Wall Street
Frankly, this is about the easiest week to write up I’ve had in terms of the financial news since the global crisis struck in force fall of 2008. All the economic data points, virtually around the world, were in sync and point to sluggish growth for the foreseeable future that in many cases will feel like a recession as malaise sets in deeper and deeper. But no double-dip, technically, and here you have to be intellectually honest because a reminder…there is no official term for one, but I’m going with a double-dip being a return to official recession in having two negative quarters of GDP growth. I think we can avoid that, just as in critical China, I believe they can avoid a double-dip as well, though here you’d be talking two consecutive quarters of 7% growth or less; 7% appearing to be the official figure that means the economy in China isn’t growing fast enough to create jobs for those entering the labor market.
This week we learned that the U.S. economy grew at a 2.4% rate in the second quarter (the first estimate for this period), while the first quarter’s pace was revised upwards from 2.7% to 3.7%. But the Commerce Department’s release also noted that GDP shrank at a 6.8% clip from October to December 2008, exceeding the prior estimate of 5.4%, making it the deepest quarterly drop since 1980.
We also learned that in the second quarter of this year, consumption spending rose just 1.6%, following a revised gain of just 1.9% in Q1, so the consumer figures bear out that we’ve hardly been in a buoyant mood.
We heard a lot of consistent, dour talk from the Federal Reserve Board this week and individual Fed governors. The Fed’s beige book of regional economic activity showed it to be sluggish, but no double-dip. St. Louis Fed Bank President James Bullard riled the markets when he warned of deflation, adding that the Fed’s language of keeping “exceptionally low levels” for the federal funds rate “is a double-edged sword,” Bullard wrote. “The policy is consistent with the idea that inflation and inflation expectations should rise in response to the promise, and that this will eventually lead the economy back toward the targeted equilibrium of [higher nominal rates and inflation.] But the policy is also consistent with the idea that inflation and inflation expectations will instead fall, and that the economy will settle in the neighborhood of the unintended steady state, as Japan has in recent years.”
Bullard’s point was that the “extended period” language actually pushed out the day on which conditions are normalized, and as to his deflation thesis (which he hastened to add later he didn’t feel was a certainty), the Fed should focus on “quantitative easing” measures (buying longer-dated debt) to boost inflation expectations if inflation shows signs of ticking lower than its current core 1.0% level.
Separately, Dallas Fed Bank President Richard Fisher said he expects the U.S. economy to “slog” at a below 3% pace for a “prolonged period,” noting that further monetary accommodation may not revive businesses “dispirited” by tax and regulatory changes. “We’ll be pushing on a string, in my opinion.”
Fisher added: “I fear the nation’s economy will be sailing forward at suboptimal speed, despite the fact that the cost of borrowing is low, equity markets have shown resilience, and liquidity is plentiful.”
Businesses “are increasingly distressed by the lack of consistent direction coming from Washington,” Fisher said. “They are confused and dispirited by random refereeing….
“As long as our economic players, businesses and consumers, are beset by unmanageable uncertainty, they will refrain from making decisions that provide the stuff of economic growth.”
The consistent themes of very slow growth continued in two quarterly surveys of economists, both issued before Friday’s GDP report. The first for USA TODAY had economists gloomier than April and looking at 2.5% growth in the second half. The AP survey concluded the economy would slow in the last six months of 2010 and that the unemployment rate would remain around the 9.5% level by year end. None of this is good for President Obama and the Democrats come the mid-term vote.
The AP survey cited the state and local budget crises as being “significant” and that there was a “severe” risk to the national economy with the loss of tax revenues.
It’s this state and local issue that pulls us back to reality even as a FedEx, UPS, or Caterpillar issues a reasonably solid outlook. In a survey put out by the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties, local governments moved to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011, or roughly 500,000 will lose their jobs, according to the report, which said the figure could end up being even higher.
“Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” said the study released on Tuesday. The solution? Everyone wants more money. That’s not about to happen.
Every one of you, save maybe those living in the relatively prosperous Dakotas these days, has a story of woe when it comes to state and local government. While I believe the pain being felt will benefit us all in the long term, that’s little consolation if you work for the state of California and you’ve just been told you have to take 3 days off without pay per month. Chances are you’re not increasing your personal consumption. [Though in that scenario at least you have a job.]
We are a nation that is still in the throes of a crisis, with some sectors having bottomed, and others, such as the states and municipalities, still searching for one. It’s real simple. We have to reduce our debt levels, across the board, from the federal government, which is going to be the last to act, all the way down to the individual, but it’s painful.
And it’s interesting that the government austerity programs being enacted around the globe, particularly in Europe, are just beginning to bite. Europe, for a spell, benefited from the plunging euro (which has now stabilized) because it made its exports, such as in powerhouse Germany, cheaper.
But now you’re seeing the first signs in Britain, for example, which has announced a sweeping reduction in state spending, where consumer confidence has begun to plunge as reality sets in. ‘Hey, David Cameron is serious. I really could lose my job, or a bunch of my neighbors are about to and they’re not as likely to buy my product. Drat! This sucks.’
You also had some dour news out of Japan on Friday, and say what you will about the place, which has basically been stuck in neutral for 20 years, but it’s still a most important economy and industrial production in June fell while the unemployment rate rose again to 5.3%, which is high for Japan. And in its ongoing battle against deflation, the core consumer price index was down yet again, 1.0% over year ago levels. Even June exports, up 27.7%, are nonetheless slowing vs. prior months. [Ditto Hong Kong, up 26.7%, but the pace is softening.]
There was some good news, though, which is why the world isn’t double-dipping as yet. Britain’s consumer confidence may have fallen on its being one of the first to seriously address its deficit issues, but consumer and business confidence among the EU nations as a whole is up, and it needs to be noted that corporate earnings, across the globe, have been solid and largely beating expectations. China’s stock market has also rallied back strongly from the depths of its 27% plunge in the first half.
But a word or two on the geopolitical front. First off, not for nothing but Greek police have had a running battle with striking truck drivers, an act that has paralyzed the nation, depriving petrol stations of fuel (the army is being forced to deliver it) and prompting tourists to cancel holidays, as drivers are furious over license fees for new drivers, which are below those charged existing ones, as Greece tries to liberalize its freight sector. There are growing shortages throughout the entire economy, yet no one should be in the least bit surprised as this is a classic example of the growing social disorder I see developing across Europe, over time, particularly when it comes to immigrants (a growing controversy in Britain, as well as Australia, if you feel like taking a long flight to the latter). And now the Italian government of Silvio Berlusconi is in serious straits due to a political split with his center-right ally. The timing couldn’t be worse.
But the big issue, at least for the remainder of the year, is obviously in the Middle East and keeping the peace in Lebanon, which I address in detail below. Yes, Lebanon, through which Iran, should it decide to do so, will act. It’s why I went there when I did in April. I’d be surprised if things were as I found them come December.
I said at the start of 2010 that for every positive development, something on the geopolitical front would sap confidence anew. Admittedly, this hasn’t happened yet. But don’t expect the hot spots to be quiet much longer.
Street Bytes
–Stocks were mixed with the Dow Jones tacking on 0.4% to 10465, but the S&P 500 lost a single point and Nasdaq fell 15 (0.6%). Earnings reports were generally solid, with DuPont both beating and then guiding higher, while FedEx upped its outlook in noting its international business was up 20%. But Boeing’s and Merck’s revenues disappointed.
For the month of July, though, the Dow Jones had its best performance in a year, up 7.1%, while the S&P and Nasdaq both gained 6.9%.
–U.S. Treasury Yields
6-mo. 0.19% 2-yr. 0.55% 10-yr. 2.91% 30-yr. 3.99%
Yields fell anew on the softness in the economy. June durable goods orders were down 1.0%, though the Chicago PMI reading on Friday of 62.3 was a pleasant surprise.
–The Basel III Committee finally announced its new rules for the world’s banks and revised capital requirements, leaving many of us disappointed. For example, by 2018, banks will need to have a minimum leverage ratio of 3%, or $1 of capital for every $33 in assets. But why seven years to do so? Let alone the fact this is hardly stringent. Most American banks already meet the 3%, by far. Wells Fargo, for example, is over 6%. But as Peter Eavis points out in the Wall Street Journal, Deutsche Bank seems to be under 3%, and while it now has time to get its act together, it just reinforces that the real dangers for another financial crisis remain in Europe, especially as the bigger American banks have done a solid job getting their houses in order. And despite the recent stress tests for 91 of the European Union’s largest banks, transparency is lacking across the pond.
–Government scientists are trying to figure out where all the oil from the BP spill went, with 167 million gallons being unaccounted for. Said a professor at LSU, “That stuff’s somewhere.”
After my two trips to the Gulf, I wrote in this space that my concern was not the gulf itself, but the beaches (until a hurricane comes around to blast the contaminated sand away). National Oceanic and Atmospheric Administration chief Jane Lubchenco probably put it best, however. The situation is not benign, rather, “There’s so much noise out there now saying the gulf is dead or the gulf will come back easily. The truth is in the middle.” Certainly the oil-eating microbes have helped, fed by the summer heat.
But the air quality around the blowout site is definitely very poor, by one measure ten times worse than that found over Los Angeles, and debate continues over the long-term effects of the massive amounts of dispersant applied.
Early in the week, though, the big story was the replacement of Tony Hayward as CEO of BP with American Robert Dudley, as the oil giant reported a record loss of $17 billion in the second quarter, including $32 billion set aside for costs related to the spill. BP plans to sell about $30 billion in assets over the next 18 months to cover its costs and will emerge from this disaster with a much smaller operation.
On Friday, Dudley gave a press conference and said it was time to “scale back” operations, seeing as there is virtually no oil on the surface and thus skimmers aren’t needed, but he reiterated the company was committed to make things right and he’s hired former FEMA chief James Lee Witt to support the Gulf restoration work.
*The new issue of The Economist has a chart on “Selected payouts to departing CEOs.” Want to get ticked off all over again? Check this out.
BP’s Tony Hayward is receiving $1.6 million, one year’s salary, and a pension of about $17 million. But compare this to the following.
Lee Raymond / ExxonMobil…$400 million
Robert Nardelli / Home Depot…$210 million
Stan O’Neal / Merrill Lynch…$161.5 million…as egregious as they come. The guy was awful.
–In the latest on the housing front, June’s new home sales came in better than expected but were still at an abysmal pace, as May’s all-time worst figure was revised further downward. The S&P/Case-Shiller index for May showed a first-time homebuyer tax credit related jump of 1.3%, though all agree home prices are coming back down in no small part due to still rising foreclosures.
–Let’s see. The fiscal-2009 federal budget deficit was $1.4 trillion. For F-2010 it is expected to be $1.47 trillion. And the forecast for F-2011 is also $1.4 trillion. Wow…the Obama administration is very consistent!
–Billionaire Texas brothers Sam and Charles Wyly were charged by the SEC with using secret overseas accounts to generate $550 million in profit from illegal stock trades. The Wylys have been major contributors to Republican candidates but have been under investigation for years amid claims they hid their money in tax shelters through a network of accounts and companies on the Isle of Man and in the Cayman Islands. As noted in a Washington Post story, “The brothers then used these accounts and companies to trade more than $750 million in stock in four public companies on whose boards they served, not filing the disclosures required for corporate insiders, the SEC said.” In the past, the Wylys funded attacks on George W. Bush’s chief opponent in 2000, Sen. John McCain, and in 2004 helped fund Swift Boat Veterans for Truth, which went after the military record of Sen. John Kerry.
–The Justice Department sued Oracle Corp., alleging it defrauded the federal government on a software contract in effect from 1998 to 2006 that involved hundreds of millions in sales. Oracle allegedly didn’t disclose various discounts available to the government. Seeing as CEO Larry Ellison is not one of my favorites, I hope the government nails the company. In a Wall Street Journal analysis of CEO pay released this week, Ellison topped the best-paid list with $1.84 billion in compensation during the past decade, or $700 million more than No. 2, Barry Diller, of IAC/InterActive and Expedia.com.
Well, to be fair, over the same period, Oracle shares tripled and Ellison’s own 23% stake is valued at roughly $28.8 billion. I just have a real problem with the way Ellison has awarded himself mega stock options.
–After adjusting for inflation, airfares are 25% lower than they were in 1999, though up 5% in the first quarter of this year over 2009.
–United Technologies, the parent of engine maker Pratt & Whitney, Otis Elevator, and Sikorsky Aircraft, is cutting an additional 1,500 jobs this year, even as it reported a 14% increase in net income. That’s a great example of our new economy.
–Gambling revenues in Macau were up 65% in June from year-ago levels.
–Looking for revenues, Congress is thinking of legalizing, and taxing, Internet gambling. Needless to say, casinos and Indian tribes aren’t too pleased with the prospect. Congressman Barney Frank (D-Ma.) supports legislation allowing it.
“Some adults will spend their money foolishly, but it is not the purpose of the federal government to prevent them legally from doing it,” he said.
–South Africa’s jobless rate hit 25.3% in the second quarter.
–A report in Ireland warned 120,000 existing homes are unlikely ever to be sold, even as developers started work on 11,000 new ones in the last 15 months. There are more than 600 “ghost estates” lying empty as well, along with 300,000 homes. Housing prices are back to 2002 levels.
–The trustee recovering money for Bernie Madoff’s victims, Irving Picard, said he could wind up suing half the estimated 2,000 individual investors he has called “net winners” from their dealings with Madoff; those that withdrew more from Madoff’s firm than the amount of principal they invested. Any such “clawback” suits must be filed by December. So far Picard has recovered about $1.5 billion in assets for victims of Madoff.
–Farmers in Australia are concerned over the potential for a massive plague of locusts costing $billions, with the locusts hatching in August or early September. The threat is being compared to a 1930s plague that was so bad, one old-timer remembers the locusts eating his farmhouse’s blinds.
–The Catalonia parliament voted this week to ban bullfighting, an act that will cost the region dearly. Across the country the sector employs 40,000, but animal rights activists hope other regions will ban the sport. I went to one back in 1970 in Toledo, Spain, and it was the most nervous I’ve ever been at a live event. Spain, by the way, saw its unemployment rate hit 20.1%. I’m assuming when they calculate their birth/death ratio, heretofore bulls have been a wash.
–For the archives, I just have to stick in two items I missed last time, which happens during earnings season with everything else I cover. Ford reported second-quarter profit of $2.6 billion, its best quarterly performance in six years and handily beating the Street, while General Electric unexpectedly increased its dividend by 20% in a show of confidence, though the new quarterly dividend of 12 cents is still substantially below the peak of 31 cents at the start of 2009, when problems primarily at GE Capital forced it to slash the payout for the first time since 1938.
–Goldman Sachs employees have been told to do away with profanity in their emails. Employees are wondering if the new edict applies to shorthand expletives such as “WTF.”
Separately, the Financial Crisis Inquiry Commission is refusing to let Goldman go when it comes to its derivatives-trading business. The commission is giving Goldman just a few more weeks to supply requested information. Said one close to the investigation, “We have limited time and can’t let Goldman Sachs waste it.” [New York Post]
For its part, Goldman maintains it doesn’t separately account for its derivatives revenues, which is a COS.
–Anthony Ward is a British hedge fund manager who, as the New York Times reported, has placed a $1 billion wager on cocoa futures. “While some see it as a simple bet that cocoa prices will rise on falling supply, others say Mr. Ward has created a shortage of cocoa simply to drive up the price himself.” The cocoa harvest starts in October and, “With candy makers starting to stock up for the holiday season, they may be forced to pay him ever-higher prices.” Of course these attempts to corner the market often go awry, witness the Hunt Brothers and their 1970s attempts to do the same with silver.
–China unblocked some porn sites, though no one seems to know if it was on purpose or a temporary glitch. A Beijing Internet analyst told the New York Daily News, “Maybe (authorities) are thinking that if Internet users have some porn to look at, they won’t pay so much attention to political matters.”
I’m thinking that China’s productivity will now plummet, as it has everywhere else in the world where porn is readily available.
Foreign Affairs
Afghanistan: It was not a good week here on a number of levels. The second U.S. Navy sailor who went missing was found dead. The other’s body was found earlier and NATO officials have yet to explain why these two counterinsurgency instructors were way off track and in a dangerous part of the country. By Friday, the overall U.S. death toll for July was at a record 66, exceeding last month’s 60. And last weekend, the Taliban beheaded six interpreters working for the U.S. As the London Times reported:
“The Taliban had cut out each man’s tongue and placed his head on his chest. A note pinned to one body read: ‘The same fate awaits those who work for infidels.’”
Elsewhere, the Taliban captured a strategic district in the east and Afghan officials claim at least 45 civilians were killed in a mistaken NATO airstrike, though NATO says the victims were not all innocents.
And then there is Australian Julian Assange, founder of WikiLeaks, who to some of us this week became the face of Satan. Let me just say up front before continuing with some facts that this is a bad guy. Period. It’s sickening what he did.
The purpose of WikiLeaks, we are told, is to publish confidential documents that governments and businesses want to keep secret for the purposes of ensuring they remain in the public domain forever.
Assange, 39, said, “We want to produce positive reform. An efficient way to do that is to selectively go after material that organizations are trying to conceal.”
If you just read this quickly, you might think, hey, this sounds OK. But it means that this guy gets to play God, and after you see Assange, this is the last thing any of us should want.
So Assange and his small staff were given massive intelligence documents on the Afghan war from 2004-2009. Much of the information was far from earth-shattering and a vast majority of it has already been included in this space over the years, including word that members of the Pakistani intelligence apparatus, the ISI, were colluding with the Taliban.
What was new, though, was the scope of the alleged support by the ISI. British Prime Minister David Cameron caused a stink of his own when he warned Pakistan could not “look both ways” as it participated in an “export of terror.” [Cameron made it worse by delivering his remarks from India, and as I write, the diplomatic row between the two is deepening.]
Back to Assange and WikiLeaks, he claimed that his organization would not put anyone or any operation in danger, vetting every item it posts through a “harm-minimalization process.” But in looking through the WikiLeaks archive itself, the London Times “found the names of dozens of Afghans credited with providing detailed intelligence to U.S. forces. Their villages are given for identification and also, in many cases, their fathers’ names. Former CIA director Michael Hayden described the mass release as a big gift to America’s enemies.
“If I had gotten this trove on the Taliban or al-Qaeda, I would have called it priceless,” he said. “If I’m head of Russian intelligence, I’m getting my best English speakers and saying: ‘Read every document, and I want you to tell me, how good are these guys? What are their approaches, their strengths, their weaknesses and their blind spots?’”
Meanwhile, the White House was furious. National Security Adviser Gen. Jim Jones said in a statement:
“The United States strongly condemns the disclosure of classified information by individuals and organizations which could put the lives of Americans and our partners at risk, and threaten our national security. WikiLeaks made no effort to contact us…the United States government learned from news organizations that these documents would be posted.”
But there can be no doubt that when it comes to Pakistan’s role, the release of the documents has stirred up a hornet’s nest.
“”Our government’s response to Pakistani complicity in the death of hundreds of our troops and the wounding of thousands? Send additional aid – on top of the $6 billion recently committed – and bills in Congress to grant special trade privileges to Pakistanis in Taliban-infested territories.
“It’s like dating someone who’s wildly, flagrantly promiscuous and hoping that patience will lead to his or her sudden reform. But tolerance only encourages more bad behavior.
“Gen. David Petraeus, our new commander in Afghanistan, knows that the Pakistanis are corrupt and deceitful. But he, too, continues to hope they’ll see the light.
“Why do Petraeus and other veteran officials continue to dream of Pakistan’s magical self-reformation? Because we’re out of strategic imagination, having tied ourselves to Pakistan for everything from the transit of supplies for our troops to intelligence.
“We’re begging the Pakistanis to make fools of us. Our troops die – and we make excuses for their killers….
“Then there’s the other issue: How did a lowest-of-the-low-level player provide WikiLeaks with 92,000 classified documents, even if they weren’t ‘highly’ classified?
“It was easy. Millions of soldiers, officials and contractors have access to confidential and secret-level material (only seven or eight hundred thousand have top-secret clearances, so I guess that’s safe…) Many firewalls are a joke to keyboard jockeys. The real surprise in the Internet age is that we haven’t seen more massive leaks of far more sensitive documents.
“A disgruntled soldier, a bureaucrat who didn’t get a promotion or a contractor given his walking papers could do massive damage in his last hour on the job.
“And there are no serious penalties. Leaking classified info won’t get you into much hot water when even spying just lands you a plane ticket home, a photo op and a book deal.”
Separately, Mr. Peters wrote in another column for the Post:
“Think the Taliban will give a free pass to Afghans who’ve supported us? Hundreds, perhaps thousands, of Afghan lives are newly at risk. It’s a huge gift to the terrorists. Our collaborators will run for cover – and recruiting informants will be immeasurably more difficult….
“The bad, horrible, terrible news is that the WikiLeaks drama is still in its opening act. As enemies and journalists (not so concerned about our troops, either) dig through these vast files, the revelations are going to get worse….
“This leak is the biggest geo-strategic event in the short history of the Internet, potentially altering the course of a war and changing the dynamics of an entire region.”
On Thursday, Afghan President Hamid Karzai said disclosure of the names of Afghans who have worked with the NATO-led force was “shocking” and “irresponsible.” “Their lives will be in danger now. This is a very serious issue.”
Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff, said, “Mr. Assange…might already have on (his organization’s) hands the blood of a young soldier or that of an Afghan family.”
Defense Secretary Robert Gates called in the FBI to help with the investigation against Assange himself.
“Julian Assange, the editor of the WikiLeaks website…has told the German newsweekly Der Spiegel that he ‘loved crushing bastards.’ We wonder if the ‘bastards’ he has in mind include the dozens of Afghan civilians named in the document dump as U.S. military informants. Their lives, as well as those of their entire families, are now at terrible risk of Taliban reprisal.
“The past decade has seen more than its share of debates about the government’s right to secrecy, the public’s right to disclosure, and where the line between them should be drawn….
“But the WikiLeaks story is a new and troubling event….
“(The) closer we and others have looked at the documents, it’s clear that the WikiLeaks dump does reveal a great deal about the military’s methods, sources, tactics and protocols of communication. Such details are of little interest to the public at large, and they are unlikely to change many minds about the conduct, or wisdom, of the war. But they are of considerable interest to America’s avowed enemies and strategic competitors such as Russia and China.”
And on the issue of the New York Times, Britain’s Guardian and Germany’s Der Spiegel coordinating publication of the documents with Mr. Assange, the Journal offers there is a separate danger in that “their rights to publish depend in part on publics that believe their media are doing a public service.”
“If American voters come to believe that newspapers or websites are cavalier about putting U.S. soldiers or allies at risk against our enemies, politicians will follow the public mood. The press will put its own freedom in jeopardy.”
Meanwhile, the House passed a war spending measure for both Afghanistan and Iraq in the amount of $59 billion, 308-114, with 148 Democrats and 160 Republicans voting ‘for.’ But 102 Democrats opposed the bill, up from 32 in a similar vote last year, and therein lies a problem for President Obama and his strategy.
Lastly, regarding Pakistan, a new Pew Research Center poll found that nearly six in 10 Pakistanis describe the U.S. as an enemy. It’s a deficit of trust with its roots back in 1989 when we left the country after enlisting Pakistan’s support to defeat the Soviets in Afghanistan. Only 8% of Pakistanis believe Barack Obama will do the right thing in world affairs, but at least 17% expressed a favorable view of the U.S., and 64% said it is important for relations with the United States to improve. The people are also less afraid the country will be taken over by extremists, 51% today vs. 69% last year.
Iran: The European Union backed a new round of economic sanctions against Tehran and, coupled with harsher penalties enacted by the United States, Iran said it wants to resume talks again on exchanging Iranian uranium for nuclear material refined for use at a Tehran medical research reactor. But we’ve heard it all before and as the above mentioned Michael Hayden said on this issue:
“We engage. They continue to move forward. We vote for sanctions. They continue to move forward. We try to deter, to dissuade. They continue to move forward.
“Iran, left to its own devices, will get itself to that step right below a nuclear weapon, that permanent breakout stage, so the needle isn’t quite in the red for the international community,” said Hayden. “And, frankly, that will be as destabilizing as their actually having a weapon.”
Israeli Defense Minister Ehud Barak said, “It’s still time for sanctions. [But] probably, at a certain point, we should realize that sanctions cannot work.”
As for Iranian President Ahmadinejad, he was all over the place this week, first accusing Russian President Dmitry Medvedev of turning against Tehran and entering a “propaganda drama” directed by Washington by saying recently that Iran was getting closer to being able to develop a nuclear weapon, to which Medvedev, through a spokesman, accused Iran of “fruitless and irresponsible rhetoric.”
Ahmadinejad also said Iran would react swiftly if its commercial shipping of aviation was subjected to inspection, which the latest UN Security Council resolution allows, and the little guy with the bad windbreaker said the United States was preparing “to attack at least two countries in the region in the next three months.”
“What ‘two countries’ was he talking about? They seem logically to be Lebanon and Syria. Hizbullah in Lebanon has armed itself with 50,000 rockets and made clear that it is in a position to start a war at any time. Fighting on this scale would immediately bring in Syria, which would in turn invite Iranian intervention in defense of its major Arab clients – and of the first Persian beachhead on the Mediterranean in 1,400 years.
“The idea that Israel, let alone the United States, has the slightest interest in starting a war on Israel’s north is crazy. But claims about imminent attacks are serious business in that region. In May 1967, the Soviet Union falsely told its client, Egypt, that Israel was preparing to attack Syria. These rumors set off a train of events – the mobilization of Arab armies, the southern blockade of Israel, the hasty signing of an inter-Arab military pact – that led to the Six-Day War.
“Ahmadinejad’s claim is not supported by a shred of evidence. So what is he up to?
“It is a sign that he is under serious pressure. Passage of weak UN sanctions was followed by unilateral sanctions by the United States, Canada, Australia and the European Union. Already, reports Reuters, Iran is experiencing a sharp drop in gasoline imports as Lloyd’s of London and other players refuse to insure the ships delivering them.
“Second, the Arab states are no longer just whispering their desire for the United States to militarily take out Iranian nuclear facilities. The United Arab Emirates’ ambassador to Washington said so openly at a conference three weeks ago….
“The Iranian regime is beginning to realize that even President Obama’s patience is limited – and that Iran may actually face a reckoning for its nuclear defiance.
“All this pressure would be enough to rattle a regime already unsteady and shorn of domestic legitimacy. Hence Ahmadinejad’s otherwise inscrutable warning about an Israeli attack on two counties….It is a pointed reminder to the world of Iran’s capacity to trigger, through Hizbullah and Syria, a regional conflagration.
“This is the kind of brinksmanship you get when leaders of a rogue regime are under growing pressure. The only hope to get them to reverse course is to relentlessly increase their feeling that, if they don’t, the Arab states, Israel, the Europeans and America will, one way or another, ensure that ruin is visited upon them.”
Lebanon: I have felt all along that this nation’s days of peace are once again numbered and Egypt and Saudi Arabia are scrambling to get the various political factions in Lebanon to let cooler heads prevail. Last week I mentioned that Hizbullah leader Sheikh Nasrallah was expecting the UN tribunal looking into the assassination of former Prime Minister Rafik Hariri in 2005 to indict “rogue members of Hizbullah,” perhaps as early as September, on the basis of fabricated evidence, according to Nasrallah, as he’s gone to calling the tribunal an “Israeli project” aimed to undermining the resistance. All manner of major publications this week, though, picked up on Nasrallah’s warnings as if the tribunal’s conclusions were a done deal.
But I also told you last week that my friend in Beirut, Michael Young, is far from convinced the tribunal’s investigation is even close to a conclusion and that Nasrallah is just blowing smoke because it doesn’t seem like the investigation is about to indict Hizbullah members, let alone Syrians. Mr. Young says the tribunal still can’t even decide if the bomb was in the car or under the road when it went off, though the stories persist of a decision on indictments, including that of a senior Hizbullah operative and close relative to former Hizbullah terror chief Imad Mughniyeh. Israeli TV reported that Prime Minister Saad Hariri has asked the tribunal to postpone releasing the name of Mustafa Badr al-Din.
On Friday, Syrian President Assad and King Abdullah of Saudi Arabia met in Beirut, calling on rival factions in Lebanon to avoid conflict. Israeli Defense Minister Barak said that if Israel is subjected to rocket attacks, “we will not run after each Hizbullah terrorist or launcher…We will see it as legitimate to hit any target that belongs to the Lebanese state, not just to Hizbullah.”
“The recent, worrying situation of political inertia in Lebanon and the Middle East has given way to a more kinetic state of affairs, but the repercussions could be just as worrying as the earlier lethargy.
“Three arenas have garnered most of the focus: Lebanon, Palestine and Iran. Officials and diplomats from a range of states, such as Egypt, Saudi Arabia, Syria and Turkey, are in motion, while the Israelis and others are also part of the equation.
“People who follow the news might be excused for being confused by all this energy, or political ‘surge,’ to use the American term for military action, but there’s a simple explanation. September gives us the world’s annual diplomatic forum, at the United Nations General Assembly in New York….
“Rumors swirl around the issue of the Special Tribunal for Lebanon and any future indictments; meetings and statements swirl around the Iranian nuclear issue….
“(We) might be seeing the final serious attempts to solve the outstanding issues with regard to Iran, Lebanon and Palestine by using the tools currently available. The parameters might change dramatically in three to four months’ time, and we might be asking a significantly different set of questions then….
“The anxiety is justified, and unfortunately, there are no reassurances about the prospects for success.”
Israel: In a surprise development to some, Arab League foreign ministers authorized the Palestinian Authority to enter into direct negotiations with Israel, though the timing was up to Palestinian Authority President Abbas. Israeli Prime Minister Netanyahu said he was ready to begin talks “in the coming days.”
“We don’t want lengthy talks that would allow the continuation of settlement construction and Israeli practices [on the ground]. We know that Netanyahu is not serious….The Israelis are playing a political game by winning time. This is what we are trying to prevent by proving that they are not serious.”
I’ve said all along that Netanyahu should in turn call the Palestinians’ bluff.
Iraq: March 7 was the parliamentary vote. July 31, still no sign of the formation of a new government. But the Obama administration claims Iraq is a success.
Meanwhile, the Defense Department doesn’t seem to know where $2.6 billion in reconstruction spending went, part of a pool of $9.1 billion in Iraqi oil revenue entrusted to it between 2004 and 2007, according to the Special Inspector General for Iraq Reconstruction, as reported by the Washington Post and Los Angeles Times. This doesn’t mean it all disappeared, through fraud, but as Liz Sly writes in the Times, “the improper accounting practices adds to the pattern of mismanagement, reckless spending and, in some instances, corruption uncovered by the agency since 2004.”
And just days after the U.S. military handed over a prison in the Baghdad airport compound to Iraqi forces, four Islamic extremists escaped. One report says the warden drove the men out of the prison in his car.
North Korea: The joint South Korean and U.S. naval exercises went off without a hitch; the maneuvers a response to the North Korean submarine attack on a South Korean naval vessel, the Cheonan, that killed 46. Low level security talks between the UN and the North also resumed.
But Seoul’s official account of the Cheonan sinking is being called into question by critics and opponents of President Lee’s administration. Shin Sang-chul, a former shipbuilding executive who spoke to the investigative panel, said, “I couldn’t find the slightest sign of an explosion. The sailors drowned to death. Their bodies were clean. We didn’t even find dead fish in the sea.”
Secretary of State Hillary Clinton, however, called the evidence “overwhelming” that the Cheonan was hit by a North Korean sub. Rear Adm. Thomas Eccles, the senior U.S. representative on the panel, concluded the boat was sunk by a bubble-jet torpedo, which exploded underneath the vessel and didn’t leave the usual signs of an explosion. [Global Security Newswire]
Officials in Beijing were furious over the naval exercises, but also Sec. Clinton’s earlier statement at the Asean Regional Forum in Hanoi that resolving territorial claims in the South China Sea was now in the United States’ “national interest” and “a diplomatic priority,” reflecting growing concern about the potential for Chinese maritime dominance.
The move not only pleases China’s rival claimants to the sea’s Spratly and Paracels archipelagoes – Vietnam, Malaysia, the Philippines and Brunei – but it reassures Japan, Indonesia and South Korea in sending a stark message to China.
As Greg Torode wrote in the South China Morning Post:
“While China claims much of the South China Sea as its exclusive economic zone, the U.S. and other nations insist that it is still in international waters and thus that routine military operations, including surveillance, are allowed.”
A Chinese People’s Liberation Army official said recently, “We are not treating (the South China Sea) as a ‘Chinese lake,’ we do allow innocent passage. But I’m sorry, U.S. surveillance is not innocent passage…the concern of China must not be underestimated.”
The Wall Street Journal editorial board praised the White House for finally sticking up to China and its bullying ways. An editorial in a Chinese government mouthpiece paper put it thusly:
“Southeast Asian countries need to understand any attempt to maximize gains by playing a balancing game between China and the U.S. is risky.”
On the mainland itself, disasters both manmade and natural continued to dominate the headlines. Rainfall is unprecedented in many parts of the southeast with floods impacting a staggering 120 million. More than 670,000 houses have collapsed, leading to direct economic losses of $22.48 billion, according to the government, and meteorologists still expect 6 to 8 typhoons to inflict further destruction.
But then you have the manmade disasters. One report said the heavy oil spill in the major Chinese port of Dalian had been cleaned up, nine days after the pipeline blast that leaked 1,500 tons of heavy crude into the Yellow Sea. But who believes this? Not Greenpeace, which said the spill was one of the worst in history and is 60 times bigger than the government reported, which would make it greater than the Exxon Valdez. A local mayor said the beaches were coated with the black stuff.
And then you have the situation in Jilin province where flooding swept away 3,000 barrels of highly hazardous chemicals with fears some had sunk. The Songhua River is the major source of drinking water for about 4.3 million people in the area. Imagine the run on bottled water there.
Russia: The nation is sweltering under record, all-time heat, with temps nearing or exceeding 100 for days on end in Moscow. Since records began 130 years ago, it has never been hotter. Drought has damaged 32% of all land under cultivation, according to the agriculture ministry. Muscovites’ misery was compounded by burning peat bogs and forest fires that were spreading thick smoke across the city (the fires have killed at least 28). I mean picture the Kremlin itself was enveloped in black clouds of cinder-filled smoke. And understand few in the city have air conditioning.
Mexico: The level of violence here never ceases to amaze. Last weekend, investigators found 51 bodies in two days of digging in a field near a trash dump outside the city of Monterrey amid signs they belonged to one group or another linked to the drug wars. Back in May, 55 bodies were found in an abandoned mine shaft.
Earlier in the month, there was a massacre of 17 people at a party and the government announced a group of cartel inmates were allowed out by guards to commit the murders. They then returned to their cells. You can’t make this stuff up. Tied to this story, four reporters were kidnapped for their coverage. As of this writing, no word on their fate.
But on Thursday, at least one of Mexico’s top three drug lords was killed in a gunfight with soldiers.
Venezuela / Colombia: Venezuela’s Hugo Chavez threatened to cut off oil sales to the U.S. should Colombia attack over charges Venezuela is harboring Colombian rebels. At week’s end, Chavez said he had deployed troops to the Colombian border, but the main guerrilla group, FARC, has said it is willing to talk to incoming Colombian President-elect Santos.
Random Musings
–The case against Democratic New York Congressman Charlie Rangel heated up as House Investigators accused the 80-year-old of 13 violations of congressional ethics standards. Fellow Democrats are distressed that Rangel won’t step down and go quietly as he becomes a terrific target for Republicans. Rangel claims that failing to report rental income from vacation property, or to report more than $600,000 in assets on his disclosure forms, were innocent mistakes. Republicans on the Ethics Committee are insisting on going forward with a trial, no deals. The proceedings would take place right before the mid-term vote.
[And as the Daily News reports, Rangel has to run for a 21st term in the House to pay off his legal bills…$1.7 million and counting…as he could use his campaign funds for that purpose.]
–So I watched “The View” on Thursday (nice dress, Elisabeth Hasselbeck, even if it was a bit inappropriate) to catch President Obama and about 20 minutes into it I opted to take a nap. But let’s face it. At a time of war, with casualties rising in Afghanistan, and an economy still in the dumper, it’s pitiful our president chose this venue and not one of the Sunday talk shows for a ‘serious’ discussion.
“Maybe we want the President of the new millennium to be more P.T. Barnum than Abraham Lincoln – an illusionist selling cheap tricks and sleights of hand under a colorful, shiny tent. Everyone likes a good show, after all, even if we know what we’re seeing isn’t real. But history has a funny way of pulling the curtain back to reveal that the all-powerful showman was really just a small man with a microphone.”
–In a Gallup survey, Barack Obama had a 52% favorability rating while former President George W. Bush came in at 45%, an increase for Bush of 10 points since the last such poll in 2009. So as Michael Memoli of the Los Angeles Times wrote, this brings “into question whether attacking the Bush legacy would be very effective.” [It wouldn’t, especially among independents.]
–A federal judge blocked key provisions of Arizona’s illegal-immigration law, with supporters set back months, assuming they can still win a long legal fight to enforce it. U.S. District Judge Susan Bolton, a Clinton appointee, put on hold the most contentious element: a provision that requires police to check suspects’ immigration status during routine stops if there is reasonable suspicion they are in the country illegally.
Bolton noted the state’s concerns, but said enforcement of the provisions “would likely burden legal resident aliens and interfere with federal policy.” Arizona Gov. Jan Brewer vowed to expedite an appeal.
“The U.S. Defense Business Board last week issued a sobering forecast that Pentagon officials must take substantial efforts to avoid fiscal calamity that would require more cuts to major weapons….
“With war funding included, U.S. military spending for fiscal 2010 will approach $661 billion. The DBB study group estimates ‘at least $200 billion – $1 trillion across the (future years defense plan) – is overhead.’ [An issue I discussed a week or two ago]….
“The DBB has for about a year predicted major turbulence for the U.S. defense budget as several forces finally converge: federal deficit reduction efforts, the economic slowdown, ever-escalating DoD health-care and personnel costs, and the end of two wars.”
The DoD will advise Defense Sec. Gates to either return the size of the civilian work force to 2003 levels or shrink it by 15%. 15% would amount to 111,508 personnel, based on the 743,388 employees DoD had in March. DoD had 654,287 civilian employees in Sept. 2003.
–Update: The Bell, California City Council agreed to give up their $96,000 salaries (for part-time work) and will instead take only $673 a month; this after the top officials such as the City Administrative Officer (earning $787,637 a year) and police chief ($457,000) were forced out.
–Here’s a rising star to watch. D.C. Schools Chancellor Michelle A. Rhee, who last Friday announced that she has fired 241 teachers, “including 165 who received poor appraisals under a new evaluation system that for the first time holds some educators accountable for students’ standardized test scores.” [Washington Post]
“Every child in a District of Columbia public school has a right to a highly effective teacher,” she said.
As you can imagine, the Washington Teachers’ Union is contesting the firings. I say, “You go, Girl!”
“Massachusetts Congressman Barney Frank caused a scene when he demanded a $1 senior discount on his ferry fare to Fire Island’s popular gay haunt, The Pines, last Friday…A witness reports, ‘Frank made such a drama over the senior rate that I contemplated offering him the dollar to cool down the situation.’”
Were Chelsea still in the White House I could understand the fuss. White House weddings have some historical value.
But Chelsea’s been out ten years, for crying out loud, and this is a girl that we’ve learned since she became an adult, and was thus fair game to the rest of us, still insisted on her privacy (and acts like a, err, you know), but then she also loves trading on her name. You can’t have it both ways, kid.
And now we’ve learned that according to various reports, her wedding is going to cost anywhere from $2 million to $5 million. The Daily News estimates the luxe air-conditioned tents where the guests will chow and party down will cost about $600,000! [Clinton aides, in major damage control mode, are scrambling to assure everyone the total is just six figures. Right.]
Chelsea had a choice to keep it small and largely out of the public eye. She chose not to. Given the times we live in, it’s also totally inappropriate. And that’s a memo….
–An Oregon District Attorney said on Friday there was no basis for charges against former Vice President Al Gore amid allegations he groped and assaulted a masseuse.
–A study in the British Medical Journal says taking calcium supplements could be increasing the risk of a heart attack, and, the medicines were not very effective at preventing bone fractures in the first place. The National Osteoporosis Society said most people should be able to get enough calcium through their diets instead. It is thought the extra calcium circulating in the blood could lead to a hardening of the arteries. [BBC News]
–The U.S. National Oceans and Atmospheric Administration (NOAA) took data from multiple sources and each indicator proved consistent with a warming world. Seven are rising: air temps over land, sea-surface temperature, marine air temperature, sea level, ocean heat, humidity, and tropospheric temperature in the “active-weather” layer of the atmosphere closest to the earth’s surface. Three other indicators are declining: Arctic sea ice, glaciers and spring snow cover in the northern hemisphere. [Financial Times]
Now detractors will note that the rise is only 1 degree F. over the past 50 years, but as NOAA points out, you can’t deny “Glaciers and sea ice are melting [Ed. I’d add here ‘over time’…it can vary significantly year to year], heavy rainfall is intensifying, and heat waves are more common.”
One cannot help but agree that on the issue of rainfall, you’d have to be a total idiot not to go along with this point.
–I look through the pictures of the war dead each week in Army Times and read the captions to learn their story and where they’re from. Sadly, with the heavy casualties in Afghanistan recently, the pictures often cover a full page. But I can’t help but pass on this observation. An unscientific look over the past few months shows the dead to be 80% white, with 10% Hispanic and about 10% black.
–A Senate panel has concluded that between 4,900 and 6,600 graves at Arlington National Cemetery may be unmarked or mislabeled on cemetery maps. Sen. Claire McCaskill laid the blame for this incredible disgrace at the feet of John Metzler, who ran Arlington for 19 years before his forced retirement. Metzler maintains that any problems with the archaic paper system were quickly fixed. But lawmakers had none of it.
“The notion that you would come in here and didn’t know about it until a month ago is offensive. You did know about it, and you did nothing,” said McCaskill.
Pray for the men and women of our armed forces, and all the fallen.
Gold closed at $1183
Oil, $78.95
Returns for the week 7/26-7/30
Dow Jones +0.4% [10465]
S&P 500 -0.1% [1101]
S&P MidCap -0.4%
Russell 2000 +0.0%
Nasdaq -0.6% [2254]
Returns for the period 1/1/10-7/30/10
Dow Jones +0.4%
S&P 500 -1.2%
S&P MidCap +4.6%
Russell 2000 +4.1%
Nasdaq -0.6%
Bulls 38.2
Bears 34.9 [Source: Chartcraft / Investors Intelligence]
And thank you Ted and Kelly for the Cape Cod Beer!
Brian Trumbore
