength in tourism, trade and the entertainment industry, but at the same time there is little if any job growth.
On the housing front, June existing home sales, nationwide, were a little better than expected, but June housing starts were abysmal. Default notices were falling in some areas, but foreclosures continue to rise as the banks dump their inventory. In Southern California, commercial vacancy rates are 20%, with 25% in the Inland Empire.
Overseas, on Friday the European Union released stress test results on 91 banks and only 7 failed, little teeny ones, which we all know is a joke; one in Germany (already state owned), one in Greece, and five in Spain. All are required to raise more capital, but the other 84? Why they’re just fine and dandy, except they aren’t. As noted, the evaluations only took into account potential losses on sovereign debt the banks trade, not that which they hold to maturity which happens to be a majority of the banks’ holdings of sovereign paper. The EU maintains that this isn’t an unrealistic measure because no EU nation is going to default on their debt due to the EU’s backstop plans, in combination with the IMF. Oh, were it that easy. French and German banks are loaded with Greek bonds. It sure is nice to know the Greeks aren’t in danger of default and a severe writedown in the value of their bonds, isn’t it? Why even conduct the stress tests in the first place? Sure, it may build confidence in the short run, but just wait until the first large bank that had supposedly passed the test comes up with a massive earnings shortfall at the next sign of trouble in Greece, Spain or Ireland. I grant you that there have been some solid data points in, say, Germany and the UK, with better readings on manufacturing and the service economy, but European governments have just barely begun to initiate austerity programs that will result in millions of layoffs across the continent, as well as reduced pension benefits, or at least the prospect of same down the road. Again, there is a ton of uncertainty that needs to be addressed…and this will only resolve itself over time.
As for China, they’re dealing with some disasters, both man-made and natural, as discussed below, and no doubt the economy is slowing, but my money (literally) is still on Beijing engineering a soft landing.
Street Bytes
–The Dow Jones finished up 3.2% to 10424, while the S&P 500 added 3.5% and Nasdaq 4.1%. As noted, earnings were largely positive but the top line in many instances was less than exciting.
–U.S. Treasury Yields
6-mo. 0.19% 2-yr. 0.58% 10-yr. 2.99% 30-yr. 4.01%
Rates rose on the back end a little on a return of the risk trade and the decent European stress test results, even if they were phony.
–Allegations that BP influenced the release of the Pan Am Flight 103 / Lockerbie bomber trailed visiting British Prime Minister David Cameron, who while he had consistently argued against al-Megrahi’s release on “humanitarian” grounds is having trouble convincing skeptics that it was totally a Scottish government decision. BP itself said the other day, “BP was not involved in any discussions with the UK government or the Scottish government about the release of Mr. Megrahi,” though it admits that in 2007 it told the British government that “we were concerned about the slow progress that was being made in concluding a Prisoner Transfer Agreement with Libya. We were aware that this could have a negative impact on UK commercial interests, including the ratification by the Libyan Government of BP’s exploration agreement.” And therein lies the crux of the matter. What was really said, and by whom, in ’07. The key figure appears to be former Justice Secretary Jack Straw, who on Friday announced he was not going to appear at a Senate hearing this coming week because he had “absolutely nothing to do” with the Megrahi decision, which is a total lie.
Meanwhile, in the investigation of the Deepwater Horizon disaster, the chief engineer revealed the possibility that all manner of fail-safe systems and alarms were either not functioning or simply bypassed at the time of the explosion. The night of the catastrophe, Stephen Bertone told a congressional panel, “We were a dead ship.” Two other managers of the rig are said to be the targets of a federal probe, along with five employees of Transocean, all of whom face criminal charges. On Friday, one Transocean employee testified that the alarms were turned off so as not to wake up any of the crew at 3:00 a.m. due to a false alarm.
BP was also accused of attempting to “buy” the best scientists and academics to help in its defense against litigation resulting from the Gulf spill. The head of the American Association of Professors commented, “This is really one huge corporation trying to buy faculty silence in a comprehensive way.”
Separately, BP agreed to sell $7 billion in assets in North America and Egypt to Apache Corp., part of its announced program to fund compensation payments for damages related to the spill.
[Related to the above, ExxonMobil, Royal Dutch Shell, Chevron and ConocoPhillips have pooled $1 billion in resources to form a joint venture to develop a deepwater Gulf of Mexico oil spill response and containment unit. The companies are hoping this will give the Obama administration an excuse to lift the moratorium on deepwater drilling.]
–Moody’s Analytics estimates that even if the BP well is permanently plugged over the coming weeks, the Gulf Coast region will lose 17,000 jobs and $1.2 billion in lost economic growth. If, heaven forbid, the well couldn’t be permanently capped, and the six-month moratorium on deepwater drilling was extended, the losses could reach $7.4 billion with 100,000 lost jobs.
–According to the International Energy Agency, China overtook the U.S. last year to become the world’s biggest energy user. Back in 2000, the U.S. consumed twice as much as China, to give you a sense of the latter’s growth.
–Despite the worst financial crisis in 80 years, not one Wall Street executive has been successfully convicted in a trial, though there are a ton of open investigations being conducted by the Justice Department, SEC, state bodies and the FBI.
–Pay czar Kenneth Feinberg issued a report citing 17 financial firms, including Goldman Sachs and Bank of America, for making $1.6 billion in “ill-advised” payments during the height of the crisis. The compensation was legal, but showed “bad judgment.” The wives, however, were very pleased to learn their hubbies don’t have to give the cash back.
–General Motors is looking to issue its IPO in mid-August, this while it announced sales in China rose 48% in the first half of 2010 vs. the same period last year, selling more over there than in the U.S. But over the course of 2008 and 2009, as sales in China surged 67%, they were falling 30% in the United States.
And this week, GM got back into subprime lending by purchasing AmeriCredit Corp., thus filling the gap once played by GMAC. Of course some immediately said, what the heck is this all about? After all, it was GMAC and its providing easy credit to those who could ill afford the car loans that helped lead to GM’s problems in the first place, which then led to the multi-$billion taxpayer bailout.
–Apple Inc. brushed aside concerns over the antenna on its new iPhone 4 in reporting net income of $3.25 billion, once again far exceeding expectations. During the second quarter, Apple sold 8.4 million iPhones, 3.47 million Macs, as well as 3.27 million iPads and 9.41 million iPods. Remarkable. Regarding the iPhone 4 glitch, Apple said less than 1% of users have complained about the device.
–Yahoo continued to disappoint as revenues fell short of expectations. According to Nielsen Co., perhaps even more worrisome is that visitor time spent on Yahoo fell to 2 hours and 11 minutes in June from 2 hours and 56 minutes in December as eyeballs increasingly turn to Google and Facebook. This company has zero momentum.
–Amazon fell woefully short of expectations and the stock was pummeled (before recovering Friday afternoon), though the company’s actual results were nonetheless impressive, with sales up 42% over year ago levels. Amazon earlier announced it is now selling more Kindle books than hardcover ones. The problem is Amazon has always been way overvalued on a price/earnings basis and it continues to be.
–Dell Inc. and founder Michael Dell hid the effect of massive payments from Intel, according to a settlement between the SEC and the company whereby Dell agreed to pay a penalty of $100 million and Michael Dell, $4 million personally. For the period 2002 to 2006, the SEC maintains that Dell manipulated its earnings by telling investors the company was benefiting from “cost reduction initiatives” and “declining component costs” as the reasons for its growing profit margins when company executives, including Michael Dell, knew the increase was due to payments from Intel. It was just pure accounting fraud. Without the shenanigans, the SEC says Dell would have missed Wall Street’s earnings expectations every quarter during the period in question. In the first quarter of fiscal 2007, the payments amounted to more than $720 million, or 76% of Dell’s operating profit, according to the SEC. What bastards!
So not only does Dell make a crappy product, but they’re essentially a bunch of boiler room operators. I can’t believe that there were times I said I admired Michael Dell (before all my product issues).
Speaking of that, I didn’t get into it last week but I had another serious problem with my new Dell system that came close to derailing “Week in Review.” Let’s just say I was up far later than normal last Friday putting the piece together as I was forced to call in a tech guy to fix everything.
Anyway, it was two weeks ago I brought up how awful Dell PCs are, and my litany of issues, and this week Dell was forced to admit it accidentally installed replacement motherboards carrying the W32.Spybot worm! Geezuz. Thanks for nothing, guys. I mean this bug has been around since 2003, but to be fair, it sounds like the company handled this latest issue as well as could be expected.
But an old friend, Frank H., wrote me the other day. Until very recently, Frank had never had a problem with his Dell computers so he was going to defend the company, but he told me of his daughter Lily who is entering high school and how Frank was going to get her a Dell laptop. Very uncool, Dad. Upon learning she was getting a Dell, Lily wrote her father an essay titled “Ten Reasons Why You Should Buy Me An Apple.” Duly impressed, Frank bought Lily a Mac and was so impressed by the service at the store (he had never been in one), he bought a Mac for himself and will shortly get an iPad. Plus, he raved about the $99 a year special service he bought for Lily where she gets individual one hour classes, once a week, at the Apple store. Said Frank, “It’s easily my best purchase of the year.” And that’s how a Dell sale turns into a Mac, sports fans.
–Walter Noel, the founder of hedge fund Fairfield Greenwich, was formally charged with being part of a group of hedgies that pocketed more than $1 billion in Bernie Madoff profits; Noel’s take being in excess of $110 million. Irving Picard, who is trustee in charge of cleaning up the mess, said Noel and others at Fairfield “purposefully turned a blind eye” to Madoff’s shenanigans to fuel their own lavish lifestyles.
“Every dollar the defendants purportedly ‘earned,’ and every dollar they kept to unjustly enrich themselves, was stolen money,” said Picard. [Kaja Whitehouse / New York Post]
–McDonald’s sales in the quarter were up 5.3%, always a good economic barometer, and this time rather than coffee it was the sales of frozen drinks that paved the way, thanks to the hottest June on record. Can’t imagine what July’s revenues will be, but in case you haven’t noticed, it’s been hot in the entire northern hemisphere, for crying out loud.
But did you see McDonald’s may introduce Angus snack wraps?! Ooh baby. I’m drooling.
–A congressional investigation found that Countrywide Financial’s “Friends of Angelo” preferential mortgage program, named for former CEO Angelo Mozilo, was extended to 173 employees of Fannie Mae and Freddie Mac; this on top of previously reported deals for the likes of Senator Chris Dodd and former Fannie CEO Franklin Raines.
–According to research at UNLV, the Las Vegas economy remains stuck in the mud and is showing no signs of improvement. Said an analyst who looks at various economic indicators there, “Right now, (Vegas) is bumping along the bottom.” Gaming revenue on the Strip fell 6.4% in May compared with a year ago and was down 1.3% for the 12 months ending May 31. And this includes the opening of CityCenter’s Aria. Without that, the figures would be even worse. What’s hurting is the fact most gamblers are over 50 and this is the group that has been forced to cut back the most after the debt binge, let alone the impact of the real estate bubble. [Las Vegas Sun]
Nevada’s unemployment rate, incidentally, is 14.2%, up from 13.8% in May, which of course is a big item in the heated senate race between Harry Reid and Sharron Angle.
–The Alaska Department of Revenue reported that cruise passenger traffic there fell 20% in May vs. a year ago. Much of the decline has to do with growing fees, taxes and regulations levied on the cruise lines that industry executives said were making it increasingly difficult to make money in the state. So operators such as Royal Caribbean and Norwegian Cruise Lines have been reducing capacity. [Anchorage Daily News]
–Skepticism over the future of Social Security is growing, with 6 in 10 non-retirees, in a USA TODAY/Gallup poll, saying it won’t be able to pay them benefits when they stop working. 3/4s of those 18 to 34 don’t expect to get a Social Security check when they retire. But Social Security is nowhere near the ticking time bomb that Medicare is. The unfunded total liability is around $16 trillion for the former, but $100 trillion or more for the latter.
–Five states have sued the federal government and Chicago’s water authority over the threat posed by the Asian carp entering the Great Lakes. Scientists are concerned the monster, which has no natural predators, may overrun species such as salmon. The states are asking the Army Corps of Engineers to use nets to stop the carp from entering Lake Michigan. President Obama has done zero on this issue.
–Senate Democrats shelved their plans for cap and trade legislation to curb greenhouse-gas emissions because they couldn’t come up with 60 senators to support even a limited proposal, though the Environmental Protection Agency can still adopt rules limiting emissions, while Democrats could yet include some provisions in a narrower energy bill.
–My portfolio: I’ve reduced my equity exposure to three main plays. I added again to my natural gas holding, largely in the form of Jan. 2011 in the money calls. I’ve recently been building a position in a U.S. uranium stock, which I plan on holding at least a year, and I added more to my China holding this week. [I still own a little in a Brazilian airliner, and some other selected flotsam.]
As for the China specialty chemical/biodiesel company, not a week goes by without someone asking, “What’s up with these guys?” All I can tell you is that we’re about to learn in the next 2 to 3 weeks just how well they’re executing the plan for the new plant and whether operations are going to be impacted by a slowdown in China.
But I have to tell you, I follow three other Chinese materials/resources/chemical stocks, all of which I’ve invested in at one point or another, and interest in China small caps has totally dried up. 3 of the 4, including my stock, are making money. It’s just that investors are shying away until there’s more clarity on the outlook. Plus the general malaise in the investment community is a global phenomenon.
Foreign Affairs
Afghanistan: An international security conference was held in Kabul, the first of its kind and in itself a minor accomplishment in getting representatives of some 70 nations in and out safely, with President Hamid Karzai saying his nation was committed to taking over full security operations across the country by 2014, a tall order given that the vast majority of those being trained for the police and army are illiterate. But everyone endorsed Karzai’s efforts and the United States said it would accelerate its part of the handoff beginning in July 2011.
But the fact is the counterinsurgency strategy has not been working, and you have issues like Karzai’s reelection fraud, the rampant corruption in his government, and a growing split among congressional Republicans as to just what our strategy is there.
It also doesn’t help that you have reports like the following from Joshua Partlow of the Washington Post.
“The man who served as President Hamid Karzai’s top intelligence official for six years has launched an urgent campaign to warn Afghans that their leader has lost conviction in the fight against the Taliban and is recklessly pursuing a political deal with insurgents.
“In speeches to small groups in Kabul and across northern Afghanistan over the past month, Amarullah Saleh has repeated his belief that Karzai’s push for negotiation with insurgents is a fatal mistake and a recipe for civil war. He says Karzai’s chosen policy endangers the fitful progress of the past nine years in areas such as democracy and women’s rights….
“Still, with war costs and casualties rising, U.S. policymakers are increasingly looking for a way out, and a power-sharing deal between Karzai and the Taliban may be the best they can hope for.”
60 U.S. soldiers died last month. As of Saturday morning, at least 52 had been killed in July.
Iran: The mystery around Shahram Amiri, the Iranian the CIA had under its control who then returned home, deepens. Was he a double agent as some, like the Iranians, say? Did he pass along false information to the U.S., or did the CIA glean valuable info on Iran’s nuclear weapons program? Nothing is definitive as yet, though most are in agreement Amiri’s days are numbered and down the road he’ll die in an “accident” or have a heart attack. One theory does seem to hold some water, however, and that is because the CIA was unable to get Amiri’s family out of Iran, which is the normal operating procedure when dealing with defectors, Amiri was mad and wanted to return to them because he was duly concerned over their safety.
But the other big item on the week was yet another drumbeat of stories that Iran’s nuclear program has been successfully sabotaged. This seems to come up about every three months and there is little doubt U.S. and Israeli agents in particular are doing their best to pass off bad equipment, for example. Many papers this week carried stories on how the centrifuges being used by Iran are of poor quality and breaking down rapidly. Additionally, the European Union is enacting a further round of sanctions this coming week that will further target Iran’s energy and arms sectors.
So where does this leave Israel and the U.S. when it comes to a possible strike on Iran’s nuclear sites, especially Natanz? Let me reiterate my stance. It’s not whether or not I think we, the U.S., should strike, it’s what Israel will do, and then whether or not the U.S. will act alongside it. And on this paramount issue, my point has always been that in no way will Israel allow Iran to get the bomb…period.
But…due to the fact that both the United States and European Union have issued their own harsh set of sanctions, on top of the lightweight ones in the latest UN Security Council resolution, Israel has to wait, even if it had the intelligence, in order to give sanctions a chance or they wouldn’t receive any support for subsequent actions. Depending on the evidence gathered, though, this is essentially a month-to-month proposition.
Meanwhile, as Michael Barone writes in the New York Post, it’s been curious that two Obama supporters, Time’s Joe Klein and Walter Russell Mead (Mead being more from the center), both are talking of Obama increasingly reaching the conclusion that Iran is going to have to be attacked.
Stephens writes of the intense speculation back in 2008 that then-Prime Minister Ehud Olmert was ready to act, but that Olmert ultimately believed it was too big of a gamble.
“Then came Barack Obama with his time-limited offer to negotiate with Tehran, followed by Iran’s post-election unrest, which briefly aroused hopes that the regime might be toppled from within.
“By the end of last year, it was clear that both hopes were misplaced. It was clear that the limited sanctions being contemplated by the Obama administration were not of a kind to deter Iran from its nuclear bids. It was clear that those bids were moving steadily closer to fruition. And it was clear that the administration was ill-inclined to take military action of its own.”
So Stephens, like myself, as I was writing at the same time, thought Israel would strike “under the more hawkish leadership of Mr. Netanyahu.”
Stephens gives four theories “in ascending order of significance and plausibility.”
“The first is that Israeli military planners have concluded that any attack would be unlikely to succeed (or succeed at a reasonable price). Maybe. But this analysis fails to appreciate the depth of Israeli fears of a nuclear Iran, and the lengths they are prepared to go to stop it….
“A second theory is that Israel is biding its time as it improves its military capabilities on both its offensive and defensive ends….
“The third theory concerns the internal dynamics of Israeli politics. Mr. Netanyahu may favor a strike, but he will not order one without the consent of Defense Minister Ehud Barak, President Shimon Peres, Chief of Staff Gabi Ashkenazi and perhaps also Mossad chief Meir Dagan. This inner cabinet is said to be uniformly against a strike, with the wavering exception of Mr. Barak….
“Finally, Israeli leaders are mindful of history….[such as] the lessons of the Suez War in 1956. Back then, a successful military operation by Britain, France and Israel to humiliate Egypt’s Gamel Abdel Nasser fell afoul of the determined political opposition of the Eisenhower administration, which mistakenly thought that it could curry favor with the Arabs by visibly distancing itself from Israel and its traditional European allies. Sound familiar?
“There is now talk that the Obama administration may be reconsidering its military options toward Iran. Let’s hope so. Israel may ultimately be willing to attack Iran once it reckons that it has run out of other options, as it did prior to the Six Day War. But its tactical margin for error will be slim, particularly since an effective strike will require days not hours.”
Israel: Netanyahu has other problems, including the makeup of his fragile coalition, namely Avigdor Lieberman, his foreign minister. It was Lieberman who was dissed by Netanyahu when the prime minister chose a different cabinet minister to negotiate with Turkey this month rather than the foreign minister, and Netanyahu didn’t even tell Lieberman of the meeting beforehand. Lieberman is furious.
As for the Palestinians, they refuse to take up Netanyahu’s offer for direct talks until he extends his ten-month freeze on settlement growth. [In the latest opinion poll, 71.5% of Israelis favor peace talks.]
Lebanon: Prime Minister Saad Hariri went to Damascus for a fourth time, with the two sides in this latest confab agreeing to a series of agreements on trade, consumer and investment protections, shipping and tourism, among other items. But there are still important issues remaining such as border demarcation. I just find it interesting that Hariri has traveled this road to Damascus as often as he has when the tribunal looking into the assassination of his father, Rafik, has yet to rule on what we all know…that the Syrian government in one shape or form was complicit.
And so it was this week that Hizbullah leader Sheikh Nasrallah said he had been told by Saad Hariri that members of his organization are to be indicted by the UN tribunal, but that these are “undisciplined members which the group has no relations with.”
“If there were doubts about whether Hizbullah participated in the assassination….for many people the party’s secretary general seemed to dispel them last week by describing the Special Tribunal for Lebanon as an ‘Israeli project’ because it might indict Hizbullah members.
“Nasrallah is caught in two sets of binds. The first has to do with how Saad Hariri and his government will react if party members are accused. The secretary general’s linking the tribunal to Israel shows that he expects Hariri to end all cooperation between the Lebanese state and the institution…Yet Hariri is unlikely to yield, because he can see that Nasrallah has limited options if he refuses to do so.
“Hizbullah spokespersons have warned in recent weeks that Hariri should be careful: Any effort to use indictments against Hizbullah may result in a repeat of May 2008, when the group overran western Beirut…. What worries Hizbullah is that, if indictments come, Hariri will declare that he does not believe the party’s leadership was involved in his father’s assassination, implying that those accused were rogue elements. This would undermine Hizbullah’s credibility, show that Nasrallah doesn’t control his own organization (let him then try to sell Hizbullah as the vanguard of an effective national resistance), and make the party beholden to Hariri, but also, more generally, to Syria.”
Classic Middle Eastern politics, as you can see. Nasrallah is trying to get ahead of it all. Young continues:
“Indictments would throw Hizbullah’s strategy into disarray. For a start, the party cannot maintain Lebanon’s readiness for war if it chooses to go on the offensive domestically in order to pressure Hariri and the government into denouncing the special tribunal. Nasrallah would either have to opt for domestic instability, which would only divide the country, or avoid that path, so as to preserve some sort of united front against Israel. The secretary general could not do both.
“That is why Nasrallah is now focused on rallying the Shiite community behind Hizbullah, by saying the tribunal is an Israeli weapon.”
However, regarding the tribunal itself, Michael Young is not convinced indictments are even imminent. The investigation, it would seem, is not going well. So, Young concludes:
“Maybe Nasrallah is being too hasty in incriminating his own party.”
Iraq: The election was March 7, and still the formation of a new government is nowhere in sight. And while overall violence is down, the bombings continue, including a disconcerting rocket attack on the Green Zone, Thursday, that killed three. Such attacks have been very rare.
China: Beijing is none too pleased with the joint U.S.-South Korean naval exercises slated for July 25-28. I posted some of the official reaction on my “Hot Spots” link and part of me understands how China could be miffed with a force of 18 warships (between the U.S. and the South) and 200 fighter jets being involved in the maneuvers right in the Yellow Sea. This is an item that has been flying under the radar and it’s not out of the realm of possibility that there would be a “mistake” in judgment as China seeks to monitor the exercise closely.
Of course the U.S. and South Korea say it’s all about North Korea, not China, and Pyongyang has made all kinds of threats of its own, including conducting a “sacred war,” while this morning threatening a nuclear response.
But the other big event in China this week, aside from the ongoing catastrophic flooding in the south of the country (in the case of Guangdong, the worst since 1847), was the disastrous oil refinery fire in the largest deepwater oil port of Dalian, which was followed by a massive spill of thick, black crude; in some cases at least two inches thick. Among the reports I read, “One cleanup worker has drowned, his body coated in oil.” A witness told the AP, “The oil is half-solid and half liquid and is as sticky as asphalt.” Another described the plight of a fireman named Tian, “whose face was covered in oil.” He had been working three days straight trying to put out the numerous fires that kept flaring up.
Greenpeace has called the spill, China’s latest environmental disaster, the worst in memory. The initial scene, with seven spectacular explosions, looked like hell. While the government tries to reassure the world it has everything under control, at the same time it banned fishing from the area until the end of August, for starters. Beaches are inundated with heavy crude.
[The U.S.-South Korean naval maneuvers are taking place in the same waters, incidentally.]
Meanwhile, despite improving relations on the trade front, China will be targeting Taiwan with 2,000 missiles by the end of the year, giving Beijing the capability to destroy 90% of the island’s infrastructure. Taiwan’s President Ma attended a computerized war game simulating an intensive missile attack from the mainland and according to the drill, Taiwanese troops would be forced to fight alone without foreign assistance, such as from the United States.
But to end on a good note, China is now allowing its citizens from all over, including Tibet, to visit Taiwan on group tours.
North Korea: Secretary of State Hillary Clinton and Defense Secretary Robert Gates made an unprecedented joint trip to the DMZ, and Clinton announced a new set of sanctions on Pyongyang designed to further rein in their nuclear weapons ambitions.
Russia: What promise to be often explosive discussions in the U.S. Senate on ratification of the New START treaty are slated to begin this week and passage is far from assured. The administration wants to wrap it up before the August recess and thus keep it out of the height of the campaign season but that doesn’t seem realistic. Some Republican senators simply don’t trust the Kremlin, particularly when it comes to the verifiability provisions of the treaty. Reminder, 2/3s are needed to pass it. Yours truly, listening to the guidance of Republican Senator Richard Lugar, would vote to do so, but only if the administration increases money available to maintain and improve existing nuclear warheads.
Saudi Arabia / Egypt: The Economist had a series of articles in the July 17 issue on the fate of these two ‘allies,’ with 82-year-old Hosni Mubarak supposedly gravely ill and 86?-year-old King Abdullah, being, err, 86, or so they say. There is no guarantee the transitions in either case will be smooth.
Colombia / Venezuela: These two have broken off diplomatic relations over accusations by Colombia that Hugo Chavez is harboring terrorists, specifically FARC and ELN, the two groups responsible for thousands of deaths in Colombia’s decades-long war with insurgents. Bogota said it has video and satellite photos of the locations where the guerrillas are located inside Venezuela. Colombia’s new president – Juan Manuel Santos – is being sworn in on Aug. 7. Chavez is blustering away as I go to post.
Mexico: On Sunday, gunmen massacred 17 at a party in northern Mexico.
Greece: An investigative reporter was shot and killed in a hail of bullets (at least 15) outside his home. Sokratis Giolias was about to publish the results of an investigation into corruption.
South Africa: From the London Times…
“A retired British couple were murdered during a suspected robbery in a quiet seaside resort in South Africa, shattering the peace that largely reigned during the recent World Cup.
“The bodies of Christopher Early, 69, and his wife Jennifer, 62, were found stuffed into the boot of their abandoned Volvo a few miles from their home in the beachside town of Hibberdene south of Durban, one of the venues for the recent tournament….
“With its golf course and five beaches lining the clear Indian Ocean, Hibberdene, 60 miles south of Durban, is a popular destination for diving, fishing and golfing enthusiasts.”
Kosovo: The International Court of Justice declared that Kosovo is indeed the world’s newest independent country and did not break international law in seceding from Serbia in 2008. The vote wasn’t even close, 10-4, and Serbia is not happy. [Russia and China sided with Belgrade.] If I’m an international affairs or political science major in college these days, this would make for a terrific, and fascinating, research project.
Random Musings
–After much debate, Congress approved an extension of unemployment benefits for those out of work for six months or more.
–New York Democratic Rep. Charles Rangel was charged with multiple ethics violations by the House Ethics Committee, though no specifics were forthcoming. The case will proceed to a House trial, where a panel of eight Republicans and Democrats will decide whether the violations can be proved by clear and convincing evidence. It was House Speaker Nancy Pelosi who had promised to “drain the swamp” of ethical misdeeds by lawmakers and Rangel thus becomes a key issue for Republicans campaigning this fall.
–Interesting opinion by Cameron Lynch in U.S. News & World Report.
“The hypothesis sounds preposterous. But in recent days, speculation has arisen that a Republican takeover of the House might not be such an ominous occurrence for President Obama, his electoral chances in 2012, and thus his presidential legacy. A Republican-controlled House would provide Obama with a natural foil for his 2012 electoral platform. One can already envision the campaign commercials: ‘We [the Democrats] were making real progress until Republicans took over the House – then obstruction and negativity invaded Washington.’ Do the president and his strategy team secretly hope to lose the House in November? One can’t say for sure, but there are certainly political silver linings should his party fail to retain control.”
–The Washington Post ran a detailed story on the U.S. intelligence gathering apparatus, which has become massive and unwieldy. For example:
Nearly 2,000 private companies and 1,270 government agencies are involved in counter-terror work at 10,000 locations across the country.
Some 854,000 U.S. citizens have the highest level of security clearance.
And more than 250 security bodies have been created or restructured since 9/11.
U.S. officials maintain we are safer today, but incidents such as the failed Christmas airliner bombing and the failed Times Square attack point out the ongoing weaknesses.
–Only 22% of California voters approve of Gov. Schwarzenegger’s job performance according to a Field Poll, equaling the low point in former Gov. Gray Davis’ ratings. In the summer of 2004, Schwarzenegger was rated positively by 65%.
–Josh P. first alerted me to the scandal involving one of Los Angeles County’s poorest municipalities, Bell, a mostly Hispanic city of 38,000, where hundreds turned out to protest the city manager’s salary of $800,000…not $80,000…$800,000…plus Robert Rizzo was receiving 12% annual raises. Bell’s police chief earned $457,000.
But after excessive pressure, the two, along with the assistant city manager (annual salary $376,000), were forced to step down and without severance packages. Now the residents are going after the city council…part-time positions that still pay $100,000.
–According to a Gallup survey, 76% of Republicans have a favorable view of Sarah Palin. Who are these people? Among all Americans, however, Palin is viewed unfavorably by 47% vs. 44% with a positive impression.
This week Sarah invented the word “refudiate.” She also used the word “refute” incorrectly in a Twitter post, as she called on “peaceful New Yorkers to refute the Ground Zero mosque plan.” So I loved the following from Alexandra Petri of the Washington Post.
“Explanation: ‘Refudiate,’ ‘misunderestimate,’ ‘wee-wee’d up.’ English is a living language. Shakespeare liked to coin new words too. Got to celebrate it!’
“Note: As someone who has never, personally, been ‘wee-wee’d’ up but thinks it sounds like a painful process that would be difficult to reverse, I’m overwhelmed by Palin’s boldness. Churchill said of Ramsey MacDonald that ‘He has, more than any other man, the gift of compressing the largest amount of words into the smallest amount of thought.’ But why even bother with the words? Sarah Palin has broken down the last boundary, and now the sky is her limit. Soon, her speeches will just be things like: ‘For too long, Americans have wandered in a gormless wabe, mimsy and absturpated. Can’t the U.S. government corribulate this reticulousity?’ Well, can we? I’m not sure….
“Maybe she’ll prove me wrong and ‘refudiate’ will catch on. But if she runs in 2012, I hope we’re horpswangling enough to grountify her. And I mean that in the nicest possible way.”
–Meanwhile, Bristol Palin and Levi Johnston are working on a reality show about their upcoming wedding and life as newlyweds. But one network honcho told the New York Post’s Page Six: “Don’t think we should do it. Neither of them have personalities.”
–An encouraging study out of South Africa revealed that a microbicidal vaginal gel significantly cut the rate of women contracting HIV from infected partners. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said “It’s the first time we’ve ever seen any microbicide give a positive result that you could say was statistically significant.” Nearly 20 years of research has gone into microbicides that can be controlled by a woman, independent of her partner.
–In a poll by Fox News/Opinion Dynamics, 47% have a favorable opinion of Gen. David Petraeus, and only 8% unfavorable. But 32% have never heard of him. I could see 10%-15% not having heard of the general, but 32%? Yet another sign of the apocalypse.
–Never was there a more classic example of my dictum “wait 24 hours” than the mess created by conservative activist Andrew Breitbart’s posting of a snippet of a speech given by a low-level Dept. of Agriculture official, Shirley Sherrod. Breitbart claimed later to “Good Morning America” that “The video shows racism, and when the NAACP is going to charge the tea party with racism…I’m going to show you it happens on the other side.”
Of course you all know by now that Ms. Sherrod’s comments, as shown only on the initial video, were totally taken out of context but it was too late to stop the smear campaign. The story hit Monday and by Wednesday everyone was apologizing to her, including Agriculture Secretary Tom Vilsack, who fired her without learning the facts, as well as the NAACP, which sought to distance itself from Sherrod’s “racist” comments. The whole deal was absurd and a total indictment of our times and instapunditry, which in case you haven’t noticed I don’t subscribe to.
Those of you who have been with me since the beginning recognize how I would have handled this story had it broken on Friday, instead of Monday. I wouldn’t have commented, period.
Peggy Noonan / Wall Street Journal
“You know what happened this week. Someone cut the 45-minute speech down to less than two minutes, to the part in which she talked about not wanting to help white people. Andrew Breitbart ran it on one of his websites and made Ms. Sherrod look like a race-game-playing government bully.
“It was trumpeted all over conservative media. The Obama administration panicked and forced her to resign. She wasn’t even given a chance to explain.
“And then the Spooners [the whites whose farm Ms. Sherrod saved] stepped in, and this time they saved her. Is Ms. Sherrod a racist, they were asked. ‘No way in the world,’ said Roger Spooner. ‘She stuck with us.’ Eloise: ‘She helped us, so we’re helping her.’
“Then people started bothering to watch and read the whole speech.
“That we’re all too quick to judge. That we don’t even let the evidence of our eyes stop us in our rush to judgment. You can’t see and hear Ms. Sherrod and fail to understand that she’s a thoughtful, serious person.
“That we are not skeptical enough of what new media can cook up in its little devil’s den. That anyone can be the victim of a high-tech lynching, and that because of this we have to be careful, slow down, look deeper. We live in a time when what you say is taped, and those tapes can be cut, and the cuts can be ruinous, and if you think it only happens to the rich and famous, think again. It’s coming to a theater near you.”
–Last week I didn’t have a chance to comment on the most vile, despicable woman I’ve ever seen…attorney Lynne Stewart, who represented blind Sheik Omar Abdel-Rahman, who plotted attacks in Egypt and New York. Just as well because over the weekend, Michael Goodwin commented in the New York Post on her increased prison sentence.
“Justice is blind, but not stupid. At least not in the case of the odious Lynne Stewart.
“It took years, but this is a story of triumph for innocent people everywhere in the war against terrorists. The criminal-justice system actually worked, and the outcome is all the more fitting because Stewart’s venality was matched only by her arrogance and greed.
“Convicted five years ago of terrorism charges, the radical lawyer foolishly appealed the verdict and her 28-month sentence, even while boasting the sentence was so short she could do it ‘standing on my head.’ Of her crimes, she told reporters she would ‘do it again.’
“Too clever by half. Now she is doing 10 years and has only herself to blame for the added time.
“And we have brilliant lawyering by the Manhattan U.S. Attorney’s Office and a wise decision by a federal court of appeals to thank for correcting the gross miscarriage of justice the initial sentence represented….
“To her everlasting disgrace, Stewart used her privilege as a lawyer to help pass messages, some of which aimed to promote murder, to followers (of Rahman), then lied about it in court.”
But the appeal backfired and the Court asked the judge who originally gave Stewart 28 months to reconsider and he tacked on 8 years, with the judge citing her lack of remorse, as well as the appeals court ruling.
“Her case should also serve as a warning to other lawyers with a nasty habit of romanticizing their terror clients. Legal representation of unsavory people is noble; aiding the cause of waging war against America is pure evil.
–House Minority Leader John Boehner warned GOP congressmen to keep their distance from female lobbyists who prowl Capitol Hill, specifically telling those who party with lobbyists “to knock it off,” according to the New York Post. Boehner is scared to death of a scandal before the mid-term election. The Post observed GOP Rep. Lee Terry of Nebraska, who is in a tight race, in close conversation with a “comely lobbyist” at the Capitol Hill Club in DC recently.
“Why did you get me so drunk?” Terry asked the giggling woman. The Post noted: “When Terry realized he was sitting near a reporter, he quickly changed the topic of conversation to his three children and the struggle to pay their college tuition.”
Terry has been given a 100% rating by the Christian Coalition for his pro-family voting record. Terry’s spokeswoman, when confronted about the outing by the Post, said, “The congressman has no idea what you are talking about.”
–Earlier this year I reported on Gen. Stanley McChrystal’s decision to close dozens of fast-food concessions on bases in Afghanistan, including outlets such as Burger King and Taco Bell. McChrystal at the time said they took troops’ minds off what they really needed to be thinking about. The Army Times editorialized this week:
“The order was an overreach from a longtime special operator for whom Spartan environments were a way of life.
“But troops who have deployed multiple times to Afghanistan don’t need such a gut-punch reminder that they’re on a tough expeditionary mission in a forbiddingly austere country.
“It’s difficult to see how stripping the small pleasure of a Whopper from an infrantryman just in from a hard patrol outside the wire could obscure that fact.”
Thankfully, it appears that Gen. Petraeus is about to bring the concessions back.
–Lastly, my community of Summit, New Jersey, became a big local news story this week when the residents learned that the victim of a vicious attack in the heart of the downtown area died of his head injuries, Tuesday. Last Saturday night, early, a 47-year-old from El Salvador who had finished his stint washing dishes at an Indian restaurant, walked across the street and sat on a park bench. He was approached by three youths. One held the guy’s shirt over his face, the second then smashed him in the face a few times, and the third shot the incident on his cellphone camera and later posted it on the Web for Summit teens to view. The local ABC News affiliate showed the videotape up until the time the victim’s face is about to be pummeled.
Charged were an 18-year-old (who held the shirt) and the 17-year-old who killed the man. The kid filming it has yet to be charged.
There are so many issues involved here, including how the town wasn’t notified of a vicious attack downtown, with the assailants loose, until the man died. I had to tell a friend whose business was next door what happened when in my usual reading I saw a story on the Web, five days after it happened! The police didn’t do squat and never patrol this little pocket park where the town’s derelicts hang out when it was designed for purposes other than harassing older folks or immigrants.
But there were also other witnesses…other kids, at last reading, and no one appears to have called it in. [Older New York area residents will recall the famous 1960s case of Kitty Genovese, who was murdered in Queens in front of numerous witnesses who then failed to respond.]
Supposedly what happened in my town is going to be investigated as a hate crime (the assailants were black). When you see the tape, it’s basically an execution.
But what also upsets me to no end, aside from the obvious Net angle, is something I’ve expressed numerous times in this space before. Why, in our modern age when kids grow up so quickly, do we insist on protecting those under the age of 18 by not identifying them? I want this kid’s name. I want to know where he lives. I want to see his picture.
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Pray for the men and women of our armed forces, and all the fallen.
God bless America.
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Gold closed at $1187
Oil, $78.98
Returns for the week 7/19-7/23
Dow Jones +3.2% [10424]
S&P 500 +3.5% [1102]
S&P MidCap +5.0%
Russell 2000 +6.6%
Nasdaq +4.1% [2269]
Returns for the period 1/1/10-7/23/10
Dow Jones -0.0% [down 0.01]
S&P 500 -1.1%
S&P MidCap +5.1%
Russell 2000 +4.0%
Nasdaq +0.0% [up 0.01]
Bulls 35.6
Bears 35.6 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
