[Posted 7:00 AM ET]
2005…and a look ahead
Last year’s review of the events of 2004 was written a few days
after the tsunami devastated Southeast Asia and Sri Lanka. What
struck me is that back then I blasted President George W. Bush
for waiting over 72 hours before saying something about the
catastrophe. The U.S. quickly regained its reputation, though, as
the military sprung into action and served a critical role in the
rescue process, but you would have thought Bush and his
advisers learned something on the public relations front. Alas
they didn’t, as the response to Katrina would later prove.
I also wrote of the president one year ago that it was a matter of
policies vs. execution and how I was often “left shaking my head
when it came to the latter.” I’m still shaking it frequently, even
as I generally agree with the broad agenda.
But in looking back on 2005, what was good? Israel, as I’ll
address more fully later, was a huge positive vs. expectations;
while Pakistan’s President Musharraf managed to stay alive in
’05, a good thing vs. the nuclear-armed militant alternative.
And none of the other hot spots I focus on each week influenced
the global economy to any great extent, which is the genesis of
the name “StocksandNews” in the first place. As bad as some of
the terror attacks were, including London, world markets and
citizens of all stripes went about their business; unfortunately
including the evil ones which is why I continue to fret.
Overall, 2005 wasn’t too shabby despite the ever-present
calamities that whatever authority you look up to throws at the
rest of us just trying to make a buck and smile from time to time.
But that is all about to change, and potentially in a big way in
just the first quarter. So let’s whip around the world in broad
terms, details to follow each week as always.
Iraq: If I had to focus in on just one issue that has the potential to
be a force for good or evil, it’s Iran. How much influence can it
grab as Iraq grapples with forming a government? A de facto
extension of Iran’s western border into southern Iraq would be
distressingly dangerous. One could easily draw the conclusion
this has already occurred to a certain extent. But if the new Iraqi
government, for all its splits and fissures, chooses to be an
independent nation, even if divided into three parts, where the
vast majority still view themselves as Iraqis, first, and not some
vassals of a bunch of mullahs in Tehran, then Iran’s influence
could be neutralized to a great extent.
Iran: Of course that last thought begs the rejoinder….. “Until
they get the bomb, that is.” I was surprised Iran did not test a
nuclear device this year, yet I see no reason not to believe they
are very close to having this capability. It only makes sense Iran
pursue this course and it will continue to do so regardless of who
is in control. For most Iranians it is a matter of national pride as
much as security from similarly armed neighbors.
As for Israel and its role in this regard, it will be forced to act
soon. In March the International Atomic Energy Agency issues
another report on Iran’s activities and any acknowledgement
therein that Iran is progressing on the weapons front, as there
undoubtedly will be, must be met by force if Israel can identify
enough legitimate targets. That’s not just doom and gloom talk,
it’s simply the facts. And that same month you have Israel’s
contentious election.
North Korea: Just as in the case of Iran, not one iota of progress
has been made in dismantling Pyongyang’s nuclear program.
Thus far this is the real Bush legacy unless we see some positive
developments quickly. It’s clear China is of zero help in dealing
with Kim Jong-il as Beijing also enjoys watching America sweat.
China: 2006 is the year to take Taiwan, as the world would just
stand by, mute, and Beijing would have ample time to recover
from any diplomatic fallout before the 2008 Olympics. Beyond
2006, however, China would have to wait until after the Games.
A simple missile strike, coupled with commandoes taking out
Taiwan’s leadership, is all that is required; though Taiwanese
lately have been doing China’s bidding by saying ‘no’ to full
independence at the voting booth and electing those seeking
stronger ties with the mainland.
Russia: To what extent will Vladimir Putin use oil as a weapon
against those countries that have turned to the West? I cover this
further below, but as I wrote last year at this time, it’s partly
about the Russian character and a dangerous inferiority complex.
Russia’s true relationship with Iran will also become readily
apparent over just the next few months. The U.S. probably
won’t like what it sees.
Syria / Lebanon: Pitiful. The U.S. and its allies, particularly
France, had a window of opportunity last spring with the removal
of Syria’s army and the Lebanese elections. Alas, because both
the U.S. and France were afraid to confront Syria’s President
Bashar Assad, the window closed and the bombs and
assassinations have resumed. For its part, Lebanon is too weak
to confront Hizbullah’s presence, and here Israel does the cause
no favors when it continually violates Lebanese airspace beyond
targeting Hizbullah along the disputed border.
Afghanistan: It is critical that NATO extend its mission beyond
Kabul and confront a resurgent Taliban threat, but the U.S. is
looking to exit the theater as much as possible and no one is
stepping forward to fill the void. The tremendous success we’ve
had here could all be for naught by end of 2006 unless NATO
accepts the challenge. Don’t hold your breath.
Europe: There will be another major terror attack and it will spur
an anti-Islamic fervor that will then be met head-on by home-
grown Islamists, making Paris’ recent troubles look like a tea
party.
Saudi Arabia: The Kingdom will survive another year and draw
closer to the United States, as the Royal Family’s increasing
vulnerability necessitates this.
Egypt: President Hosni Mubarak doesn’t finish the year and
Cairo erupts.
India / Pakistan: Thankfully, another year of peace between these
two, unless Musharraf is taken out.
Latin America: Why the Bush administration doesn’t unleash
Commerce Secretary Carlos Gutierrez in the region remains a
mystery to me. It’s a lay-up, but the White House has paid this
region little heed and it’s coming back to bite it in the butt.
Bird flu: This is far from over as a topic. Watch out for spring
when the infected birds migrate back home. Tweet tweet!
Wall Street
Whereas my geopolitical predictions are always more on the
lines of thinking outside the box and what can possibly screw
things up in the financial markets, my Wall Street
prognostications are more straightforward. And what is funny
about the year we just completed is my general predictions were
awful, but the bottom line was pretty good. In one case, scarily
good.
But first, last year I wrote of the China bubble bursting in 2005,
that the American consumer would finally lighten up, and that
business (cap-ex) spending would be slow; though in the
example of the three-legged stool, including real estate and the
consumer, cap-ex would be strongest. That wasn’t too far off,
actually.
However, I also said corporate profit growth would slow, but
while partially true I thought profits would fall short of
expectations and they continually exceeded them.
And I forecast that by December 2005 we would be talking of a
global recession and deflation. Not too close, that’s for sure,
plus I had oil trading in the mid-$30s. Doh!
But on real estate I said we would see the peak and then prices
would stagnate. It will take another few months of data to prove
this to be the case, but it was. I didn’t talk of the bubble bursting
in ’05.
And I also said “There will be no dollar crisis, unless China
decides to stick it to us for political purposes.” So that was
accurate.
As for my equity forecast, I said the three major averages, the
Dow Jones, S&P 500 and Nasdaq, would all decline 5%. As of
10/21, that was looking darn good as the three were off 3-5%.
But then the rally commenced. Nonetheless, the final
performance here wasn’t totally embarrassing for yours truly, as
the Dow fell 0.6%, Nasdaq gained but 1.4%, and the S&P 500
advanced 3.0%.
And then there was the bond market. Recognizing I don’t allow
myself to change the numbers as the year progresses and I live
and die with my original forecasts, I said the 10-year Treasury
would finish the year with a yield of 4.30% and it came in at
4.39%. Heck, even one firm known for their prowess in this area
couldn’t claim this accuracy. In fact, I’ll never approach this
kind of prescience the rest of my life, of this much I’m sure.
But what about 2006? OK, here we go.
China will not burst, but we will see growing social unrest. As I
quoted T. Boone Pickens the other day, it’s all about the
Olympics and keeping things humming through the Games in
’08. Mr. Pickens, though, conveniently ignored that others may
have something to say about just how well China does, namely
the U.S., but for 2006 I don’t disagree with him.
The U.S. housing market will continue to stagnate in the first two
quarters, with some regions seeing slight declines in value, but
then things really begin to get dicey in the second half. I would
call for an outright crash, with values down 20% or more in
many areas, were it not for the fact that long-term interest rates
will remain at benign levels for much of the year.
The consumer will slow due to a creeping unease about their
largest investment and excessive personal debt. Yes, I and many
others have been saying this for years now, but for the first time
during that period real estate is no longer going to be the
piggybank it has been.
Corporations, flush with cash, will pick up their share of the load
in earnest for the first time in quite a while, but it won’t be
anywhere near the level of the late-90s. And I have to add this
one important caveat:
Corporate CEOs are far more fickle than the average American
and if one of my hot spots flares up in a big way, they will be the
first ones heading to the door. This is important to keep in mind.
And why are they more fickle? Because it’s their job to be in
tune with events in the rest of the world, more so than the
average individual is. In other words, they tend to fret.
Continuing, the U.S. economy will stay positive for the first
quarter, but since I look for major foreign policy issues to
potentially dominate the 24-hour news cycle before April, the
outlook for the rest of 2006 is, at best, cloudy. Yes, I do still
believe deflation, not inflation, is the next big monetary
phenomenon; though I admit I’ve missed the timing of this
occurrence badly. But for the sake of giving a prediction, by
summer (give me until August) deflation talk will dominate.
As for equities, due to the fact that earnings will finally
disappoint, certainly with the 2nd quarter numbers at the latest,
stocks will have trouble advancing and many traders will, again,
be swept up in geopolitical headlines. Volatility will also finally
pick up, so at times any forecast will look stupid, including mine.
Wait 24 hours…or a week, or a month.
So I go with the Dow to fall 7%, S&P 500 off 5% and Nasdaq
down 3%. [Heck, after the past two years in particular, we have
to somehow weigh in this new phenomenon…the mid-October to
late November rally.]
And now that I’ve shown my interest rate forecasting prowess in
the instrument that matters most, the 10-year (unless you own an
ARM or interest-only piece of paper), I’ll say we finish the year
at 3.99%. One addendum…somehow we’ll avoid a dollar crisis
once again.
I do still look for the economy to flip, and it could yet do so with
a vengeance, I’m just less sure on timing than I wrongly was in
the past. Aside from the global hot spots, another Katrina
devastating Gulf oil and gas production anew would certainly do
the trick. Otherwise, I see oil gradually trading down to the $45
level by year end, with a big spike in gasoline before summer.
[To a certain extent this is already occurring.]
There, I think I’ve covered most everything. At least I have the
major scorecard items down. Let the criticism begin.
Street Bytes
–Not the greatest of Christmas weeks on Wall Street and it was a
middling month overall as the S&P 500, for example, finished
off a point (1249 to 1248). For the holiday shortened 4-day
trading period, all the major indices lost ground, with Nasdaq’s
losing streak now at four.
There were a few news items of note, listed below, but all
manner of data came in on the Christmas shopping season and
the bottom line is we won’t really know for a few more weeks.
That won’t keep others from taking a stab at it, like MasterCard’s
announcement it saw a rise of 9% in charges, while online
retailers were up about 25%. But another leading indicator had
sales up less than 4% and the granddaddy of them all, Wal-Mart,
said its December same store sales increase would come in at 2-
4%. The initial estimate for the season was a gain of 5-6%,
throughout the retail industry, and I still maintain when all is
tallied up we’ll be below that.
Finally, I also continue to follow three bellwethers; GE,
Microsoft, and Intel. There is no way we rally in any significant
way without the participation of these three, even if some say
they are on the stodgy side and that we’ve rallied before without
them. GE must break through $38 (it closed the year at $35),
Microsoft $30 ($26) and Intel $28-$29 ($25). If all three were to
do so with strength, perhaps we have something we can hang our
hat on.
–U.S. Treasury Yields
12/31/03
6-mo. 1.10% 2-yr. 1.82% 10-yr. 4.25% 30-yr. 5.07%
12/31/04
6-mo. 2.57% 2-yr. 3.07% 10-yr. 4.22% 30-yr. 4.82%
12/31/05
6-mo. 4.36% 2-yr. 4.40% 10-yr. 4.39% 30-yr. 4.54%
The above adds some perspective to the bond market
conundrum. The Federal Reserve first started raising its short-
term Fed funds rate on June 30, 2004, up from 1%, and 13
consecutive ¼-point increases later, one thing is for certain; the
Fed did not expect the long end of the yield curve to move all of
17 basis points.
And now the curve has inverted (depending on the time of day)
for the first time since 2000. What does it mean? Historically it
presages recession, with the long end signaling that the economy
will fall and that inflation fears are non-existent.
But today it’s much ado about nothing, unless the difference
between the 2- and 10-year widens considerably, say beyond 20
basis points. At least this is what I’ll be watching. Should the
economy tank, it won’t be because of the yield curve. It will be
because housing is deteriorating even more rapidly than some of
us thought, and /or a major geopolitical event sends this over-
leveraged world into a tailspin. Remember, should the economy
begin to take on gas, the Fed at least now has room to move
aggressively on the short end and presto! no more inverted yield
curve. [However, if the long end then followed the short end
down as rapidly under this scenario, look out…that’s not just
deflation, it’s potentially Depression.]
For another opinion, PIMCO feels the Fed will be finished hiking
with January’s meeting. As I noted before, Bill Gross is focusing
on housing and sees nothing but bad news on this front over the
coming months which will prevent the Fed from raising rates
further.
Two economists of note (Gross being more of a strategist and
portfolio manager), Ed Hyman of ISI and David Rosenberg of
Merrill Lynch, are both calling for the Fed to be lowering rates
by year end, with Rosenberg forecasting a 3.50% funds rate by
12/06. Both also look for the 10-year to finish up the year at
4.00%, not that these gentlemen have influenced my own
thinking this go around. [Hyman was at 4.00% on the 10-year
for 2005 as well.]
The consensus for year end 2006 among 54 economists for
Business Week is 5.00% on the 10-year, same as ‘05’s forecast,
incidentally, which a trained monkey could come up with at the
cost of a few bananas. But whereas the consensus on crude oil
was $39 by 12/05, this time it’s $53.83 for 12/06.
[By Sunday, 1/1, I will have all manner of historical data for
2005 and the past few years up on my “Wall Street History” link.
It’s a must for stock junkies to clip and save.]
–Energy: The roller coaster ride for natural gas continues. On
Dec. 13 it hit an all-time closing high of $15.37 but this past
week dipped below $11.00 before settling at $11.22. Meanwhile,
crude oil climbed back above $60 ($61.04) and gasoline futures
had a strong week and now sit at $1.71. Regarding this last one,
there are growing concerns already over supply for the summer
driving season.
–ConocoPhillips, Marathon, and Amerada Hess have reached a
joint agreement with the Libyan government to resume drilling
and production activities in the country for the first time since
1986; price tag – $1.8 billion.
–Global market performance: Tokyo, +40%, best year since
1986. London, Paris and Frankfurt…all up 17-27%. But
Venezuela brings up the rear, in more ways than one, losing
32%. Something about uncertainty over Hugo (“Don’t touch
me!”) Chavez.
–Consumer confidence jumped in Germany as new Chancellor
Angela Merkel’s own approval ratings climb. So are consumers
in Europe’s largest economy finally ready to spend again?
–Enron’s former chief accounting officer, Richard Causey,
pleaded guilty to securities fraud and will now cooperate in the
government’s case against former Enron founder Ken Lay and
ex-President Jeffrey Skilling. Heretofore, Causey had been part
of a united defense since the three were first indicted. The trial is
now slated to begin Jan. 31.
–In a long-anticipated move, the Kremlin formally lifted all
restrictions on foreign share ownership in Gazprom, making it a
“must-have” for big portfolios as it’s the world’s largest natural
gas producer with 16% of proven reserves. But, before you get
too excited as to the message this sends, vis-à-vis Vladimir Putin
and an opening up of democracy, remember the Russian
government still owns 51%. [More below.]
–On a related topic, Holman Jenkins, Jr. had the following
thoughts in an op-ed for the Wall Street Journal. Mr. Jenkins
addressed fears most Democrats in the U.S. have when it comes
to Big Oil.
“It accounts for less than 16% of the world’s current production
and less than 10% of the reserves that will supply our needs in
the future. The industry doesn’t reinvest more in energy
development because, bluntly, most of the opportunities are off
limits to it.
“The real powers today are the Saudi state oil company, the
Iranian state oil company, the Venezuelan state oil company, etc.
Not only are governments in control of most of the world’s oil
and gas reserves, but increasingly they decline even to make use
of the technical and management skills of Big Oil anymore.
“This trend is worrisome not because we fear an axis of America
haters might cut off our supply someday (these governments
want our money even more than we want their oil). Rather it’s
worrisome because oil wealth empowers destructive elites and
raises the stakes of political competition in states that, if you look
closely, are all too ripe to earn the sobriquet ‘failing.’
“Down the road traveled by Saddam Hussein’s Iraq now are
headed Vladimir Putin’s Russia, Hugo Chavez’s Venezuela,
Mahmoud Ahmadinejad’s Iran and perhaps the Bolivia of
President-elect Evo Morales. The formula: By deliberately
limiting their nations’ development to the energy sectors under
their control, politicians make themselves the source of all
opportunity and wealth for their peoples. You heard it here: The
world can expect to pay a price in instability for decades to come
thanks to this phenomenon.”
–Further thoughts on the topic of oil and those who control it
from economist Jeffrey Sachs and the Daily Star of Lebanon.
“(The) data show that corruption is highest in oil and gas-
producing countries. In general, natural resources like oil, gas,
diamonds, and other precious minerals breed corruption, because
governments can live off of their export earnings without having
to ‘compromise’ with their own societies. The natural resources
are therefore not only a target of corruption but also an
instrument of holding power. Many foreign companies, intent on
cashing in, fuel the pathology of corrupt regimes by peddling in
bribes and political protection.
“The implications for action are clear. By strengthening civil
society – through legal rights and long-term economic
development – and instituting clear rules to ensure
accountability, political despotism and corruption will be brought
under control. We should be uncompromising, therefore, in our
defense of civil liberties.”
–One more…Brazil’s state-owned Petrobras announced a sizable
new oil find offshore that will eventually make Brazil totally
self-sufficient in crude. But here in the U.S., we will have no
drilling!
–Following are some equity forecasts for 2006. Among a survey
of 76 strategists for Business Week, Prudential’s Ed Keon (he of
the 100% in equities call back in July…up about 3% since then)
says the S&P 500 will hit 1530 by year end. Merrill Lynch’s
Richard Bernstein is on the other end, 1225, while ISI’s Jason
Trennert is at 1380. The consensus for 12/06 is 1347…or a gain
of 8% over this year’s close. One exception is Maxim Group’s
Barry Ritholtz, who has developed a following over the past few
years. He sees a severe decline in the S&P to 880! [6800 for
the Dow.] Lastly, our friend Jim Cramer is at 1400 on the S&P.
By the way, the esteemed Mad Money Maven thought the Dow
Jones would close at 12500 this year. [Sources: Barron’s,
Business Week]
The consensus for earnings on the S&P in ’06 is $85, so if you
slap a reasonable, yet generous, multiple of 16 on that figure you
get an S&P of 1360. But per my comments above, I do not
believe we’ll see the $85.
–Japan cut its national budget by 3% for the fiscal year ending
March 2007. Separately, Japan is still in the midst of a nascent
recovery from a property bubble that burst back in 1991. At the
peak, all the land in the entire country was worth $18 trillion, or
four times the value of all property in the United States. Today,
land in Japan is worth less than half that amount, while the value
in the U.S. is up to $17 trillion. [Martin Fackler / New York
Times] Ergo, if you are in the U.S. bubble camp, you may have
some ammunition here.
–Delta Airlines’ pilots union approved another wage cut, this
one 14%, but a formal contract agreement, with other issues yet
to be settled, won’t be voted on until March.
–But what a move for some of the airline stocks that weren’t
forced to file for Chapter 11 like Delta. Continental’s 52-week
low is $8.50 and it finished the year at $21.30, while AMR’s low
was $7.80 and it closed ’05 at $22.20. A combination of cost-
cutting, strong loads and slightly lower fuel costs off the post-
Katrina peaks have led to the resurgence in share prices. Tell me
where fuel prices will be next year and whether or not there is
any kind of catastrophic terror attack and I’ll tell you where the
airlines trade in 2006.
–Thanks to terrorism, Lebanon’s economy has ground to a halt
with zero growth projected for the year after a 5% gain in ’04.
Tourism is off 13%.
–Interesting piece in the Wall Street Journal on the composition
of Lucent’s earnings. 82% of them for 2005 are thus far from its
pension fund and pension “credits,” not improved fundamentals
in its equipment business. Lucent is one company where its
plan is actually ‘overfunded’ and the accounting rules allow it to
take advantage of this, which further muddies any true picture on
earnings. Of course hundreds of companies play around with the
books in one form or another, which is a big reason why I’m
such a cynic.
–And then you have figures like fund manager Mario Gabelli,
who through his connections in the telecom business, as well as
his knowledge of the rules, earned $hundreds of millions for both
himself and his friends when the government auctioned off
pieces of the radio spectrum for cellphone service. As spelled
out by the Journal’s John R. Wilke:
“(In one instance involving an aerobics instructor) Affiliates of
Mr. Gabelli incorporated her firm (Aer Force Communications),
filed its FCC applications and handled its bidding, according to
documents filed in a civil suit (now winding its way through the
courts)…Through various entities, the documents say, he also
held a large stake in her company, lent most of the money she
bid and profited handsomely on the sale of the licenses. In all,
Mr. Gabelli or his affiliates backed more than a dozen bidders for
radio spectrum, which is a license to use a portion of the
airwaves in a particular region.”
The aerobics instructor’s company paid $18.9 million for five
licenses (getting small business loans from the government as
well as Gabelli’s aid) and then flipped them for $144 million.
There are countless other examples of this and most of Gabelli’s
friends had no clue what they were really investing in. No matter.
–Universal’s “King Kong” is far from recouping its production
costs. I’ve been waiting until after the holidays to see it myself.
–Online retail sales, though up a substantial amount this
Christmas season, still account for less than 6% of overall retail
sales.
–Sirius Satellite Radio passed the three million subscriber level,
adding two million since the signing of Howard Stern a year ago.
–Spain is abolishing the “siesta” for all government workers.
From here on it’s just one hour for lunch, 12 to 1, and not the
traditional 2 to 4. [The workers do currently stay much later.]
Productivity has lagged compared to its western European
competitors despite the total number of hours worked and it’s
hoped the private sector will follow the government’s lead and
adopt the new schedule as well.
I get a kick out of stuff like this. When I started on Wall Street
in 1982, it was still fashionable to have a drink or two at lunch
and of course the afternoon was then a total waste when it came
to getting things done. Thankfully, that was one tradition that
faded away. [Not that I’m saying Spaniards today spend their
full two hours imbibing……………………..of course I am.]
–Guidant received an FDA warning letter regarding further
quality control issues. Nonetheless, shareholders will be voting
in January on Johnson & Johnson’s bid for the company while
Boston Scientific considers whether or not to pursue its counter-
offer.
–Australia’s richest man, Kerry Packer, passed away. Packer’s
$5 billion net worth was accumulated in the media and gambling
arenas and he was quite a sportsman to boot. But his passion for
hamburgers and milkshakes may have been one reason why he
died at just 68, as he battled cancer and kidney disease.
–I have some advice for KIA Motors. Dump your “Save the
Greenbacks” ad campaign. It’s amusing, but it’s never smart to
take a shot at Greenpeace and “Save the Whales.”
–My portfolio: I haven’t made any moves the past month or so,
thus I’ve been mum. But due to moving some capital around,
I’m no longer comfortable giving you a real-time portfolio split,
as it were, so from here on it will be my own simple
recommendation which I’ll track more accurately from month to
month. Don’t look for my 80% cash, 20% stocks mantra to
move much…especially now that cash is finally returning
something in the form of rising money market rates.
Foreign Affairs…this week’s action, specifically
Iraq: The incident where some Sunnis took out 11-14 Shia family
members because they wouldn’t leave the neighborhood is rather
telling. Also the fact that of the 600,000-700,000 Christians in
Iraq at the time of Saddam’s fall, only about half remain; the
exodus due to fear. In an Islamic country such as today’s Iraq,
it’s not good to be a Christian woman, for starters.
This week Kurdish leader Barzani met with Shia religious leader
al-Hakim to try to figure out a way to placate the Sunnis.
But in terms of infrastructure, the situation has never been worse.
Iraqis are receiving about six hours a day of electricity
(compared to 11 not too long ago), the oil industry is getting
slammed, causing major unrest as I write (an 8-fold increase in
gasoline prices hasn’t helped), and now tanker truck drivers are
being threatened. So if the pipeline or refinery isn’t shut down,
there’s no way of delivering the crude, anyway.
Iran: The mullahs are brilliantly stalling for time, claiming they
will now examine Russia’s offer to enrich Iran’s uranium in
Russia. Iran realizes the longer they delay, while at the same
time appearing somewhat conciliatory, the less chance the UN
will levy sanctions against it; which just helps bring them one-
step closer to the bomb.
Israel: Prime Minister Ariel Sharon is prepared to give up more
territory and accept an independent Palestinian state, at least
that’s part of his Kadima Party platform, but not any of
Jerusalem. Sharon also continues to add to settlements on the
West Bank, but the world no longer cares…nor do I.
But of immediate concern is the increased violence, as Sharon
establishes a Gaza “no-go” zone, which will only get worse as
the Palestinian parliamentary elections draw near (Jan. 25) and as
Hamas formally ends its ceasefire on Jan. 1. Then we also have
the strong possibility of internal strife as Israel goes through
what promises to be a chaotic election campaign of its own in
preparation for its critical March 28 vote.
Over on the Palestinian side, Mahmoud Abbas’s Fatah party did
announce it would run a united slate of candidates, while
Washington and Israel are adamant that Hamas not be allowed to
participate; not that either can really do anything about it.
Russia: In the ongoing saga of Gazprom and the Kremlin vs.
Ukraine, Russia wants to charge up to $230 per 1,000 cubic
meters for natural gas, an outrageous increase from the existing
$50 level especially considering Belarus is charged $46. Ukraine
is willing to pay a reasonably higher figure, recognizing current
market conditions, but wants it phased in. [Gazprom piled on by
working out an agreement with Turkmenistan for a large slug of
its natural gas that previously went to Ukraine.]
Of course you don’t have to be a Kremlinologist to see what’s
going on here. Putin is trying to stick it to those countries who
have turned West in their politics and Ukraine happens to have a
parliamentary election in March, thus Russia will do all it can to
embarrass Ukraine’s President Yushchenko and tank the
economy in order to make it harder to beat back pro-Russia
parties at the polls.
Separately, Putin’s chief economic adviser, Andrei Illarionev,
quit, decrying the use of energy as a weapon and the general
slide in democracy.
Add it all up and many of us have but one question for President
George W. Bush. “How the heck can Russia remain a part of the
G-8, let alone assume the presidency as it does on Jan. 1?”
Lebanon: The war of words between Lebanon’s moderate
politicians and Syria is heating up even more, and then on
Friday, a former Syrian vice president, now in Paris, implied
Syria was indeed involved in the assassination of Rafik Hariri.
Speaking on al-Arabiya, Abdel-Halim Khaddam also blasted
President Bashar Assad for blocking economic and political
reforms. [Financial Times] This could be a significant break.
North Korea: No word on resumption of the six-party talks.
Pyongyang continues to threaten to increase its “national defense
capacity, including a nuclear deterrent,” unless financial
sanctions imposed by Washington are first lifted and diplomatic
relations normalized. Fat chance of this happening.
China / Japan: In yet another survey of public opinion, 71% of
Japanese describe relations between the two nations as “not
good” and this week China’s bank chief cancelled a key trip to
Japan due to the ongoing war shrine controversy. Japan’s
Emperor Akihito, in a statement issued on his 72nd birthday, said
Japan should confront its past, which was viewed somewhat
positively in China, but conservatives in Japan said Akihito is a
leftist.
Egypt: Opposition figure Ayman Nour, whose treatment has
been the focus of much attention at the White House, was
sentenced to five years in prison on clearly trumped up charges
of forging petitions. But the Bush administration, outside of
some boiler plate language, has thus far said little in response,
especially considering Egypt not only wants a free trade
agreement with the U.S., but also receives $1.8 billion in aid,
annually, from the American taxpayer. [That’s #3 behind Iraq
and Israel.]
[At first blush, I do not as yet blame the Egyptian government for
its handling of the Sudanese migrants on Friday as 23 were killed
in a clash with security forces. But here is one instance where
I’d like to wait 24 hours.]
Sri Lanka: The 2002 ceasefire was broken in a big way this week
as at least 25 government soldiers were killed in two separate
attacks by rebels. Not good for tsunami reconstruction efforts.
Colombia: FARC rebels here killed 29 soldiers in an ambush of
troops who had been assigned to provide security for workers
involved in eradicating coca plants. As in the case of all rebel
groups, from the Taliban on down, the drug trade is their
primary, if not sole source of income.
Random Musings
–Let’s see…outlays for Social Security, Medicare and Medicaid
account for about 45% of the federal budget these days, and the
latest drug benefit is slated to cost over $700 billion over the next
decade. But somehow we keep avoiding the day of reckoning.
–The New York Times did a piece on the difference between the
Army Corps of Engineers and private contractors in clearing
debris in Mississippi and Louisiana. Guess which one has been
more effective? As Pascagoula’s city manager, who has had to
deal with the government, said, “As long as those homes are
sitting there, somebody’s life is at a standstill. It is dead
stopped.” My sentiments exactly from my recent trip to this city
and the surrounding area. It can’t be repeated enough…debris is
a negative force multiplier.
–Appearing on “Meet the Press” last week, former NBC anchor
Tom Brokaw made a point of saying he and his wife had
assembled a pandemic survival kit of food and water in case
everyone is forced to stay indoors for an extended period of time.
This only makes sense.
–Tiger Woods turned 30 on Friday. You don’t have to like him,
but thank god he came along when he did. Golf was dead from a
spectator standpoint.
–In his controversial book, “Jawbreaker,” former CIA operative
Gary Bernstein blisters now Ret. Gen. Tommy Franks for his
ineptitude in allowing Osama bin Laden to escape capture at
Tora Bora. Any chance I have to bring this up, I will.
–I’m not one to tout or discuss the latest medical theories, but in
all sincerity I have to make an exception when it comes to the
latest data on the painkiller acetaminophen, found in Tylenol and
other drugs. Overuse has been linked to acute liver failure so
you need to take particular care in the dosage. For example,
Tylenol says one shouldn’t exceed 4,000 milligrams of
acetaminophen, or 8 extra strength pills a day. Where people are
having problems (and in some cases dying) is that you forget
how much you’ve had, then add on other medications such as
Nyquil Cold / Flu or Alka-Seltzer Plus Cold Medicine (I swear
by this one) that also contain acetaminophen. So be careful.
–And now, the “Dirtball” and “Person of the Year” awards.
For the purposes of “Week in Review,” the dirtball is awarded to
the one person who has negatively impacted the lives of millions
while shunning all accepted standards of behavior. Past winners
are:
2000 – Robert Mugabe
2001 – Osama bin Laden
2002 – Robert Mugabe
2003 – Saddam Hussein and bin Laden
2004 – Abu Musab al-Zarqawi
And this year…Zarqawi again. No further explanation should be
needed.
When it comes to “Person of the Year,” I feel it has to go to
some political figure; the consequences of governance, or lack
thereof, being central to what we explore here in this column.
And I’m not one to just hand it out when none are deserving. We
started this award in 2001.
2001 – George W. Bush
2002 – no one…citing “unfinished business in Iraq”
2003 – George W. Bush, Tony Blair and John Howard for their
extraordinary leadership
2004 – Afghanistan’s Hamid Karzai for defeating seemingly
insurmountable odds. Yes, the U.S. helped, but Karzai got it
done.
And for 2005, there was no debate in my mind….Israeli Prime
Minister Ariel Sharon.
Think back to the days before Sharon’s courageous move to
abandon Gaza. Israel couldn’t do anything without having the
world almost unanimously condemn it. Today? When was the
last time you heard a true mainstream world leader blast Israel?
When was the last time there was a huge uproar over
settlements? Look at the respect he garnered from the gathering
at the United Nations this past September.
Sharon’s move was not only for the good of his nation, it was
brilliant politically because from that day forward the violence
perpetrated by the Palestinians is out front for all the world to
see, without blinders. Sharon has once and for all exposed them
for what they are…frauds…and anyone with half a brain
understands this.
But now the real hard part begins; both in dealing with the
Palestinians themselves as well as Sharon’s own harsh critics at
home. It’s probably a toss-up as to which threat is greater.
–And I can’t wrap up the year without formally acknowledging
our president for two of the dumber acts in American history:
Opting to say “Brownie, you’re doing a heckuva job” and the
selection of Harriet Miers for a Supreme Court slot. As I noted
above, Bush often leaves you shaking your head.
–Finally, while I take care not to repeat material in this column
that I use elsewhere on this site, I must make an exception in this
one instance.
It seems that there’s a movement afoot by some animal rights
types to do away with elephant exhibits at our nation’s zoos;
some, such as in Philadelphia, San Francisco, Chicago and
Detroit, having already moved their pachyderms to elephant
sanctuaries or are in the process of doing so.
So I’m reading this piece by Robert Strauss in the Washington
Post, thinking that this really makes sense, when suddenly I had a
change of heart. Check out the opinion of Mark Reed of the
American Zoo and Aquarium Association, who says the elephant
controversy is overblown.
“What people forget is that sooner or later, every animal in every
zoo is going to die, no matter how well we treat them. Just
because elephants can walk 50 miles a day, it doesn’t mean they
do – or even want to.”
As Strauss then writes, “(Reed says) that just like humans,
elephants would rather stay put, and they do if they can find
water, shelter and food.”
Mark Reed:
“Some of this is our own fault. We put up signs at the fences
that say an elephant can walk 50 miles in a day and people then
say they have to walk that far. We make sure our elephants get
exercise, but three, four, five miles is plenty, we feel.”
You know, the other night I watched “March of the Penguins”
for the first time. Do you really think those birds wanted to
waddle 70 miles for their food, and then 70 miles back? I don’t
think so. Every nature show you watch, the elephants, hippos,
wildebeest, whatever, are always ambling a gazillion miles for
sustenance. If you placed the food and water in front of them,
don’t you think they’d take it?
“No thanks….I’d rather walk 80 miles through scrub brush.”
Well?
So next time you’re at the zoo, as long as that elephant isn’t
cooped up in a concrete house, he’s probably happier than you
think. [Though it would help if he had cable, I’ll grant you that
much.]
And on that semi-positive note, here’s to a 2006 filled with hope
rather than despair.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed ’05 at $519…12/31/04…$438…12/31/03…$416
Oil, $61.04…12/31/04…$43.45…12/31/03…$32.52
Returns for the week 12/26-12/30
Dow Jones -1.5% [10717]
S&P 500 -1.6% [1248]
S&P MidCap -1.4%
Russell 2000 -1.9%
Nasdaq -2.0% [2205]
Returns for 2005
Dow Jones -0.6%
S&P 500 +3.0%
S&P MidCap +11.3%
Russell 2000 +3.3%
Nasdaq +1.4%
Bulls 60.4 [high for 2005]
Bears 20.8 [Source: Chartcraft / Investors Intelligence]
Happy Birthday to our own Dr. Bortrum.
And a Happy New Year to all of you!
I truly appreciate the support.
Brian Trumbore
