[Posted from Yap, Micronesia…Sat. local…9:00 PM ET, Friday]
Wall Street
So I’m in Micronesia, visiting some old friends on the island of Yap and thankfully I’ve had good Internet service when for a while it looked like I would have none. My room overlooks the bay and currently I’m being amused by a little white bird that is diving into the water in search of something to eat, but appears to be coming up empty. It’s an idyllic setting, and as I describe further below, while Yap is not a wealthy place the people are rich in character. Bottom line, not a bad perch from which to watch the world go by and lose yourself in far less weighty matters, like the bird outside my window right now trying to catch a dragonfly. Good lord, it’s a spunky dragonfly…not caught yet! You go, girl!
But it’s my job, as much as possible, to stay focused on bigger items and with the passing of the week, we draw closer to three main events; our election, the inevitable quantitative easing announcement on the part of the Federal Reserve the day after the vote, and in mid-November, a G20 summit of world leaders in Seoul, South Korea, at which point it is hoped some kind of agreement will be reached on currencies and global trade, particularly in the case of China, before the world devolves into a trade and currency war.
Since we’re so close to all three dates, I’m going to limit my comments the next few weeks. Things, big things, are going to happen and we await the results. No sense running at the mouth before then.
In the meantime, though, you know I’m not one to change my mind very often and on a few topics, such as Europe, I feel like I’ve nailed it going back to last spring and the euro crisis.
I told you, in fact, exactly how things would play out. As much as just about every European government is doing the right thing, finally tackling their budget crises, I said the pain felt by the austerity programs would lead to unrest and it would get violent. It was inevitable and nothing that has transpired in Europe, including the massive protests in France that threaten to derail a recovery there, surprises me in the least. My point has always been that the protests themselves would hurt consumer confidence, let alone the actual job, services and benefits cuts, and that this in turn would lead to slower growth for years to come. But no pain, no gain, and whereas I’ve decried a lack of leadership on the global front, at least British Prime Minister Cameron and French President Nicolas Sarkozy have been standing tall. Whether they can remain so, in the face of fierce opposition, remains to be seen.
I also have brought up the topic of nationalism, and targeting immigrants during tough economic times. The rise of many far right parties, from Sweden on south, should trouble everyone. It’s not at the level where it will move markets, yet, but it certainly isn’t conducive to strong economic growth when it adds to an already surly atmosphere. I mean think of how this week, both German Chancellor Merkel and that nation’s president both talked of how Turks must do a better job of integrating in Germany, with the president, in Turkey for a visit, proclaiming that they need to learn German. We’ve had this kind of discussion in the past few years regarding our own immigrants, but Europe’s history forces one to perk up when you hear things of this kind.
As for specifics on Europe’s economy, no doubt the Cameron government in the U.K. is risking a double-dip recession through its drastic across-the-board budget cuts, impacting everything, including welfare payments and an increase in the pension age, but as Treasurer George Osborne announced, “It’s a hard road, but it leads to a better future.” Bank of England Governor Mervyn King chimed in: “History suggests that after a financial crisis the hangover lasts for a while. A sober decade may not be fun but it is necessary for our economic health.”
In France, the sweeping strikes have crippled the energy sector, with paramilitary police forced to storm the blockades to reopen some of the 12 oil refineries as at least ¼ of the nation’s petrol stations ran dry and over 40% of flights had to be canceled. Now the students (France has the worst youth in the world) decided they would shut down their high schools. For what reason? Because they are idiots. Stand strong, Sarkozy! He has vowed to, even as his popularity plummets to 30%, and on Friday, the French Senate voted 177-153 in favor of pension reform, with one final vote next month to wrap it up. Under immense pressure from their constituencies, I give the French parliament a ton of credit.
And in Spain, Prime Minister Zapatero staked his government’s future on winning over a coalition for his own austerity plan and he prevailed, showing me everything. But with 20% unemployment here, do you think the people are happy? Hardly.
In China, however, the government estimates the economy grew at a solid 9.6% rate in the third quarter, down from 10.3% in the second but a sign Beijing is engineering a soft landing. Yes, inflation was 3.6% in September, and the central bank hiked interest rates for the first time since the crisis to combat inflation, but the government is convinced food prices, up 6.1% last month, will come down.
What China is deathly afraid of, though, as are many in the U.S., is replicating the Japanese experience. Japan suddenly announced it believes its economy is at a standstill and will remain weak for some time. Heck, it’s been weak most of the last two decades!
Martin Fackler had a good piece in the New York Times on this very topic. Few people take Japan seriously these days. True, trade between our two countries, for example, is still substantial, as it is between Japan and its Asian neighbors, but Japan’s problems are so deep-seated, starting with its falling population, that there is zero cause for optimism. It’s a depressing place, one result of which is a rising suicide rate.
Turning to the U.S., where there is zero leadership, period, as our European style day of reckoning draws nearer, only no one wants to face it, the Fed’s beige book of regional economic activity revealed the economy was growing sluggishly, while one Fed governor, Richard Fisher, said the economy was barely cruising at “stall speed.” Fisher isn’t for additional quantitative easing, but he doesn’t have a vote this year. Chairman Bernanke, on the other hand, is determined to pull the trigger on a fresh round of bond and asset purchases to keep interest rates as low as humanly possible, thinking it has to work, eventually, and get us from “stall speed” to “ramming speed,” as was the case with the ship Ben-Hur was chained to, not that this is a good example for today.
Keeping rates low, after all, hasn’t exactly fixed the economy yet, but the Fed is determined to see QE2 through, believing that QE = printing money = a lower dollar = more exports = inflation; the last item the Fed wanting more of. Good luck, gang.
I will just say this on inflation and the Fed believing it can control the rate of it once the genie is out of the bottle. I think they will…but for the wrong reason. Yes, I can see inflation (as indicated by the official government figures) blip from time to time over the coming 12-24 months, but I also just see economic activity being at such a low level that wages, first and foremost, will not be rising and eventually commodities will respond to the lower rate of growth, worldwide, than currently expected. For now, however, investors are doing exactly what the Fed doesn’t want to happen. We are placing our money in non-productive assets like gold, which isn’t generating economic activity.
So this is the Big Picture background as world leaders gear up for Seoul next month, with G20 finance ministers meeting in South Korea this weekend to set an agenda. Hopefully we’ll hear something positive soon, but thus far, the needed multilateralism, cooperation among partners, including leadership from the International Monetary Fund, has been non-existent.
“No evidence that anyone has been wrongly evicted has yet been found. Servicers say they can have their paperwork straight in a few weeks. But this is about more than slipshod affidavits. The scramble to securitize mortgages in the boom led not only to iffy loan underwriting but also to questionable record-keeping, including the recording of title. When pressed, some lenders have struggled to produce documents showing they own loans. To allow mortgages to be traded without falling foul of local property laws, the industry created an electronic-processing firm, Mortgage Electronic Registration Systems (MERS). But its right to act as an agent for lenders in foreclosures is under attack.
“Foreclosure delays will cause further pain in the already-pummeled market for mortgage securities. Investors will have to shoulder some of the costs of reprocessing paperwork. Some could lose the tax exemption on their holdings, if documents are shown to have been improperly filed.
“Banks will suffer, too. Delays eat into servicers’ margins. They can expect a wave of lawsuits from homeowners and investors. Attorneys-general are threatening fines of up to $25,000 per incorrectly filed loan. All this comes as banks are forced to buy back growing piles of poorly underwritten loans from securitized pools: JPMorgan Chase increased its ‘repurchase’ reserves to $3 billion in the third quarter. The bigger mystery may be why housing didn’t turn into a ‘-gate’ sooner.”
That’s what everyone is saying about The Economist’s last point in just the past two weeks. It’s not just about robo-signing, it’s about misrepresenting pools of mortgages; AAA securities that when broken down to their individual components, i.e., actual homeowners and loans, were far less than that. That’s fraud, again. It’s why the likes of BlackRock, PIMCO and the New York Fed are going after underwriters such as Bank of America and JPMorgan, the former because it now owns Countrywide Financial, which hasn’t been servicing many of the mortgages properly. Yes, it’s the crisis that keeps on giving.
But back to the foreclosure mess itself, this week Bank of America and the likes of GMAC tried to tell everyone they had things under control and that foreclosures would start up anew after this brief pause for a station break, but they still aren’t addressing the fact many of the documents are technically fraudulent. Private property rights, and verification of same, are at the heart of capitalism!
Hernando de Soto, a renowned Peruvian economist, said that the funk the United States is in will continue, owing in large part to items such as the foreclosure crisis because “the trust has broken down.” He’s spot on.
Street Bytes
–Stocks edged higher on the week with all three major indexes registering fractional gains as investors continued to look forward to another round of Fed easing, while third quarter earnings are exceeding expectations to the tune of about 85% of S&P 500 companies. But while many are beating on the bottom line, top-line revenue growth is absent. Sure, you have exceptions such as Apple, but to me, and, granted, I’m mesmerized by the heavy downpour out my window right now and wondering if the bird actually got a fish more so than the fact Johnson & Johnson’s revenue declined 1%, and eBay’s rose only 1% (thanks to PayPal), this is hardly the stuff of companies wanting to rush out and expand their plant and put more people back to work. I mean IBM saw a drop in new contracts, Goldman Sachs’ revenues (and those of most financials) were down, and the previous week, General Electric’s report was hardly ebullient. And then when you have a company like Caterpillar raising guidance, it’s all about business in emerging markets, like China, not here.
–U.S. Treasury Yields
6-mo. 0.17% 2-yr. 0.35% 10-yr. 2.55% 30-yr. 3.93%
For all the doom and gloomers, particularly on the bond side, the fact is net foreign buying of U.S. long-term equities, notes and bonds totaled $128.7 billion in August, up from $61.2 billion in July. China’s share of Treasuries rose to $868.4 billion, while Japan’s also rose in the month to $836.6 billion.
–U.S. non-financial corporations are begging the Obama administration to allow them to repatriate $1 trillion in cash stored overseas. Cisco, for example, has 80% of its $40 billion cash hoard outside the U.S., but the corporations don’t want to bring it home, where it could be put to better use, when it’s subject to tax rates of 25%-35%. In 2004-05, a temporary tax rate cut to 5.25% was applied and this returned $400 billion to the U.S.
–Many, such as Meredith Whitney and PIMCO’s Bill Gross, have been warning of the growing pension funding crisis at the state and local level. At cocktail parties and other gatherings of the sort in my area, this is topic A. I’ve written of the situation in New Jersey, for example, where Gov. Christie is trying to tackle items such as sick leave (which New York City is also combatting, successfully) and these absurd lump sums paid out when, say, a police or fireman retires (often at age 50).
Joshua Rauh, of Northwestern University’s Kellogg School of Management, estimates the states’ pension shortfall may be as much as $3.4 trillion and that municipalities have a hole of $574 billion.
Even if some of the states earn 8%, which we all know isn’t achievable the next decade unless you believe in a new, 90s-style bull market, Rauh calculates that seven states will have exhausted their pension assets by 2020. Again, that’s even if they earn 8%.
So of course there is only one solution…huge cuts in benefits, and this will only further impede economic growth. And it’s yet another battle in the growing war between the public and private sectors.
–Speaking of PIMCO, Bill Gross and Co. believe growth in the U.S. over the next 12 months will be just 1.75% vs. a consensus forecast of 2.5%. Based on my opening comments, you shouldn’t be surprised that I concur.
–The latest state unemployment figures were released. Nevada still leads with a 14.4% jobless rate (hopefully, soon, 14.4001% with the ouster of Harry Reid), followed by Michigan, 13%, and California, 12.4%. North Dakota remains the best at 3.7%. New York City’s is 9.3% and New Jersey’s has ticked down to 9.4%, but this is because more people have just given up the search.
–Cost estimates for the Fannie Mae and Freddie Mac bailouts continue to soar, potentially up to another $363 billion over the next three years, though that figure comes into play if the economy double-dips and housing prices fall out of bed all over again. Otherwise, if prices continue to stabilize the losses would be in the $238 billion range, and if housing recovered, and prices rose, Fannie and Freddie would ‘only’ cost another $73 billion. There, don’t you feel better?
–One economic barometer I’ve been tracking since 1990, yes, 20 years, on spreadsheet paper, is steel production. Just picking an arbitrary date, the other day I looked at this year, starting May 21, vs. a corresponding period for 2009, through week ago figures (as found in Barron’s).
In 2009, as the economy was bottoming and then recovery commenced, production went from 1,060 (tons…ooo’s) to 1,446 by mid-October. For the period May 21, 2010 to Oct. 15, the production level has gone from 1,797 to 1,651. That is not a good trend.
–Apple’s Steve Jobs was a total jerk on his earnings conference call, blasting the competition while getting all defensive about the supply constraints that kept iPad sales well below estimates at 4.2 million vs. a projected 4.7 million units. However, iPhone sales were 14.1 million vs. 11 million forecast. Another worry for Apple, though, was gross margins falling to 36.9%.
But speaking of the competition for Apple’s 9.7-inch iPad, Jobs said those coming out with 7-inch tablets will be “DOA – dead on arrival.”
–Goldman Sachs said third quarter trading revenues were down 40% from the first, but overall revenues, down 28%, beat estimates. Goldman also said it was setting aside 43% of revenues for compensation, down from 47% last year; further proof of my statement last time that the Wall Street Journal’s much-ballyhooed story that Wall Street comp was bigger than ever in 2010 is a crock. Many bonus pools on the Street will be down 20% this year.
While I’m hardly defending Wall Street’s pay packages, I just want the facts and it ticked me off that every newspaper and network newscast ran with the Journal story when it’s just not accurate.
–As I relayed a few weeks ago would be the case, the White House formally submitted a request to Congress for $60 billion in arms sales (mostly helicopters and fighter jets) to Saudi Arabia. Congress has 30 days to object but is not expected to as Israel is not going to be raising objections of its own that would force politicians to pander to them. The sale is expected to help support 75,000 jobs.
–On a related item, Boeing reported stronger than expected earnings and with the 787 Dreamliner finally near introduction, the company has total orders on the books for 3,400 aircraft (all models) worth $255 billion. So not a bad time to be an employee there in terms of job security, at least for a few years.
However, if the global economy double-dipped, the airlines would be canceling orders just as they did after the 2008 collapse. For now, though, the airline industry is reporting very strong profits. My three flights thus far on this trip have been packed.
–Home sales in the six-county Southern California area were down a third consecutive month in September, but the median home price was up 2.6% from August and 7.5% over September 2009.
–Some say the era of free checking accounts is over, due to a raft of new regulations. But banks deserved some of the new restrictions when they were getting away with charging $35 overdraft fees for a cup of coffee.
–I have been doing well with a uranium investment, a third of which I sold before going on this trip, but America’s nuclear power program is still stuck in the mud, despite proclamations by both Presidents Bush and Obama that the U.S. was going to restart its nuclear sector in a big way. But nothing has really happened, and there is no viable nuclear program these days when it comes to new plants. Loan guarantees were supposed to be extended, but earlier this month, Constellation Energy gave up trying to convince the government it deserved a lower rate on its loan and said the government’s price “would clearly destroy…the economics of any nuclear project.” Experts now believe the project, slated to be on the Chesapeake Bay and a joint venture with a French company, will die.
–Speaking of the lack of an energy plan, in Honolulu, on the drive to the airport you pass this one housing development and there were solar panels on just about every roof…but, geezuz, they were the ugliest you’ve ever seen and put up in a totally haphazard fashion. I once had a decent-sized solar investment (Akeena) that I ended up losing money on because I wasn’t able to pull the trigger when it suddenly spiked higher Jan. 2008, but until there is a sign the administration and Congress are really going to put together a viable plan for the sector, I have trouble touching it.
–Meanwhile, Secretary of State Hillary Clinton stirred up a hornet’s nest when she gave tacit approval to a new oil pipeline from Canada’s tar sands to Gulf oil refineries. Both Democratic and Republican senators in the states impacted are furious she made the pronouncement before the formal federal approval process, including Congress’ role, was initiated. Environmentalists say the 36-inch pipe that would carry over a million barrels of oil a day down through the heart of the country is an accident waiting to happen. Clinton, correctly, says that until the clean energy sector is more viable, we’re still reliant on oil, but she just shouldn’t have shot her mouth off like this.
–McDonald’s continues to rock with the stock hitting an all-time high this week as global same-store sales are coming in up 5%-6%, great performance.
–Deflation Watch: NBA Commissioner David Stern is looking to cut players’ salaries by one-third. Some of us believe they should be cut about 90%, considering the quality of the product one often sees. I’m going to give the Knicks a shot the first few months because they’ve made a lot of personnel changes, but otherwise, the NBA is unwatchable. For me it’s college basketball, baby!
–The New York Post reported that when the Hewlett-Packard board investigated former CEO Mark Hurd for sexual harassment against an HP contractor, it also discovered a second case where Hurd was having an affair with a married VP at Sun Microsystems. Assuming this is true, what a freakin’ dirtball. What a freakin’ overrated dirtball, that is.
–The U.S. Attorney in New York said insider trading on Wall Street is “rampant” and he is going to expand the use of wiretaps to nab offenders.
–The Los Angeles Times gave the new Chevy Volt, the first mass-produced plug-in electric with a range-extending gas engine, very high marks in a test drive. High octane gas is required, however, and if you use a standard 120-volt outlet it takes 10-12 hours to charge the battery, but a 240-volt charger is being manufactured. Anyway, the car works. I suspect it will sell, especially if the economy doesn’t double-dip.
–Toyota is recalling 1.53 million vehicles, mostly in the U.S. and Japan, for brake fluid and fuel pump issues. The automaker has recalled a whopping 10 million worldwide the past year.
–Due to Ireland’s dire economic troubles, suddenly the farm sector is taking off again. Said one who left a job in a bank to till the land, “There’s a resurgence in producing food. It will become something people not only want to do but may have to do.” [BloombergBusinessweek]
Turns out agriculture now accounts for about 2% of the Irish economy, compared with 16% in the late 1970s.
–And as if Ireland’s budget deficit wasn’t bad enough, new estimates are that it will come in double previous projections, meaning further drastic service, job and benefit cuts are on the way.
–Here’s what drives me up the wall. In BloombergBusinessweek, they praise strategist Barry Ritholtz for correctly forecasting that gold would hit $1,350 an ounce, this back in Nov. 2009, when gold traded for around $1,100. Good for you, Barry. He now thinks it can go higher still, maybe $2,000.
What makes this all stupid, though, is that, in the words of Bloomberg, “He adds an important caution: ‘Gold fever has risen to the point of excess,’ and gold shouldn’t account for more than 5 percent of your portfolio.’”
Well in the words of that great investor Derrick Coleman, “Whoopty-damn-do!”
Big freakin’ deal, Barry. Since I got involved on Wall Street, 1982, it’s been the same mantra. One should always have 5% of their portfolio in gold. So then the likes of Barry Ritholtz get to say they are right…but they were only recommending the same 5%! I can’t respect that. Gold goes up 100% over a number of years, let’s say, but all else being equal, your $10 became $10.50. Now if you tell me you should have 25% of your portfolio in gold, and you’re right, well, that’s $10.00 growing to $12.50. That I can respect. Sorry to rant, but to my good friends who have correctly been touting gold during this great bull run, I hope you’ve been speaking with true conviction and telling your clients more than a measly 5%. If you really believe in the story (this applies to any investment), take a real stand. Don’t wimp out. Set yourself apart from the crowd.
–Ted T. and Kelly L. report that time share properties in Ft. Lauderdale are having a tough time because many owners are not paying their maintenance fees. They also said Cancun was very slow.
–So you know how when I was in Orange Beach, Ala., this summer and I said that to me the big issue was how the beaches were tainted, below the surface?
Now a new piece of equipment, costing $300,000, the Sand Shark, designed by a BP technical team (and VT LeeBoy Inc., of North Carolina), is starting to make its presence felt and taking care of the exact concern of mine, all in an effort to win back tourists next year.
“For the most part, the sand along Pensacola Beach’s hotel strip appears free of oil. The relatively few tar balls still visible in the surf zone range in size and shape from grapes to hamburger patties.
“While driving through the park, (Terry) Morris, a former chief law-enforcement ranger at Gulf Shores national Seashore, recalled the oil slick’s arrival on a nighttime high tide in late June.
“Little cleanup took place the next day, and that evening, a new high tide buried the oil beneath a layer of fresh sand. That was followed by storms and several days of strong winds that piled even more sand on BP’s crude.”
So when crews did clean up, they weren’t going below the surface, which is exactly what I was telling you from there. Now, the Sand Shark is beginning to attack the problem and as word gets out, even in my own small way here, it should aid in getting many of the tourists to return. Once the Sand Shark has done its thing, the beach is cleaner than ever.
–Donations at the 400 largest U.S. charities fell 11% in 2009.
Foreign Affairs
Afghanistan: There’s a lot going on these days, some good, some bad. The good news, it seems, is that the surge in Kandahar appears to be working and the Taliban are fleeing their strongholds. It’s just way too early to tell if the people will be receptive to the Afghan Army and civilian structure once it moves in to solidify the gains, but at least Gen. David Petraeus should have some good news to report come the December review.
The bad news is that the Sept. 18 parliamentary elections were a mess and while no official results have yet been released (at least as of this writing), 1.3 million ballots, or basically a quarter of those cast, have been thrown out and 224 candidates have been suspected of fraud, such as ballot-stuffing. Not exactly the kind of election that elicits support from the people.
Then you have the CIA-directed drone attacks on Taliban and al-Qaeda types in Pakistan. CIA Director Leon Panetta reported that the strikes, at least 89 this year vs. 53 all of 2009, have had a major impact in disrupting al-Qaeda’s plans for launching attacks on Europe.
But these same attacks are increasingly drawing the ire of the Pakistani government because they are occurring on their sovereign soil, after all.
At the same time, India says it now has hard evidence that Pakistan’s intelligence agency, the ISI, was deeply involved in the 2008 Mumbai terror attack perpetrated by the Laskar-e-Taiba terror network. So that’s not good.
Lastly, back to Afghanistan, President Karzai had previously promised Pakistan it would be a party to the peace talks he is holding with the Taliban, but Pakistan has yet to receive an invitation and they are furious.
Iran: Some say President Ahmadinejad is winning his internal battle for control against the clerics, proof of which is his visit to Lebanon. I’m not sure this is the case, but regardless, Ahmadinejad said he will restart nuclear talks but only if the West comes out against Israel’s nuclear arsenal, which is a non-starter. There were also reports Iran has stepped up production of low-enriched uranium, but who the heck knows when it comes to something like this.
Strategist Mark Helprin had the following in an op-ed for the Wall Street Journal, concerning the topic of why Israel needs the bomb.
As noted above in the pending Saudi arms deal, “Israel’s potential antagonists are closing the gap in numbers and quality, and the Israeli Air Force does not offer the same margin of safety that once it did. With the Arabs’ approaching 1.3/1 advantage in first-line aircraft, 2.9/1 in second-line aircraft, and an enormous 12/1 advantage in mobile air defense, many new options open if Arab unity coalesces as it did prior to the three major Arab-Israeli wars, in all of which Israel’s existence was at stake and the result unpredictable. If Turkey is included, as it might be, Israel’s prospects become seriously darker.
“Other than a direct nuclear strike, what it most has to fear is that a combination of states will throw all their aircraft against it at once while advancing a surface-to-air-missile umbrella to threaten Israeli planes and provide sanctuary for its own. Though the Israeli Air Force is qualitatively superior and its imaginative responses cannot be counted out, the steadily improving professionalism of the Arab air forces, their first rate American and European equipment, their surface-to-air-missile shield, and most importantly their mass, are potentially a mortal threat. For if the Israeli Air Force is sufficiently degraded, Israel’s prospects on the ground will follow proportionately.
“In light of the fact that the conventional balance can change and is changing, one of the many purposes of Iran’s drive for nuclear weapons is not merely to wait for a lucky shot at Tel Aviv but to neutralize Israel’s nuclear deterrent so as to allow a series of conventional battles to advance Israel’s downfall incrementally….
“(From) war to war its adversaries have made their intentions clear, and as their mass and wealth are applied to their militaries over time, Israel’s last line of defense in a continual state of siege is the nuclear arsenal devoted solely to preserving its existence.”
But then you have the settlements issue. It’s really hard to support the Israelis at times, like now, when after the building moratorium expired on Sept. 26, anywhere from 550 to 600 homes in the occupied West Bank are suddenly under construction, a far quicker pace than normal. Most of these homes are in areas that would be Palestinian in any final peace settlement and drawing of borders, so all it does is threaten the talks in the extreme. Plus the 550 are on top of 238 new units in East Jerusalem that would also be part of any negotiations.
The White House has offered a full range of incentives for Israel to give it one final try and if I’m the Obama administration, I say, that’s it. It’s over. You guys are on your own and withhold all further military aid. The Israeli far right is as loathsome as some in the extremist Palestinian camp and will never be appeased.
I have supported Obama in his efforts on this front because I believed they should give it one final shot. It was up to Israeli Prime Minister Netanyahu to keep his coalition together, negotiate from a position of strength, but end the illegal settlement building until the Palestinians either agreed to final borders or, as would likely be the case, show their true hand in a wave of terror attacks at which point Israel could say, “See? We went the extra mile and look what happened. The process is over.” But Israel blew it. I mean imagine…the key figure in all this is Foreign Minister Avigdor Lieberman, one of the truly awful people on the planet who Netanyahu feels he has to appease. It’s pathetic.
China: At the annual meeting of top Communist Party officials, Vice President Xi Jinping emerged as the heir to President Hu Jintao, who steps down from his two main posts (general secretary and president) in 2012 and 2013 (first one, then the other). There is increasing talk among the CP of political reform and Premier Wen Jiabao has given interviews around the world talking of same, but many believe in Wen’s case it’s just talk; that he is being put forward, because of his popularity with the people, to hoodwink and placate them with soothing words that amount to nothing. Or maybe he is sincere. We’ll know for sure about a year from now, I imagine.
One huge first step could be taken far earlier, though, and that would be the release of Nobel Peace Prize winner Liu Xiaobo, with calls increasing from around the world, including by the United States, to let him go. That would be a very positive sign and is needed with all the economic tensions at play these days. But will the leadership have the guts to do it? And will the Communist Party abandon censorship?
You know, I have some very strong impressions of the Chinese people I’ve been holding back on, opinions formed from my travels and my large investment in China, down to the local level back in New Jersey, including the sale of my home to a Chinese couple. But each week I bite my tongue. And I will continue to, for now.
But I do have to note for today that I was floored when I was in Honolulu last weekend just how many Chinese there were…I’d say virtually as many Chinese as Japanese tourists. And my hotel catered to the Chinese, with a Chinese run restaurant and bar.
From an investment standpoint this tells me a lot. It’s just a further example of the exploding Chinese middle class and with the growing affluence, the ability to travel. It started with day trips to Macau and weekends in Hong Kong. Now they are coming to Honolulu, and New York, en masse.
So I picked up a 1,000 shares of a Chinese travel company listed on the New York exchange just to keep it on my radar screen because to me, barring as always the feared global double-dip, it’s a no-brainer. I’d also love to travel back to China, perhaps next spring, to check out this company’s operations, as I did with my biodiesel/specialty chemical holding before going in full bore, but I really think the stock could run before then if they can convince the Street their accounting is real. If it gets away from me, such is life. You try and find another.
There, I’ve given you as close to a great tip as I ever will but it’s up to you to do your own due diligence and if it falls apart, well, in my case I would have only lost $4,700. I’ll let you know if and when I invest far more in this one but it’s not likely to be before January.
South Korea/North Korea: Pyongyang wants to restart nuclear arms talks, but Seoul is saying, ‘Not so fast…we’ve seen this act before.’ South Korea’s defense minister said the North remains a “grave challenge” to the security of the region. Seoul also said they would not be for resuming nuclear talks unless the North first allows inspectors with the International Atomic Energy Agency to return. There are also reports that activity at a key nuclear site could foretell a third nuclear bomb test, though Seoul is downplaying this.
Britain: Prime Minister Cameron announced he would delay the new generation of Trident nuclear submarines by 3-5 years as part of his budget plan, which would mean the first replacement for the existing Vanguard subs wouldn’t be until 2027 at the earliest, which many defense experts say takes Vanguard far beyond its viable lifespan.
Venezuela: I agree with the Obama administration not to make too much of Russia’s support for building two nuclear power plants here ostensibly because of the time element, Venezuela not expected to have any kind of viable civilian nuclear facility that could then be tapped for military purposes for at least a decade. On this I do not agree with former Ambassador John Bolton that Venezuela will be nuking the U.S. in a few years. [A slight exaggeration of Bolton’s stance, but for crying out loud, you can’t squawk and scream about every single issue on the planet, as he does, and expect to be taken seriously.]
However, that said, I was the one who years before anyone else warned of the threat posed by the presence of Hizbullah and Iranian agents in Venezuela. I see zero reason not to continue to be concerned in this regard. These are sleeper cells, potentially being readied for activation at a moment’s notice, say, for instance, after an attack on Iran’s nuclear program or a Hizbullah conflict with Israel. This is where Venezuela must be warned that the U.S. will not tolerate this. [Quietly, at first.]
Mexico: Authorities made the biggest marijuana haul ever here, total street value something like $340 million, with many of the packages having Homer Simpson’s picture on the wrapper. One need not worry, however, that Homer is spearheading one of the cartels, he not being capable of such an operation. More importantly, many are wondering just what the impact would be if California voters on Nov. 2 legalize the sale of marijuana. It almost seems too easy; it would deal Mexico’s cartels a serious blow, though they would still have the cocaine and meth markets to exploit.
Haiti: Just what this place doesn’t need…a cholera epidemic that has already killed 140 and, if not stopped, could spread to other large refugee camps.
Random Musings
–The evil doers at WikiLeaks released a mammoth amount of new documents on the war in Iraq, far more secret files than from before, and many of them are damning. But my policy on this organization is that I am not going to comment on the release, rather, I just wish everyone at this scumbag outfit the very worst.
–The final AP-GfK poll is in and 45% approve of President Obama’s performance, solidly below the 50-mark that signals big losses for the Democrats. The elephants smell blood and even from afar I can see it threatens to become a stampede on Nov. 2. No way the Dems get out the vote compared to the Republicans, but Democrats are nonetheless furiously courting women at this last moment because, as the AP poll shows, women went Democrat by a 55-43 margin in 2006, but today that margin has narrowed to 49-45, another sign of pending doom.
–Meghan McCain said Delaware Republican senatorial candidate Christine O’Donnell “is making a mockery of running for public office…she’s seen as a nut job.” I couldn’t agree more.
–And one of the Republicans other big mistakes, New York gubernatorial candidate Carl Paladino, trails Andrew Cuomo by a slight 63-26 margin.
–Former Chairman of the Joint Chiefs of Staff, Gen. Hugh Shelton, says in a new book that late in his second term, 2000, President Clinton and the aide responsible for the nuclear codes needed to launch a strike, lost them, perhaps for months. The aide, when regularly confronted by the Pentagon as part of the latter’s duty, gave the official in charge the runaround when asked if he could verify the codes were where they should be. Separately, following this story, the London Times got hold of one of the aides who worked with Clinton and he confirmed the story is true, only he said it was 1998, not 2000. Regardless, it’s fact, and unbelievable. But also in hindsight, so predictable! Gee I miss George Washington, don’t you?
–Leave the Chilean miners alone, media. I’m not interested any more in the details concerning personal relationships and how they are all now scrambling to give their story to the highest bidder. We know enough about how it all went down and it was inevitable those first 17 days that there would be conflicts. I do hope they make money off it but at this point, I’m not sure it’s really a great movie.
–I’ve read a number of reviews, including in The Economist and the Wall Street Journal, of what looks like a terrific, albeit depressing, book; Bloodlands: Europe Between Hitler and Stalin, by Yale University’s Timothy Snyder. Between the two of them, they killed 14 million ‘non-combatants,’ in peacetime and in war. Think about that. As The Economist writes: “Just as Stalin blamed the peasants for the failure of collectivization, Hitler blamed the Jews for his military failures in the east. As Mr. Snyder argues, ‘Hitler and Stalin thus shared a certain politics of tyranny: they brought about catastrophes, blamed the enemy of their choice, and then used the death of millions to make the case that their policies were necessary or desirable. Each of them had a transformative Utopia, a group to be blamed when its realization proved impossible, and then a policy of mass murder that could be proclaimed as a kind of ersatz victory.’”
Snyder starts with the 3.3 million in Soviet Ukraine who died in the famine of 1933, and then you have the 250,000 Soviet citizens, mostly Poles, shot during ethnic purges in 1937 and ’38, with the NKVD (secret police) often just going through the phonebook and picking Polish sounding names, or arresting all those attending a Polish church service.
I thought I knew a lot about Warsaw, but what I didn’t know is that as many died in the German bombing of that city in 1939 as in the allied bombing of Dresden in 1945.
Regarding the Holocaust, Snyder corrects some exaggerations, misapprehensions and simplifications. For example, in just a few days in 1941, the Nazis shot more Jews in the east than they had inmates in all their concentration camps.
Snyder’s book is powerful, according to the reviews, because for one it exposes Stalin even more fully at a time when far too many Russians harbor a soft spot for Uncle Joe, which is sickening.
Snyder isn’t trying to tell you who was worse…Stalin or Hitler. He merely explains and records, “with sympathy, fairness and insight.” But as The Economist warns: “Just don’t read it before bedtime.”
–Here on Yap, the sky is spectacular for looking at the stars and you can get lost in it. Nothing like star-gazing to bring you back to reality.
So I noted with interest the latest finding from the greatest science project of all time, the Hubble telescope; that being it has detected (as confirmed by a telescope in Chile, to be totally accurate), the most distant galaxy in the Universe. In fact it is so distant that the light from it has taken 13 billion years to reach Earth…you’re reading that right.
Well, this gives me an excuse to finally issue two predictions I’ve been mulling over. First, there will be an incident involving the international space station in 2011 that will not have a happy ending. Second, in 2012 we will receive a signal from space that will unify the world, at least for a moment. Not sure if it will be good or bad.
Lastly, I see NASA now believes there is far more water on the moon than first thought, which makes sense since the other day when I was looking up at it I thought I felt something.
–Longtime Wall Street strategist Byron Wien had a terrific op-ed in the Journal last weekend on reunions, specifically, the 64th reunion of his public grammar school in Chicago. So they are all 76 years of age or so.
“Some say your personality is formed before your 10th birthday. I couldn’t tell in grammar school who was going to be successful. We all spent most of our time back then just trying to enjoy ourselves. I learned that you were unlikely to make it without the love of others, and that you had better believe in yourself and try your best to get the most out of your talent because life in the real world is going to be hard.
“Toward the end of our gathering, I expressed sorrow that this would be our last reunion. We all had accepted that we only have a limited amount of time left, but we all thanked God that we had gotten together once more. In a world of cellphones, iPads, and Twitter, we all seemed to know that it was face-to-face interaction that gives meaning to life.”
–But back to Yap, on Thursday I had one of the guys at the hotel take me out onto the water to go out to the reef, which is spectacular and from certain points on the island is as beautiful to look at from shore as anywhere I’ve been in the world. [Very cool when you can scan the entire horizon and see waves breaking far out in the distance.]
So John takes me out and I gradually get him to address a few topics, like diving accidents, which I’ll share in another column I write, and why they eat barracuda when I thought it was poisonous.
[Turns out the stories about barracuda in these parts being bad for you had to do with pollution from wrecks going back to World War II; small fish gulping oil-tainted water, the larger barracuda eating the small fish…you get the picture…but now the waters are largely cleaned up save for a few selected areas in these islands, and barracuda is a popular dish among the locals. Good story re the BP spill and effects on some of the fish in the Gulf we may not really know the full impact of yet, isn’t it?]
Anyway, there is a small port area near the hotel and when we passed it there were some rusty looking tankers so I asked him whose they were. One was Japanese and John said despite its looks, it was still operational after 30 years. The other was Chinese, a recent gift from China as it tries to curry favor in Micronesia as American aid dries up. He soon had me in stitches because the Chinese boat is a disaster…in constant needs of repairs.
Both vessels service the outer islands, bringing much needed supplies that can’t be shipped by air. But as soon as the Chinese vessel was delivered a few years ago, the front hook where the rope is run through and tied to the dock, broke apart and the ship drifted all the way out to the reef where it was grounded. And then last night I heard more stories of woe for the Chinese vessel, including more than a few times where it had to be towed back after breaking down, days from Yap. [When I say outer islands, I’m not talking about a quick jaunt to Block Island or Catalina. These are in some cases 4-5 day trips just to get to these truly primitive places.]
But to the broader topic of the Yapese, after four trips here I can unequivocally say these are the most genuine people in the world. The Chamorro people of Guam are outstanding as well, as are people from western Pennsylvania and eastern Ohio (in my humble opinion the best in America), but if I have to pick one it’s the folks on Yap.
Understand, while you can stand on a beach here and think it’s paradise, Yap is far from it. There is lots of poverty here. My first trip in 1996, I was taken aback by what I saw and one of my three prized possessions in life (the combined retail value of the three being no more than $4 or $5) was when I was taken to an old woman’s home, which consisted of a metal shack about 6’ X 8’, on stilts to keep it from flooding, and she handed me an airline liquor bottle filled with coconut oil. It’s all she had to give me and if anything ever happened to that bottle I’d cry.
So it’s a tough life for some here. There is no industry to speak of. The men fish for their food, work the few commercial establishments, but I would have no problem walking around the worst-looking areas knowing now what I do about the people. [The stray dogs, however, are another subject. Gotta be on your guard with them.]
Sister Joanne, my longtime friend who is retiring from here in December (leaving Dec. 29 so she can spend one last Christmas on the island), summed it up when I asked her about the difference between the people on Yap and, say, Palau, a larger neighbor that is becoming more commercialized. Here, she said, the people really do look after one another like no other place in the world.
A number of years ago, I wrote in this space about how I was worried sick about Yap because of an approaching super typhoon, which struck with full fury, doing a ton of damage…but not one fatality! There were some in grave danger but the people banded together and saved everyone with some heroic action. [Think of how we lost thousands in New Orleans, not because of the hurricane, but because a freakin’ levee broke. Pitiful. The Yapese, on the other hand, were hit with far more fury, on a totally exposed island, and lost not one.]
Many of you know why I’m really here. My funds built a church, a pretty big stone one, on the island of Rumung, the tribal island in the Yap chain. I really thought my trip in 2006 would be my last, but with Sister Joanne’s retirement and developing health issues with some of my other friends, I got a major guilt trip when Margaret Gootinag said I have to come one more time.
The church is still there, but many of the natives have left the island to move onto the more developed parts of Yap. To be honest, services there are not held as often as they once were, but I’m actually more optimistic about its future than some of my friends because I just think at some point Rumung will be developed. [There is no electricity there, for example, sports fans. Kind of tough life, in other words.]
Anyway, my last funds have gone towards the development of a Catholic school here and real progress has been made.
So you know what? I’m not going to say this time was my last to Yap. If Continental Airlines would go back to when they flew here more than twice a week, my next trip to Southeast Asia or Australia, I’d return after all. It’s a cool place…with great people. God’s people.
Pray for the men and women of our armed forces, and all the fallen.
Gold closed at $1325…minor correction
Oil, $81.69
Returns for the week 10/18-10/22
Dow Jones +0.6% [11132]
S&P 500 +0.6% [1183]
S&P MidCap +0.6%
Russell 2000 +0.0%
Nasdaq +0.4% [2479]
Returns for the period 1/1/10-10/22/10
Dow Jones +6.8%
S&P 500 +6.1%
S&P MidCap +13.5%
Russell 2000 +12.5%
Nasdaq +9.3%
Bulls 45.1
Bears 22.0 [Source: Chartcraft / Investors Intelligence]
I’m heading to Australia (Cairns) later today (after first flying back to Guam), where I’m spending the week, but with the time difference I think the next WIR is coming from Guam, perhaps later Saturday, New York time, than usual. Actually, I have no idea what the heck I’m doing…just takin’ each day as it comes.
Thanks for your support.
