[Posted 7:00 AM ET]
Note: Much of the following was written by noon, Friday, due to
travel…and is pre-Rita coming onshore.
Iran, Iraq and North Korea
Before Katrina, President Bush’s legacy was going to be tied to
his handling of these three, coupled with the war against al
Qaeda and dismantling Russia’s weapons of mass destruction
before they could get in the hands of terrorists. I would still
argue these are still far more important than rebuilding after this
year’s hurricanes. To wit.
North Korea: If ever there was a need to apply my adage “wait
24 hours” it’s here. Last weekend, an agreement in principle was
reached with Pyongyang at the six-party talks whereby the North
would reopen its nuclear facilities to inspectors, the United States
would help provide fuel and economic aid (with South Korea
supplying electricity), and the U.S. would promise never to
attack the north. But critical details were to be left for a new
round of talks in November, including the issue of providing
Kim Jong-il’s regime with a light-water reactor after it
dismantled its weapons program.
Of course within 24 hours the propaganda and threats flowed,
with the official North Korean news service warning that “the
U.S. should not even dream of the issue of (the North’s)
dismantlement of its nuclear deterrent before providing” the
reactor. And a government-run newspaper said the U.S. wants to
use nuclear weapons to “crush us to death.”
Former assistant secretary of defense and weapons expert
Graham Allison offered, “The North Koreans have every
intention to lie, steal and cheat as much as they can get away
with and as they have been doing for decades.” [Bloomberg
News]
For its part, Washington has been toning down the rhetoric for
the time being, awaiting the next round of formal discussions,
while on Friday there was a wire service report that Kim sought
a meeting with either President Bush or Secretary of State
Condoleezza Rice. You’ll recall the last such gathering involved
then Sec. of State Madeleine Albright, Oct. 2000, and those
absurd pictures of her at the flashcard pageant.
Iran: The United States, the European Union, Australia, Canada
and Japan are now all on board in getting the U.N. Security
Council to take up the issue of Iran’s multiple Nuclear Non-
Proliferation Treaty violations. But Russia, China and India, as
well as many of the non-aligned nations of the 35-member
International Atomic Energy Agency ruling board are against.
Of course it wasn’t a good thing when Iranian President
Ahmadinejad told the U.N. General Assembly that his country
had an “inalienable right” to produce nuclear energy, and he
added in an interview with CNN that Iran had “the means to
defend and obtain its rights.” But, not to worry, religion prevents
them from making nuclear weapons. Ahmadinejad then told
Newsweek, “We are always acting in accordance with
international law.” You can stop laughing.
Iran has offered to share its nuclear know-how with its buddies in
the Middle East and around the world (see Venezuela) and is
threatening to throw out IAEA inspectors. Stupidly, IAEA chief
Mohamad ElBaradei said on Monday that success in the talks
with North Korea showed that negotiations with Iran can yield
fruit. Mr. ElBaradei obviously didn’t wait 24 hours before
making this comment.
The IAEA board is meeting this weekend in Vienna and the U.S.
is attempting to bring its request for taking Iran to the Security
Council up for a straight, majority vote.
Lastly, Ahmadinejad reiterated in interviews that Iran does not
accept the legitimacy of Israel, which means Iran will obviously
continue to finance and support Palestinian terrorists in their
efforts to foment violence, let alone Hizbollah. Israel can not
afford to just sit around, waiting for it to be attacked.
Iraq: The referendum on the constitution is but three weeks
away. One of the bigger issues of recent days, though, was the
violence in British-controlled Basra, where two undercover
soldiers were being held by the local police. British command
then heard they were turned over to a militia group and so the
Brits blasted their way into the station to free the two. This set
off a round of demonstrations in what has been a relatively quiet
area. Britain also said this week it has strong evidence of
growing Iranian influence in the south; not that anyone didn’t
already know this.
But on a different matter, long-time Saudi foreign minister
Prince Saud al-Faisal weighed in with his thoughts on Iraq while
in Washington.
“There is no dynamic now pulling the nation together. All the
dynamics are pulling the country apart…Unless something is
done to bring Iraqis together, elections alone won’t do it.” [New
York Times]
Prince Saud also raised the subject of Turkey with administration
officials, noting its long-standing threat to invade northern Iraq if
the Kurds declare independence, as I’ve been warning for years
now.
Wall Street
The Federal Reserve opted to raise interest rates an 11th-
consecutive time with the funds rate now up to 3.75% from
1.00%, June 2004. The Fed maintained Hurricane Katrina was
not a “persistent threat” to the overall health of the economy and
while the high cost of energy was still worrisome, core inflation
remained “relatively low.” Of course the Fed’s decision was on
Tuesday and it wasn’t calculating Rita’s potential impact on
growth and prices.
It wasn’t a big week for economic data, though the jobless claims
figure was horrid due to all those workers in the Gulf region
finally getting around to filing for unemployment. And a few
early forecasts of holiday sales were issued, both of which called
for figures below those of last year…you can book that. Wal-
Mart is already talking of heavily discounting its merchandise to
beat out the competition and that’s not exactly inflationary.
Separately, a key survey of America’s CEOs revealed that they
were an increasingly gloomy bunch, with a majority now talking
of reducing capital spending, post-Katrina, and with long-term
concerns centered around energy prices.
Speaking of which, OPEC suspended its quotas for the first time
in an attempt to show the world it would offer as much oil as the
market needed, with the Saudis, correctly, blaming a large share
of our problem on the shortage of refineries. But while the latest
inventory numbers were generally positive, it’s all about supply
disruptions these days in the wake of Katrina and now Rita. 25%
of U.S. refinery capacity is in Texas and another 5% remained
shut-in in Louisiana and Mississippi from the first CAT 4. But
while the price of crude stabilized by week’s end in the $64
range, below its recent record of $71, natural gas hit another
high before backing off.
With the Fed’s insistence on raising rates in the face of a
developing national funk and inflation pressures that are bound
to be fleeting, the economy moves closer and closer to a tipping
point. All year I have offered that we’re talking recession by
early 2006 and I haven’t changed my tune one bit. The U.S.
consumer, already stretched to the max, is going to be slammed
not only by soaring heating bills this winter and persistent high
prices at the gas pump, but many face steep increases in
minimum payments on their credit cards as well. [The impact on
those holding adjustable rate mortgages is probably more of a
story for later.] Plus, Corporate America’s enthusiasm is waning
rapidly and housing’s role as a piggybank is fading fast…let
alone the fact we still have a ton of potential nightmares on the
geopolitical front. Oh, there’s even more to worry about, but
we’ll wait until next week as we tally up the damage wrought by
Rita.
Street Bytes
–Faced with fears Rita would do a number on energy supplies, as
well as concern the Federal Reserve is going too far in continuing
to raise interest rates, the major averages all lost about 2% on
the week and in the case of the S&P 500 and Russell 2000 are
now essentially flat on the year, while the Dow Jones and Nasdaq
are off about 3% each.
–U.S. Treasury Yields
6-mo. 3.82% 2-yr. 4.01% 10-yr. 4.25% 30-yr. 4.52%
PIMCO’s Bill Gross believes the Fed stops at 4.00% and is
increasingly talking of recession in ’06, thanks in no small part to
a stagnating housing market.
–With Katrina costs mounting, let alone what’s to come with
Rita, it would appear that for fiscal 2006, the Federal government
will be shelling out about $390 billion in interest payments alone
on the national debt. Why this doesn’t outrage Americans more
has always puzzled me. That’s $390 billion…and rising.
–Bird flu claimed at least six lives this week in Indonesia, but
the World Health Organization does not believe the virus has
mutated, yet, to the point where it is being spread among
humans. These victims still appear to have contracted it through
contact with sick birds.
–In a related story, a study by the Centers for Disease Control
has concluded that there is an escalating resistance to both flu
vaccines and the drugs treating the flu. In some Asian nations
resistance is up to 70%. Not good.
–Russia’s Gazprom, which supplies ¼ of Europe’s natural gas, is
in discussions to build two pipelines to China. A separate oil
pipeline, affiliated with Transneft, is going to the Pacific to serve
China, Japan and the U.S., though China could just keep the flow
for itself, he wrote mischievously.
–In advocating a gasoline tax, the New York Times’ Thomas
Friedman said “Americans have already shown they’ll tolerate
higher prices.” No they haven’t.
–Italy’s Prime Minister Silvio Berlusconi is facing yet another
political crisis; this time over the governor of the Bank of Italy
amidst charges he favored domestic banks over Dutch and
Spanish ones in takeover bids for Italian banks. The central bank
chief is appointed for life, but with Berlusconi’s own rule now in
doubt amidst calls for the prime minister to resign, Berlusconi
is asking Antonio Fazio to quit.
–The Wall Street Journal had a piece Friday on a hit to India’s
stock market after a 40% rally, citing excessive speculation and
concerns the government was now trying to rein it in. But it’s
missing the broader point. The communists, a governing
coalition partner, are increasingly attempting to block economic
reforms.
–A judge formalized the settlement in the WorldCom case with
bond and shareholders splitting $6.1 billion, the bulk of which is
coming from J.P. Morgan Chase and Citigroup. Bondholders
will receive 43 cents on the dollar. But stockholders will see
just $0.56 per share. And therein, sports fans, is a classic
example of bonds being senior to stock. Oh, one other item; the
attorneys receive $195 million to divvy up amongst themselves.
Check with them on the holiday party schedule.
–Former Tyco chairman Dennis Kozlowski and CFO Mark
Swartz were sentenced to 8-25 years in prison, each, and ordered
to pay a collective $239 million in fines and restitution in one of
the largest fraud cases in financial history. The SEC is now
formally launching an accounting probe against Tyco itself after
previously just targeting individuals.
–Former Hollinger International (Chicago Sun-Times and other
media outlets) CFO David Radler pleaded guilty to mail fraud
and will serve up to 29 months in prison. Radler is now turning
on chairman Conrad Black in the case that saw Black, Radler et
al loot Hollinger of potentially $100s of millions.
–Sony is laying off 10,000 workers (an est. 4,000 in Japan) as
part of a restructuring as the company attempts to become a
player again in the electronics business.
–Delta is slashing another 9,000 employees, on top of about
30,000 others since mid-2001. The airline is also asking for
further wage reductions as it works on its reorganization plans
and a new low-cost model.
–The New York Times is laying off 500 employees as ad
revenues by most measurements are down this year. The Boston
Globe is laying off over 150 for the same reason.
–Sears Holdings is the latest to slash benefits for retirees even
further, including to those under the age of 65 who will now
receive zero help from Sears in paying for their medical.
–Microsoft, in an attempt to juice revenues, appease
shareholders, and address concerns it’s too unwieldy, is splitting
into three divisions, each with its own president; platform
products & services, business, and entertainment & devices.
–With the recent announcement of Oracle’s acquisition of Siebel
Systems, Oracle now controls 33% of the U.S. enterprise
software biz, 22% globally. But Germany’s SAP still has 41% in
the U.S. and 58% globally. [Financial Times] Separately,
Oracle announced its latest quarterly earnings after the close on
Thursday and they disappointed on the revenue side.
–But speaking of Oracle, CEO Larry Ellison is #5 on the latest
Forbes richest 400 Americans list. For an 11th straight year Bill
Gates is #1, while Warren Buffett remains #2, Paul Allen,
Microsoft co-founder, is #3, and Michael Dell #4. Meanwhile,
Google founders Sergey Brin and Larry Page are climbing, now
up to #16 with $11 billion a piece.
–Senate Majority Leader Bill Frist, who harbors presidential
aspirations, is being investigated by the SEC for his sales of
Hospital Corporation of America (HCA) stock just two weeks
before an earnings warning. HCA was founded in part by Frist’s
father and brother. Over the past year, the senator has given
conflicting statements on his holdings…so say sayonara to 2008,
Mr. Bill. At least that’s the view from here.
–Carlos Ghosn, CEO of both Nissan and Renault, said hybrid
automobiles were a “terrible business proposition.” Ghosn’s
comments were surprising given the fact Toyota and Honda’s
hybrid sales are rising (though the profit margins are miniscule
due to development and manufacturing costs). Ghosn also said
he is seeing demand for SUVs going down due to high oil prices.
Good.
–Macau’s Banco Delta Asia was accused by the U.S. Treasury
Department of laundering money for the North Koreans, at
which point there was a large run on the bank before officials
stemmed the tide. Local authorities said, where’s the evidence?
From my reading of the situation, they have a point. The U.S.
government probably could have handled this much better.
–Last week I wrote of Yahoo and the issue of their allowing the
Chinese government access to e-mail account information that
led to the arrest of a journalist. I merely gave co-founder Jerry
Yang’s explanation, that “to be doing business in China…we
have to comply with local law.”
But here are some of the thoughts of Max Boot, in an op-ed for
the Los Angeles Times.
“I wonder how far Yang would take that logic. What if local law
required Yahoo to cooperate in strictly separating races? Or the
rounding up and extermination of a certain race? …Would Yang
eagerly do the government’s bidding in those cases too? …
“There is a theory that greater access to information technology
will further freedom in China. The reality is that the communist
oligarchy is adroitly using the Internet to increase its level of
control with the help of its American business partners.
“The conduct of Yahoo et al should be illegal. The Commerce
Department, and if necessary Congress, should forbid American
firms from facilitating human rights abuses in China.
Unfortunately, the Bush administration would probably block
such rules because it continues to cling to the vain hope that
Beijing will solve the North Korean nuclear crisis for us. The
only pressure the administration is interested in applying at the
moment is to get Chinese firms to stop selling us so many bras.”
I slammed Yahoo and others of its ilk years ago, but now I’m not
so sure. It’s complicated. Over the past two weeks you’ve been
presented both sides. Your opinions, as always, are welcome.
Foreign Affairs
Afghanistan: No matter how you slice it, the election was a
success. But I was struck by how three leading newspapers all
had the same page one article about two days after the vote; the
Taliban was reemerging. This is yesterday’s story.
True, there is a ton more to do in Afghanistan. This nation will
remain an impoverished one for decades. The Taliban and / or
warlords may control slices of the country for years as well. But
no one can deny the civilized world is better off now than with
what existed before.
What’s needed, though, is continued leadership, particularly on
the part of NATO, and to keep Hamid Karzai alive.
Germany: What a mess. Christian Democrat leader Angela
Merkel and Chancellor Gerhard Schroeder met for the first time
on Thursday following last Sunday’s dead-heat and the two
agreed to get together again this coming Wednesday. There is a
30-day window for Germany to establish a new government. As
of now, here is where it all stands.
Merkel’s party won 35.2% of the vote, Schroeder’s Social
Democrats 34.2%.
The Free Democrats, who historically side with the CDU, took
9.8% and the Greens, who go with the SDP, took 8.1%. That
leaves the Left Party with 8.7%.
When it comes to apportioning the 613-member Bundestag, the
CDU has 225, the SDP 222, Free Dems 61, Left 54 and Greens
51.
Both Schroeder and Merkel want to be chancellor. Schroeder is
now trying to woo the Free Democrats to join the Greens.
[Foreign Minister Joschka Fischer is a member of the Green
Party.]
In the end there will be no winner and the German people will be
the losers, as any serious economic reforms are now out the
window thanks to all the deals that will have to be cut just to
form a coalition.
Lebanon: New Prime Minister Siniora called for the resignation
of Syrian lackey, President Lahoud, as Detlev Mehlis’s
investigation into the assassination of former Lebanese prime
minister Rafik Hariri drew closer to Syria’s leadership in
Damascus. I can not say this too much. Mehlis could go down
in history as one of the great figures of our time.
Israel: There is a critical vote over control of the ruling Likud
Party this coming week. Prime Minister Sharon vs. former prime
minister Benjamin Netanyahu.
China / Japan: A potential battle is brewing over Japan’s claim
that China is already drilling for gas in a disputed part of the East
China Sea. As we all know, the next big war will be in this
region over energy.
Russia: No surprise here. Former Yukos chairman Mikhail
Khodorkovsky’s appeal was denied, in one day, thus preventing
him from running for the State Duma. But both he and his
business partner Platon Lebedev had their prison sentences
reduced from nine to eight years! Yippee! [A propaganda ploy,
no doubt.] The two will likely end up in one of Russia’s
notorious prison colonies. What a travesty of justice this whole
deal has been.
Poland: Critical election here on Sunday as a pro-reform party
looks to capture parliament. Poland has the lowest GDP per
capita of any Central European nation and is losing foreign
investment to the likes of Slovakia.
Turkey: Prime Minister Erdogan blamed “weak governments” in
France and the Netherlands for failing to tackle opposition to
Turkey’s membership of the European Union.
Greece: Remember about six weeks ago, 8/13, when I wrote of
Eurofest 2005, a gathering of far right, neo-Nazis? Well, it went
off last week with thankfully just some minor incidents. But the
overriding theme was bar Turkey from the E.U.
The U.N.: Boy, was that summit a waste or what? Out of 191
nations, only Syria didn’t give a speech before the General
Assembly and that was because President Assad had to stay
home and deal with the crisis created by Mehlis’s investigation.
As for accomplishments, there were none.
Random Musings
–In the first two surveys following President Bush’s post-
Katrina speech from New Orleans, his overall approval rating
didn’t budge, 39 and 40 percent. In the CNN / USA Today /
Gallup poll, 54% want spending cut on Iraq to pay for Katrina.
Separately, in an unscientific survey of a bunch of guys I met
with the other night, all Bush supporters in 2000 and 2004, not
one of us is happy with the president’s performance. I also seem
to be the only one who wants to stay in Iraq.
–In a nationwide Rasmussen survey, John McCain beats Hillary
47-39, while Rudy Giuliani bests her 47-43. But the election
isn’t today, is it?
–John Roberts sailed through the Senate Judiciary Committee,
13-5, with even Democratic Senator Patrick Leahy voting for
Roberts and calling him a “man of integrity.” Those who voted
against Roberts look foolish, especially Joe Biden.
From a Washington Post editorial:
“John G. Roberts Jr. should be confirmed as chief justice of the
United States. He is overwhelmingly well-qualified, possesses
an unusually keen legal mind and practices a collegiality of the
type an effective chief justice must have. He shows every sign of
commitment to restraint and impartiality. Nominees of
comparable quality have, after rigorous hearings, been confirmed
nearly unanimously. We hope Judge Roberts will similarly be
approved by a large bipartisan vote.”
From long-time Washington Post columnist David Broder:
“The question of whether Judge John Roberts is qualified to be
chief justice of the United States has been rendered moot by his
performance in the Senate Judiciary Committee hearings. He is
so obviously – ridiculously – well-equipped to lead
government’s third branch that it is hard to imagine how any
Democrats can justify a vote against his confirmation.”
–A giant of our time, Nazi hunter Simon Wiesenthal, died at the
age of 96. His biographers credit him with rounding up 1,100 of
Adolf Hitler’s killers. And as the Wall Street Journal pointed
out, Wiesenthal’s evidence was voluminous in each instance.
Wiesenthal survived a dozen concentration camps and his
wife of 67 years once said that living with Simon was like being
“married to thousands, or maybe millions, of dead.” [Los
Angeles Times]
–British Prime Minister Tony Blair told Rupert Murdoch that he
was shocked by the BBC’s coverage of Hurricane Katrina, “full
of hatred for America.” Bill Clinton also criticized the BBC’s
tone.
–I finally got around to reading Mary Anne Weaver’s superb
piece in the 9/11 Sunday Times Magazine on U.S. inaction at
Tora Bora in the critical days following the initiation of the
offensive in Afghanistan, specifically December 2001. Weaver’s
piece amounts to further confirmation that General Tommy
Franks has consistently lied to the American people.
Weaver quotes Brig. Gen. James Mattis as saying he had asked
permission to send his 4,000 Marines in there, but Franks, sitting
at Centcom headquarters in Tampa, FL, turned him down.
Franks later authored a New York Times op-ed, Oct. ’04, in
which he said “We don’t know to this day whether Mr. bin
Laden was at Tora Bora.
The evidence, general, is irrefutable. Bin Laden was there. And
to think some in this country actually feel Franks is presidential
material. You’ve got to be kidding me.
–It’s official….I’m sick of watching the weather. After this
weekend, that’s it. I’m shutting off the Weather Channel…until
the next Big One. But I did see this interesting tidbit the other
day. For those of you wondering about global warming and a
possible connection to extreme weather, the WC noted that
Syracuse and Cleveland had the snowiest winters on record,
2004-05, and these were followed by the hottest summers in
history, at least in terms of number of 90-degree days.
–Tourism to China from America rose a stupendous 72%
between 2003 and 2004. But if you are head of the department
of tourism for the Bahamas, you may want to look for another
job. Tourism here fell a whopping 29% over the same period.
–Phil W. passed along an AP story from Idaho Falls concerning
the area weatherman who said Japan’s Yakuza (mafia) used a
“Russian-made electromagnetic generator to cause Hurricane
Katrina in a bid to avenge itself for the Hiroshima atom bomb
attack – and that this technology will soon be wielded again to
hit another U.S. city.”
Hey, maybe we can use it to round up looters?! And then dump
them in a vat of E. coli.
–And now for your wildlife update. Last week, you may have
wondered about two references I made in debating an op-ed
piece written by former president Jimmy Carter on drilling in the
Alaska National Wildlife Refuge.
Point one: As an aside, I said there were 10 times more deer in
New Jersey than there were in George Washington’s day.
Point two: I said there were 10 times more caribou today in the
area of the Alaskan pipeline than a century ago.
So I imagine some of you thought this was kind of reckless on
my part. Well, it just so happens that my October edition of
Smithsonian magazine arrived on Tuesday and there are two
stories addressing these exact same topics.
First, from a piece by Anne Broache: “In some parts of highly
suburbanized New Jersey, up to 60 deer live in a square mile,
according to the state’s Division of Fish and Wildlife, compared
with just 5 to 10 deer per square mile before the land was settled
by Europeans.”
Second, in an article by Scott Wallace: “There’s also
disagreement over what drill rigs in ANWR would mean for the
caribou. Matthew Cronin, a University of Alaska at Fairbanks
professor of population genetics and a consultant to the oil
industry, believes wildlife and industrial development can
coexist. He points to the six-fold growth since the late 1970s of
the Central Arctic herd, now some 32,000 caribou strong, despite
a tangle of roads and pipelines in and around the Prudhoe Bay oil
fields. ‘There is abundant evidence showing caribou using
habitat around oil fields.’”
Ah ha! But in the interest of fair and balanced reporting, Fran
Mauer, a biologist with the U.S. Fish and Wildlife Service, “says
both the terrain and the demographics of the Porcupine herd
(ANWR) are vastly different from those of the Central Arctic
herd….Were oil development to push the Porcupine herd up the
mountain slope to calve, as many expect, Mauer says the young
caribou will be far more vulnerable to natural predators: wolves,
bears, wolverines and raptors.”
Well isn’t that what we want, Ms. Mauer? I don’t know about
you, but I’d rather support a bunch of wolves, bears and
wolverines over some mangy caribou any day. That’s just my
opinion.
–And finally, since about half my audience is from overseas
these days, I thought the following was of some interest to those
of us who believe Americans have no understanding of their own
history, let alone that of others.
In Chile, 95% have no idea that February 12, 1818 is the date of
their independence. According to Manuel Antonio Garreton,
director of research at the Universidad de Talca, “this ignorance
reflects an ambiguous sense of national identity.” Boy I’ll say.
But on a positive note, 95% of respondents said they were happy
to be Chilean. [Santiago Times]
[I’m down at my 25th college reunion this weekend, Wake Forest
University. Time flies.]
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $467
Oil, $64.19
Returns for the week 9/19-9/23
Dow Jones -2.1% [10419]
S&P 500 -1.8% [1215]
S&P MidCap -2.1%
Russell 2000 -2.5%
Nasdaq -2.0% [2116]
Returns for the period 1/1/05-9/23/05
Dow Jones -3.4%
S&P 500 +0.3%
S&P MidCap +5.7%
Russell 2000 +0.6%
Nasdaq -2.7%
Bulls 54.3
Bears 25.5 [Source: Chartcraft / Investors Intelligence]
No more hurricanes this year…at least that’s our hope.
I appreciate your support.
Brian Trumbore
**Dedicated to Charlotte Williams, a terrific friend of many of
us who passed away the other day.
