[Posted 7:00 AM ET]
Israel…Iran…Iraq
Early in the week, Israeli Prime Minister Ehud Olmert was
addressing an annual conference on security and he observed it
would be a “historical mistake to let the Palestinians escape their
commitment to dismantle the terror groups.” [Daily Star]
Well, one could say that has become more difficult, wouldn’t
you agree? In an absolute stunner, and further proof that no
matter where you are exit polls are often worthless, the terror
group Hamas, sworn to Israel’s destruction, captured 76 of 132
seats in the Palestinian parliament. The Fatah-based cabinet
resigned and the fate of Palestinian President and Fatah leader
Mahmoud Abbas is very much in doubt, even as the U.S. and
Europe urge him to stay on. Fatah is now in turmoil, there are
already clashes in the streets, and civil war is a very real danger.
Ret. Lt. Col. Ralph Peters summed up the situation in an opinion
piece for the New York Post, in also attempting to make meaning
of Hamas’s victory in terms of the United States and the Bush
administration’s stated mission.
“First, the era of strongman rule is ending. Democracy ‘is’ on
the march. Yet, from sheer inertia we often find ourselves on the
side of the old, collapsing order – while our enemies grasp the
potential of the ballot box better than we do.
“Second, we must be far more aggressive in spotting, publicizing
and fighting corruption around the world – no matter the short-
term costs. Corruption is the most insidious enemy of the rule-
of-law democracy.
“Third, we have to avoid knee-jerk reactions. By reflexively
condemning electoral outcomes we don’t like, from Venezuela to
the Middle East, we only make heroes of our opponents – while
sounding like hypocrites ourselves.
“President Bush’s comments yesterday struck about the right
note, accepting the results and praising the positives, while
staying noncommittal on future relations.
“Fourth, democracy requires patience. Whether in Iraq or
Bolivia, we can’t force voters to make the ‘right’ choices.
Electorates need to make their own mistakes – and learn from
them.
“Give Hamas time to discover how much harder it is to govern
than to oppose a government. See if the movement evolves – or
defaults to violence. In power, Hamas will have to deliver the
goods. And better lives for Palestinians can’t be achieved
through terrorism.
“The ball’s in Hamas’s court. If we don’t like their serve, we’ve
got a powerful backhand.”
Ah, yes…the topic of corruption. Long-time readers recognize
my extensive use of this word, no doubt. What I would add to
Mr. Peters’s piece is that our own system is full of it, from Main
Street to Wall Street to Capitol Hill. But at least it’s not on the
level of, say, Russia, where businesses are shaken down on an
hourly basis. Nor is it anywhere near the level of what the
Palestinians have faced, ever since the West decided to play ball
with Yassir Arafat and plied him with $billions, most of which
he squirreled away himself.
But it would seem it’s taken this long for the Palestinian people
to wake up. On Friday there were calls for Fatah officials to step
down and stand trial for stealing funds intended to provide basic
services.
Hamas, on the other hand, similar to Hizbullah in Lebanon, is
viewed favorably among large segments of the population, as the
vote obviously showed; a fact most of us find hard to believe but
one nonetheless. The two exploit the corruption and the failure
to care for the people, by the existing government, by
aggressively building schools and hospitals, for example. Of
course they then take advantage of this popularity to spread their
own brand of hatred to a following whose minds are forcibly
closed.
As for Israel, it’s now faced with institutionalized threats from
Hamas, Hizbullah, Syria and Iran. Most of the commentary
outside the region is focused on the longer-term and hopes for
positive change over time. But Israel’s future is dependent on
the short-term. It is a survivor and its skills on this front are the
best. But today, the people and its leaders are being tested like
never before.
Iran
It would appear Israel is going to receive little help when it
comes to Iran and its nuclear weapons plans. On Feb. 2, the
International Atomic Energy Agency meets to discuss the issue,
including whether or not Iran’s defiance of the IAEA and the
U.N. should be referred to the Security Council for possible
action, including sanctions. But the chances of the referral
getting to New York are minimal.
Even President Bush has joined China in urging Iran to accept
Russia’s proposal to enrich uranium on Russian soil, thus
allowing Tehran to continue with its “civilian nuclear program.”
I purport to have no answers in this incredibly difficult situation,
but I do know this. To trust Russia to pull off its share of the
responsibility in keeping Iran on the straight and narrow is a
huge mistake. But the White House is desperate to reach a
diplomatic solution to the impasse and it appears today this is
where we’re headed.
This week former Secretary of State Colin Powell was on a
speaking tour in Britain and was interviewed by the Times of
London. Despite the fact Iran has admitted to cheating for 20
years, Powell said it was “years away” from having the bomb; in
other words, relax…calm down.
Newsweek’s Fareed Zakaria, supposedly an expert on the Middle
East, said Iran’s program “is not sophisticated.” How can one
make that claim when A.Q. Khan was advising Iran?!
When it comes to the potential number of sites where Iran could
be working on the bomb, I have seen the figures 25, 40 and 70 in
three mainstream publications. I admit myself to perhaps having
been over the top in saying “hundreds” a few weeks back, but
more than 100 may not be far off in actuality, depending on how
one defines the work taking place around the country.
The New York Times’ David Brooks observed, this “tortured
debate” over Iran will be going on for years to come, right “up to
the moment the Iranian bombs are built and fully functioning.”
In a question and answer session with the Tehran Times, Ali
Larijani, the Secretary of Iran’s Supreme National Security
Council and a name everyone will be familiar with shortly, was
asked about Russia’s and China’s support for Iran’s position.
“We are focused on our own national capabilities. Go to the
streets; ask people – university professors, laborers, government
employees – their opinion about Iran’s rights to nuclear
technology. There is a national will over this.
“The West is making a mistake by putting itself against the
national will. Europe could have lots of relations here. They
currently, for example, have gas shortages in their cold weather
and we could help them over this.
“Europe can also have investment in our oil sector….(but) if they
think any government in Iran could give up nuclear technology,
they are mistaken.”
Question: Are you taking measures against the possibility of U.S.
or Israeli attacks?
Larijani: “Yes, we have taken measures. The Israelis have a little
bit of wisdom not to make such a mistake. The U.S. also has a
little bit of wisdom to realize this would change the regional
situation in ways that will not benefit the U.S.”
Lastly, Gerard Baker writes a column for the Times of London
and this week he offered up the possibility that the West will at
the end of the day need to go to war to stop Iran.
“If Iran goes nuclear, it will demonstrate conclusively that even
the world’s greatest superpower, unrivalled militarily, under a
leadership of proven willingness to take bold military steps,
could not stop a country as destabilizing as Iran from achieving
its nuclear ambitions.
“No country in a region that is so riven by religious and ethnic
hatreds will feel safe from the new regional superpower. No
country in the region will be confident that the U.S. and its allies
will be able or willing to protect them from a nuclear strike by
Iran. Nor will any regional power fear that the U.S. and its allies
will act to prevent them from emulating Iran. Say hello to a
nuclear Syria, Egypt, Saudi Arabia.
“Iran, of course, secure now behind its nuclear wall, will surely
step up its campaign of terror around the world. It will become
even more of a magnet and haven for terrorists. The terror
training grounds of Afghanistan were always vulnerable if the
West had the resolve. Protected by a nuclear-missile-owning
state, Iranian camps will become impregnable.
“And the kind of society we live in and cherish in the West, a
long way from Tehran or Damascus, will change beyond
recognition. We balk now at intrusive government measures to
tap our phones or stop us saying incendiary things in mosques.
Imagine how much more our freedoms will be curtailed if our
governments fear we are just one telephone call or e-mail, one
plane journey or truckload away from another Hiroshima.
“Something short of military action may yet prevail on Iran.
Perhaps sanctions will turn their leadership from its doomsday
ambitions. Perhaps Russia can somehow be persuaded to give
them an incentive to think again. But we can’t count on this
optimistic scenario now. And so we must ready ourselves for
what may be the unthinkable necessity.
“Because in the end, preparation for war, by which I mean not
military feasibility planning, or political and diplomatic
maneuvers but a psychological readiness, a personal willingness
on all our parts to bear the terrible burdens that it will surely
impose, may be our last real chance to ensure that we can avoid
one.”
One last item. The details for this terrific Russian plan that
everyone is now trumpeting are not scheduled to be worked out
until late February, and Iran’s Larijani is expressing misgivings
anyway. Once again, Iran is brilliantly stalling for time.
Iraq
The election was on Dec. 15 and we still don’t have a
government here. In the interim, the “brain drain” continues as
the vast majority of professionals, in the truest sense of the word,
leave before they are kidnapped for ransom. And as every study
has shown, most of which are from the U.S. government, the
reconstruction effort has been a disaster, no matter what
President Bush tells us in the “State of the Union” address on
Tuesday. In just one example cited by Newsweek, the U.S.
allocated $1.7 billion for oil projects and just $77 million worth
has been completed. Chalk it up to the insurgency and security
concerns we didn’t anticipate.
It also wasn’t particularly reassuring, though hardly a surprise, to
find Shia cleric Moqtada al Sadr in Tehran this week where he
pledged to come to Iran’s aid if attacked. Don’t underestimate
the chaos the militias could create in Iraq were this to come to
pass.
And then you have the issue of the Green Zone in downtown
Baghdad. Greg Grant wrote the following in Defense News:
“As car bomb attacks and suicide bombers creep ever closer to
the heavily fortified Green Zone…Iraqi insurgents are testing the
security of the country’s seat of power in preparation for a large-
scale assault, U.S. military sources said.
“Unable to blast their way through the zone’s heavily defended
entrances, insurgents have enlisted Iraqi prostitutes and children
to gather intelligence within, these same sources say.”
Despite the fact security is tight, with multiple checkpoints,
“U.S. sensitivity to Islamic customs also creates gaps in the
defenses. Women and children, who don’t receive the same
scrutiny as military-aged males, are able to slip past
checkpoints….
“The insurgents are exploiting these gaps. In recent months,
sources said, insurgents have begun to use women to transport
munitions and other contraband, and to smuggle explosive vests
to bombers in Baghdad safe houses….
“The recruiting of prostitutes has been going on since at least last
spring, the sources said. Wooed with money or threatened with
death, the women are instructed to gather what information they
can from their customers….
“The sources said the women pass the photos and information to
insurgent sympathizers working as Iraqi police, who are able to
move through military checkpoints without being searched.
Once outside the Zone, these policemen pass the materials to
insurgent cells.”
Not that any of this should be a great surprise, but in terms of the
American public’s support of the war effort, one catastrophic
attack in the Green Zone could represent the final tipping point in
maintaining our forces there at significant levels.
But back to the formation of the government and the current
horsetrading for influence, the Eurasia Group’s Ian Bremmer had
the following thoughts in the Daily Star (via the Financial
Times). Will the Shia, Sunnis and Kurds unite behind a
functioning central authority? Short-term, yes. But a year from
now Iraq will be a much less stable place, according to Bremmer.
While all three won’t move immediately to undermine federal
authority:
“(The) central government in Baghdad won’t have the legal or
economic means to challenge their local power. In essence,
while all of Iraq’s factions have a strong interest in promoting a
central government that appears fully functional, that
government’s powers will in fact be limited.
“But, in the longer term, those limits on federal power will push
Iraq toward a sectarian scramble for power and revenue. Article
11 of the Constitution declares that: ‘All that is not written in the
exclusive powers of the federal authorities is in the authority of
the regions.’ That formulation all but pits the central government
and regions against one another in a battle for political
supremacy.
“Similarly, under current law, soldiers answer not to Baghdad
but to regional powerbrokers, while the Constitution guarantees
local governments the right to pocket the revenue from new oil
fields within their jurisdiction. In fact, although the central
government has the authority to collect the revenues generated
by existing fields, there is no law to prevent local officials from
modernizing old sites and claiming that they are new….
“More worryingly, when Shiites, Sunnis, or Kurds decide that
their elected officials are not delivering the promised perks and
protections, they are likely to look beyond politics to advance
their individual interests. Some Shiites may turn to militia
leaders, Sunnis to insurgents, and Kurds to leaders demanding
independence.
“At that point, the future of an independent Iraq itself will be
called into question. Any separatist moves by Kurdish leaders
would bring Turkey into Iraqi politics. At the same time, the
protection that American forces offer Iraqi officials will diminish
as troops are gradually withdrawn, and Iran will race to fill the
security vacuum.”
Lastly, I caught Bob Schieffer’s closing commentary last week
on “Face the Nation.” It’s an opinion I share…and not just with
regards to Iraq.
“Let’s get one thing out of the way first: Paul Bremer is a patriot
who took a thankless and dangerous job. For one year he was the
top American official in Iraq and it was his responsibility to get
the country to the point that the Iraqis could at least hold an
election.
“Now he has written a book, which is something every person
who holds such a position owes to history, and this book is his
version of history, which is what it should be.
“But here’s my problem. NOW he tells us that early on he
realized there were not enough troops on the ground in Iraq to
carry out the mission and that he tried to convince the Secretary
of Defense of that.
“I have no quarrel with this. In fact, I agree with him. My
problem is he never said such a thing publicly at the time. To the
contrary, when he appeared on this broadcast and in other forums
he always took the government line that troop levels were
adequate. He said that as Americans were dying.
“More and more, that’s the drill. Officials say one thing at the
time, but we must wait for the book to find out what they
REALLY thought.
“Loyalty is to be admired, but towing the company line when we
believe it to be wrong is no virtue. In a world where spin rules,
we may have forgotten that.”
Wall Street
Just another quiet week for the world’s markets…NOT! No
doubt, we seem to love when terrorists win elections and when
mullahs hoodwink the rest of us into thinking they only intend to
have a nuclear program for civilian purposes. After a sloppy
time of it two weeks ago, largely because of Iran and earnings
disappointments, stocks were re-energized as the preponderance
of companies reporting this week were relatively upbeat and the
Street ignored the geopolitical angles.
Among the better reports were ones from Caterpillar, United
Technologies, SAP, Taiwan Semiconductor, Sony, Microsoft,
Procter & Gamble, Broadcom, and Honeywell; a nice,
representative sampling. On the negative side you had Johnson
& Johnson, Texas Instruments, Dupont and General Motors.
But in almost every case, no matter how optimistic you want to
be, few companies were actually touting top line revenue growth
exceeding forecasts. In fact some were merely in line with
expectations yet were rewarded nonetheless, seemingly because
they did not “miss” and nothing else. Certainly the guidance for
the current and future quarters was for the most part also nothing
to write home about.
And no doubt the initial report on fourth quarter GDP, up a
measly 1.1% (when 2.8% was forecast) was a shocker and
provided those of us in the slowdown camp some ammunition.
But the numbers are going to be all over the place this year,
unlike China’s “managed” figures that resemble an Olympic
competition…9.8, 9.9, 9.9, 9.8…
There are some estimates, for example, of growth in the 5%
range in this current quarter and my game is to look beyond that
kind of timeframe. So I’ll give the bulls this one, if necessary.
But look out afterwards for the still ever-present hot spots that
threaten to send everyone cowering; including the re-emergence
of bird flu when our avian friends migrate back to share their
infections with a new group of unsuspecting victims.
One item in the GDP report that was of particular interest has to
do with business spending, up just 3.5%; though most “experts”
believe it has rebounded strongly in January.
And then you have real estate, where the data on new and
existing home sales was mixed (the former up, the latter down),
but at the same time the median price of a new home fell to
$221,800 from $226,800 in November. In other words, the trend
is still down in this critical sector and its impact will be felt in
consumer spending on an increasing basis.
This coming week is a big one; OPEC meets, President Bush’s
“State of the Union”, the aforementioned IAEA hearing on Iran,
and Alan Greenspan’s swan song at the Federal Reserve. It’s
possible some of this will be well-received; then again, it may
not.
In terms of OPEC, it appears the cartel will not cut production as
member-state Iran desires; even though spring (when any cuts
would go into effect) normally sees lower demand for the
product. Of bigger importance the past week was the Saudis’
trip to China, where Crown Prince Abdullah was working on not
just oil contracts with his hosts, but also acquiring missiles; the
latter according to defense strategist Richard Russell. China, in
turn, continues to try and lock up long-term energy relationships
with every nation on earth that takes yuan. Soon, its
representatives will be in your neighborhood, asking if they can
scoop up the oil from under your car.
As for the president, he faces a public that refuses to give him
credit for the economy’s successes. The high-profile job losses
at G.M. and Ford, pension issues, and still rising health care costs
are but a few items that impact both the pocketbook and the
psyche.
Then there’s Alan Greenspan. A long-time friend from the
brokerage industry, Mark R., called to say “I hope you’re going
to write about his legacy.” Understand Mark and I have
probably discussed Mr. Bubble, oh, about once a week since the
chairman took the helm at the Fed in Aug. 1987.
I have this giant folder in my office with Greenspan “stuff” and I
don’t even feel like delving into it….though I’m also not about to
throw it out. Academicians and economists far smarter than me
will be writing books on Greenspan’s stewardship for decades to
come, but I guess I have to throw in some brief comments for my
archives.
The past 18-plus years have largely been good ones for the
United States of America. Just two relatively minor recessions
and the longest expansion in U.S. history. Growth has not only
been strong but inflation has been low, and as my friend Harry
Koza wrote in his column for Globe Investor Gold [Note: Harry
writes from a Canadian perspective]:
“When Mr. Greenspan became Fed head…Hard as it is to
imagine today, Germany and Japan were the pre-eminent global
economic powers, with the conventional wisdom being that
America’s day was over and it was only a matter of time before
Japan owned the whole country anyway.
“But Mr. Greenspan saw that a major shift in productivity
sparked by computers and technology was already under way.
He was right. Productivity growth from 1996 to 2003 was
double the historic average.”
Alan Greenspan was also a crisis manager. From Black Monday,
two months after he took office, to the Mexican and Asian
currency crises, to Russia and Long-Term Capital Management,
he flooded the system with liquidity and / or used the powers of
persuasion to get key players to work together before the system
totally imploded.
But as the Economist noted, “Investors’ exaggerated faith in his
ability to protect them has undoubtedly encouraged them to take
ever bigger risks and pushed share and house prices higher.”
[Irwin Stelzer / The Weekly Standard]
Therein lies the crux of the matter. In addition to the tech
bubble, well-chronicled in these pages, today’s housing bubble is
also a creature of Greenspan’s making, but it’s going to be years
before we know the full extent of his legacy on this front.
To put it another way, as Nell Henderson of the Washington Post
did, Greenspan’s legacy will be judged “by the economy he
bequeaths.” And here it’s all about debt. Lots and lots of it. In
fact our reliance on debt, both at the federal and personal level
(and everything in between), is unsustainable…a fact any sane
person acknowledges. Greenspan, ever a political animal,
nonetheless never sat President Bush down to tell him, “Hey,
would you freakin’ take out that veto pen …you know, the one
over there…and start cutting back on this pork barrel
spending?!” That, too, is going to be part of his legacy.
[Actually, both of theirs.]
Oh, to be sure Greenspan’s covered his butt with all kinds of
speeches preaching fiscal discipline, but while he was effective
in supporting tax cuts (which I supported as well), he refused to
help with the heavy lifting on the other side of the ledger.
Finally, there is a significant percentage of Americans who either
have not benefited one iota from this economy or are about to get
slammed because of their ill-conceived financial plans and no-
interest mortgages. This isn’t about class warfare and
Democratic vs. Republican constituencies, as much as some will
make it out to be. It’s about our culture of risk-taking, as the
Economist opined, and through his interest rate policies and the
refusal to raise margin requirements or crack down on the
mortgage sector, Alan Greenspan is deserving of his share of the
blame when this economy flips. But don’t worry; if you disagree
just wait 24 hours, as I’m fond of saying. I’ll be sure to present
all sides of the debate over the coming months and years.
Street Bytes
–The market reversed virtually all of its losses from the previous
week with the Dow Jones gaining 2.3% to 10907, the S&P 500
picking up 1.8% (1283) and Nasdaq advancing 2.5% to 2304.
Earnings were the driver. And you had some other news that
helped market sentiment such as the IPO for Chipotle Mexican
Grill, which doubled, as well as the world’s largest steelmaker,
Mittal, making a play for #2, Arcelor.
And no doubt this rally is global and much of the growth is
China-centric. In fact, China is now estimated to be the world’s
4th-largest economy, behind the U.S., Japan and Germany,
having passed the UK, France and Italy while no one was
looking.
The government has also clearly mastered the numbers game, as
alluded to above. GDP growth in 2003 was 10.0%, it was 10.1%
in 2004, and for ’05 it’s coming in at 9.9%. As one analyst put
it, the 9.9 print is too “convenient.” Anything higher would
scare a lot of investors into believing the economy is running too
hot.
I, on the other hand, still believe a situation is developing here
where there is excess capacity, the banking sector will be hit hard
by bad loans, and China will be increasingly forced to dump
more and more products on the world market, thus exporting
deflation. I know, I know….this is a ways off…but I’ll be
proved right if it takes me another ten years, by god!
–U.S. Treasury Yields
6-mo. 4.55% 2-yr. 4.49% 10-yr. 4.51% 30-yr. 4.69%
After trading in a narrow range for some time, rates rose sharply
on the feeling the Fed may not be finished after Tuesday’s rate
hike, that inflation is a growing problem, and the fact a $22
billion auction of the 2-year didn’t go off nearly as well as
planned. So the 10-year is back over the 4.50% level. None of
this is good for the housing sector.
–Consumers are catching a break in one area. While crude oil
remains stubbornly in the $60s, natural gas has collapsed from a
high of $15.37 just six weeks ago to the $8 level. It’s all about
the mild winter (the warmest on record for Duluth, MN, for
example…thanks, Trader George) and a resulting gas glut.
–What a horrible week for the U.S. auto industry and even a
contrarian has to wonder if this is really the bottom. Ford, as
expected, announced sweeping layoffs as part of a massive
reorganization, but the news was even worse than anticipated; up
to 34,000 or 28% of its workers in North America. Then
DaimlerChrysler announced it was laying off 6,000 over the next
three years and the final blow was General Motors’ $4.8 billion
loss for the fourth quarter. That’s with a ‘b’. If only Carl Sagan
were still around.
–Disney acquired Pixar for $7.4 billion and Steve Jobs is now
Disney’s largest shareholder. Otherwise, these media deals bore
me to tears because of the amount of coverage they receive from
the, err, media.
–Last week I wrote that Google, like its Web brethren, had
kowtowed to China in terms of how business is conducted in that
country. If you thought I was perhaps jumping the gun a bit,
you’re partly right. But a few days later it all came together,
didn’t it?
Heretofore, Google’s search engine in China was subject to
blocks and the speed was severely impacted, so now it has
launched a new version that China will be able to censor;
including such terms as Falun Gong, Tibet, Taiwan
independence and “democracy.” Google is claiming it sought to
make its platform accessible to the masses. In a statement a
company spokesman said:
“In deciding how best to approach the Chinese – or any – market,
we must balance our commitments to satisfy the interests of
users, expand access to information, and respond to local
conditions.”
Search results will be removed based on local laws, regulations
or policies.
“While removing search results is inconsistent with Google’s
mission, providing no information [or a heavily degraded user
experience that amounts to no information] is more inconsistent
with our mission.” [South China Morning Post]
Of course no one should be surprised. U.S. companies have been
selling out to the Chinese for decades now, just as their
European, Latin American, etc. brethren have. From the Web to
financial institutions to defense contractors.
I have long felt we needed to be aggressively engaged with
China, including support for their admission to the World Trade
Organization. But at the same time I’ve had the naïve belief that
Washington needs to continually hold China’s feet to the fire on
the issue of human rights. We have seen little of that from the
Bush White House, and of course we should expect zero from
Corporate America.
But on a separate matter, and as a follow-up to some of my other
comments last week on paid search, I was reading a piece in
Business Week on how excited Vanguard, the mutual fund giant,
was with its experience on Google.
“It turns out that with AdWords, Vanguard in November spent
less than 50 cents per click, one-tenth that of some rivals, and
14% of Net surfers exposed to the ad clicked through to its Web
site. That performance beats the response rate from a typical
direct-mail effort, for example, of about 2%. And it’s why
Vanguard upped its Net ad spending by 33% since 2003.”
Vanguard, like all the others, will wise up. For starters, you have
a hard time convincing me of that 14% number. My own
experience with paid search (outside of the crooked example I
used last week) is that the click-through rate is well below 1%
(and I was on the home page of the sites involved).
–I have a good friend who works for German business software
giant SAP and in reporting its great earnings for the 4th quarter,
the company estimated license sales growth of 17% in 2006; a
rather aggressive target in an arena where confidence and the
environment can change in a heartbeat. But it’s a good marker to
lay down for the sales force, eh?
–Goldman Sachs (7.5%), Allianz (2.5%) and American Express
(0.5%) have bought a collective 10% stake in China’s largest
financial institution, the Industrial and Commercial Bank of
China.
As for Amex itself, I see where its new Ameriprise financial
advisor division got off to a shaky start as a laptop with
unencrypted account information, including Social Security
numbers, was stolen from an employee’s car. The employee was
fired. If this had happened in China, however, he would have
been executed.
–KPMG conducted a survey which found that 9 of 10 company
directors viewed acquisitions as successes, but only 3 of 10
actually created shareholder value. “With asset prices rising,
purchasers today have to reap 43% of their targeted synergies
just to break even on deals.” [Patrick Hosking / London Times]
–Johnson & Johnson passed on raising its bid for heart-device
maker Guidant with Boston Scientific emerging victorious…or
so the latter’s directors would have you believe. Meanwhile, the
FDA criticized B.S. for “ongoing systemic violations” of its
quality control standards.
–In Japan, authorities raided the offices of Yamaha Motor Co.
over its export of small helicopters to China that the government
believes have military applications. [See Google et al above.]
Yamaha denies this.
But then, as expected, Japanese officials took Livedoor CEO
Takafumi Horie into custody on fraud charges. The Internet titan
and three other company executives face a laundry list of
allegations including misrepresenting the cost of some of its
acquisitions in order to gussie up the balance sheet and earnings.
The scandal, though, also touches Japanese politics as many
elected officials not only sought Horie’s endorsement but
campaigned for him when he ran a losing candidacy for
parliament. [Shares in Livedoor, incidentally, are off 80% from
their highs.] Yet after scaring the Tokyo market big time when
Livedoor’s problems first came to light, by week’s end the
Nikkei index was at a new multi-year high.
–The U.S. Supreme Court refused to hear an appeal from
Research In Motion, makers of the Blackberry, in its patent
infringement suit that could still lead to users being blocked.
–The FTC fined data broker ChoicePoint $15 million for its data
security breach last year that has led to at least 800 cases of
identity theft thus far.
–Boy, I can be an idiot. The last time I purchased a Dell
computer I told you it was my last because of immediate product
issues, but the other day I went ahead and bought another. Doh!
After booting it up, I had problems with my settings, I talked to
Dell, and the two of us couldn’t come up with a solution. So I’m
getting a new one. The hardware is defective.
But while I had this gentleman on the phone (a good kid, and
American…the only reason to recommend Dell on the support
side versus others you all deal with), I told him directions on
installing the PC weren’t included with mine and how miffed I
was at that. He proceeded to tell me that the information is now
on the Web.
“Well how would you access the information if you couldn’t put
the computer together in the first place?”
“A lot of us have reservations about that one, sir.”
Good grief.
–CBS and Time Warner’s Warner Brothers Entertainment unit
are shutting down the UPN and WB networks to form a single
one. At 47 years of age, I’m out of their demographic and can’t
remember the last time I watched anything on either.
–Back to General Motors, 149-year-old investor Kirk Kerkorian,
who sold a large portion of his stake in the automaker last
December for tax purposes, bought back in and now owns about
10% of the shares through his investment vehicle. Legend has it
Kerkorian was a drummer boy at Antietam, though I haven’t
been able to confirm this.
[Of course I admire Mr. Kerkorian for his energy but when I get
to be his age, the last thing I’ll want to do is get all aggravated
over a car company that’s losing market share by the week.]
–When questioned on the state of the U.S. auto industry by the
Wall Street Journal, President Bush said G.M. and Ford need to
develop a “relevant” product and not wait for Washington to bail
them out of their pension difficulties. Right on, Mr. President.
–Shares in Pfizer rose on word its Exubera therapy has been
approved by the FDA; Exubera being the first inhaled form of
insulin for diabetics.
–No wonder Caterpillar is kicking butt. Forget China, just look
at all the digging taking place up in Alberta’s oil sands. You see
those giant earthmovers and trucks hauling the stuff around? Ka-
ching…ka-ching.
–Uh oh…new computer virus thanks to our friends at Microsoft.
Here’s what to look for as “blackworm” winds its way through
the global network.
“Though the virus has appeared in various forms, some of its
common subject headers are: hot movie, Miss Lebanon 2006 and
dsc00465.jpeg. It also promises sexually explicit photographs
with a Kama Sutra theme. Users can detect if their computers
are infected if an unknown ZIP file suddenly appears on their
desktop, or if they are unable to update their antivirus software,
since the virus disables it.”
[Christopher Rhoads / Wall Street Journal]
I’m just sorry Miss Lebanon has to be associated with this mess.
–From an op-ed in the Journal, Vanguard Group founder Jack
Bogle on the World Economic Forum at Davos, which he is not
attending.
“(The) Forum exults that among its select horde of 2,340
participants are a record 735 chief executives, chairmen and
CFOs, ‘the highest figure of corporate leaders ever.’ With all
due respect, I won’t miss glad-handing most of them. They get
paid as if they’re solely responsible for their firms’ success, and
even if they fail, they get handsome rewards. In 2004, their
compensation rose another 39% to 475 times that of the average
worker – the guys and gals who get out of bed every morning
and do their jobs, with never a ride on the corporate jet whose
cost is paid 60% by shareholders and 40% by taxpayers. Truth
be told, most CEOs I’ve met are greatly overrated. But I don’t
complain; I may have been the most overrated of all.”
Personally, I just look at the pictures from Davos and think,
‘these are the last people on the planet I’d want to have a beer
with.’
–After a series of escapades that gave Wall Street another black
eye, the NASD will not set new limits on gifts and entertainment
when it comes to the brokerage industry wining and dining
clients and prospects. Instead, the NASD wants firms to set their
own rules, such as no lap dances after 11:00 p.m., or a maximum
$50 tip…you know, things like that.
–After previously warning its earnings report would not be great,
Lucent formally acknowledged revenues were down significantly
for the past quarter. The other day I suggested the company sell
the giant copper roof at its Murray Hill, N.J., headquarters;
copper continually hitting all-time highs these days. But my
friend Jimbo had another revenue raiser; sheep farming on its
massive lawn, which would in turn also reduce landscaping
costs. Both Jim and I are available should CEO Patricia Russo
desire other ideas that can help spur a comeback.
–My portfolio: I’m drinking premium beer these days, thanks in
no small part to my new best friend Jim Cramer after he
recommended my carbon fiber stock. I did, however, sell a large
‘call’ position in it because of the time element, but I continue to
hold a sizable amount of the common.
–Finally, here’s a story from the AP on Friday:
“When dairy farmer Gary Boyke looks out at the manure his herd
produces, he sees the prospects of profits rather than waste, odors
and water pollution.
“Boyke is one of a growing number of farmers turning animal
waste into energy, and he’s spreading the word to others….
“Boyke….said he gets two to three times the energy he needs
with an anaerobic digester, which uses bacteria on manure to
produce a gas containing methane to power generators.”
Don’t look for the president to discuss this as part of his new
energy plan during the “State of the Union” on Tuesday;
‘anaerobic digester’ being perhaps difficult to pronounce.
Foreign Affairs
Russia: If you were previously wondering why I’ve been
spending so much time on this country the past few weeks in
particular, it all should be coming into focus today because it’s
increasingly clear the West is dealing with a criminal regime.
How else can you explain last weekend’s sabotage on Georgia’s
key gas pipeline and electricity transmission line in a near
simultaneous attack, with both under Russian control near the
border between the two? The Kremlin blamed it on Chechens.
There isn’t anyone in the rational world who is falling for this.
By week’s end, Georgian President Mikhail Saakashvili faced a
true crisis as his nation’s gas reserves were depleted and the
people plunged into darkness, with no heat in the dead of an
abnormally cold winter. Of course Georgians partially blame
their government for not protecting them and the nation’s energy
assets and the U.S. needs to be concerned because it could easily
lose a key ally in the political turmoil Moscow’s intentional act
has created.
At the same time, Russian President Putin is using a spy flap
with Britain (the kind that occurs all the time) as a cover for
cracking down on non-government organizations, NGOs, such as
the Helsinki Group which monitors human rights abuses. All
you need to know here is that with Putin’s direct involvement
dissent is being crushed at all levels.
But on the issue of Iran, U.S. News & World Report’s Mort
Zuckerman had the following take on Moscow’s help with the
nuclear facility at Bushehr. It’s a lesson the EU-3 and the U.S.
don’t seem to want to learn from.
“The Russians had to know that the work at Bushehr was not for
peaceful purposes, as the Iranians claimed, yet it has gone on
assisting Iran in its grotesque deceptions and patently false
protestations. When I challenged Putin on his support for the
Bushehr program, he responded, ‘Why shouldn’t we sell it to the
Iranians if the Germans, the British, and the French would be the
alternative suppliers if we didn’t do it?’
“But they wouldn’t – and didn’t. The Europeans have sincerely,
if naively, tried to stop the process of uranium enrichment
because they know that when Iran learns to make enough
uranium hexafluoride, it will finally be at the ‘point of no return,’
meaning it could prevent the possibility of outside intervention.
“Equally revealing – and deeply disturbing – is the fact that
Russia, under Putin, has encouraged Iran to tough it out with the
International Atomic Energy Agency. The agency has only
persuasive power, but Russia has refused to condemn Iran’s
nuclear work and resists American and European efforts to force
the issue at the U.N. Security Council, which could impose
economic sanctions….
“Some argue that bringing pressure on Iran weakens the moderates
there. What moderates? And just who’s prepared to gamble on that
kind of wishful thinking? Military action, such as bombing the
Iranian plants with cruise missiles and strike aircraft, would be
justified in the circumstances. But that is hugely difficult
politically, and covert action is very difficult operationally.
“Still, the risks may have to be taken because the alternative is so
awful. There may now be a window of opportunity for effective
preventive action, but this window is more likely to be measured
in months than years.
“We must urgently find a way to persuade Moscow to reinforce
the civilized world rather than subvert it.”
Mr. Zuckerman isn’t holding his breath, nor should you. In the
meantime we have this farce; Russia as head of the G-8 for 2006.
Syria / Lebanon: President Assad continues to snub his nose at
the U.N., rejecting its calls for him to be interviewed in the
assassination of Lebanon’s Rafik Hariri while citing national
security. And in Lebanon, Druse leader Walid Jumblatt seems
hell-bent on being martyred by year end. Jumblatt, whose father
was himself assassinated, labeled a recent speech by President
Assad “a clown show.”
As for Hizbullah, its leader, Secretary General Nasrallah,
delivered his own speech defending his organization’s resistance
movement.
“Those who dream of eliminating Hizbullah from the political
scene are falling under a deep illusion,” adding Hizbullah is not a
“gangster or a corrupt component of our society. To those who
follow the dictates of the foreign powers (ed. he’s pointing to the
likes of the U.S. and France), we say it is about time to name
their actions clearly and expose their real stances regarding the
country’s sovereignty and independence.”
Assad said deteriorating relations between Syria and Lebanon are
part of a “global plot” against the Arab world and that “Syria will
always remain Lebanon’s big sister.” [Daily Star]
Canada: Stephen Harper and his Conservative Party captured just
36% of the popular vote but it was enough to win the election
and 124 of 308 seats in parliament. Unfortunately, Harper now
has to form coalitions if he is to achieve even a part of his
legislative agenda. I’m far from an expert here, but it seems
pretty clear there will be no massive shift to the right, despite
Harper’s hard lines on issues such as gay rights and abortion
simply due to the realities of the numbers. However, he should
be able to make strides in rebuilding Canada’s military.
But the following comments from Canadian Mark Steyn, in an
op-ed for the Wall Street Journal, opened my eyes to some
events I haven’t been keeping up on.
“Like much of the European Union, we’re so heavily invested in
the idea that we’ve found a kinder gentler way we can scarce
bear to contemplate the reality. At the Washington state / British
Columbia border this week, two guys on the lam were hightailing
it through Blaine heading for the 49th parallel with the cops in hot
pursuit. Alerted to what was coming their way, Canada’s
(unarmed) border guards walked off the job. [ed. they fled.] For
a country whose national anthem lyrics are mostly endless
reprises of the line ‘we stand on guard for thee,’ we could at least
stand on guard. A few years back, I was chatting with a border
guard at the Derby Line, Vt./Rock Island, Quebec crossing. A
beat-up sedan came hurtling northward and we jumped out of the
way. She sounded a klaxon. By then the driver was halfway up
the Trans-Quebecoise autoroute and, if he ever heard her stern
warning, he declined to brake and reverse back to the post to
show his papers. ‘Oh, well,’ she said to me, ‘it’s probably
nothing.”
I had to make note of this passage because you’ll recall last year
I recommended a video from the Nuclear Threat Initiative,
founded by Sam Nunn and Richard Lugar. It was the tale of how
easily the U.S. could be infiltrated with terrorists bearing nuclear
weapons. One of the examples they used was exactly as Steyn
witnessed on the Vermont / Quebec line. It’s why so many of us
sleep with one eye open and refuse to put anywhere near 100%
of our money in equities at any given time. Living in the New
York area, for example, I’m not the only one wondering what
may be sitting in a Brooklyn warehouse, planted before 9/11. Or
what is being assembled, piecemeal.
Mark Steyn concludes:
“Canadians have been reluctant in the last four years to accept
that we no longer live in an ‘it’s probably nothing’ world. Many
Continentals feel the same way. Unlike his hollow predecessor,
Stephen Harper is a thoughtful man who understands the gulf
between self-mythologizing and the harder realities. You can’t
change a free country unless you persuade free people to change
their minds, and he will at least start that tough job. He doesn’t
have to be George Bush’s best friend, and he may even be more
effective at opposing him on trade and agriculture disputes. But
he could try being Tony Blair’s and John Howard’s best friend
and reconnecting us with other traditional pals from whom
Canada’s become increasingly estranged. He could honor our
small but brave contribution to Afghanistan by flying out and
meeting them on the ground. But, even if he does nothing else,
he’ll bring to an end a decade of self-defeating sneering. The
ayatollahs at least flatter America as a seducer – the Great Satan
– which is a more accurate and sophisticated construct than
deriding her as the Great Moron. The difference between sniping
at the Taliban and sniping at Washington is that in the latter case
we’re firing blanks.”
And from my own standpoint, I urge President Bush to
immediately end the lumber dispute as an act of goodwill to
Canada’s new leader.
Bolivia: Evo Morales was sworn in as president, proclaiming
“the 500-year indigenous and popular campaign of resistance has
not been in vain. We’re taking over now.”
Mary Anastasia O’Grady / Wall Street Journal:
“(96 hours into his presidency) anyone still wondering what Evo
has in mind for his country qualifies for permanent disability…
on grounds of terminal naivete.
“In just a few short days, the great Aymara hope has built a
cabinet of radical and Marxist militants, purged the Bolivian
military and signed a pile of ‘agreements’ with his Venezuelan
mentor Hugo Chavez. There are reports that Cuban security
agents are already working for the new president much as they
do for Chavez….
“On Tuesday, Evo fired 28 Bolivian generals – essentially the
entire high command – on charges of treason for allowing the
U.S. to destroy some two dozen Chinese missiles held by the
Bolivian military. He didn’t mention that the missiles were
obsolete and that both parties acted within OAS (Organization of
American States) conventions. He then reportedly passed over
the next generation of officers to replace the generals with a
young group of soldiers. There can be little doubt that these new
generals understand well that the president deserves credit for
their accelerated career success.”
I was glancing at my world map the other day, musing about my
trip a little over a year ago to Chile and Paraguay, and I couldn’t
help but attempt to analyze Latin America from a Big Picture
standpoint. The Bush administration’s inattention here has been
a colossal failure and one shouldn’t be surprised to see much of
the continent in tatters within the next five years, far worse than
today. It all starts with Chavez, of course.
Kosovo: President Ibrahim Rugova, father of modern Kosovo,
died, just as talks were getting underway on what to do with the
province currently falling under Serbia-Montenegro’s control.
Kosovo’s majority ethnic-Albanians desire full independence.
This could get sticky.
Kuwait: Update: Last week I wrote of the new emir who was in
poor health and wondered how Kuwait would deal with this.
Well we got a quick answer; his cabinet removed him, with the
emir’s approval.
Zimbabwe: The government said that the last journalists who
have the guts to criticize Robert Mugabe’s dictatorship will be
rounded up.
China: And this week we conclude with a report from the South
China Morning Post on recent war games. In a rare admission,
the People’s Liberation Army Daily has criticized the armed
forces taking part in the exercises “for their lack of efficiency
and failure to master the skills needed to wage information
warfare.”
Evidently, the troops representing the PLA were defeated by the
Blue Army – believed to be simulating U.S. battle techniques.
“In the first stage, the Red Army was ordered to repel the
attacking Blue Army. Despite its firepower being strengthened
by the availability of six hi-tech aircraft, the Red Army troops
were defeated because the army commander forgot to call in air
support.”
Something tells me this particular fellow isn’t enjoying the Lunar
New Year….just a guess on my part.
Random Musings
–President Bush’s approval rating remains mired in the 42 to 43
percent range, as revealed in the latest CBS / New York Times
and USA Today / CNN / Gallup surveys. But on the issue of
warrantless eavesdropping, the public seems disinterested. On
this one, I’m not.
Of course I have no problem with the government doing all it can
to protect us, and wiretaps are an important tool in this regard,
but the White House’s explanations for not going to Congress to
update the 1978 FISA Act, when Congress would have
undoubtedly agreed to revamp the legislation, don’t fly with me.
I’m not surprised that the people don’t care, though. The
majority is viewing it in very simple terms while I see it as
another example of institutional arrogance; the kind that has a
debilitating impact if it’s not stopped in its tracks. Longer term,
if the president thinks this issue is a winner, like into November,
I wouldn’t be so sure of that.
–Of course there aren’t any leaders in the Democratic Party
these days. As for Hillary, the CNN / Gallup survey results were
indeed startling. A full 51% of the potential electorate already
says it definitely would not vote for her in 2008, while only 16%
are committed to backing the senator. What’s even more
distressing for her supporters, though, is the fact “liberals” are
only 33% committed according to the same poll.
On a related topic, author Shelby Steele had the following
comments on a potential Condi – Hillary race in an op-ed for the
Journal this week.
“This is why so many Republicans (including Laura Bush) now
salivate at the thought of a Rice presidential bid. No other
potential Republican candidate could – to borrow an old Marxist
phrase – better ‘heighten the contradictions’ of modern
liberalism and Democratic power than Ms. Rice. The more ugly
her persecution by the civil rights establishment and the left, the
more she would give liberalism the look of communism in its last
days – an ideology long since hollowed of its idealism and left
with nothing save its meanness and repressiveness. Who can say
what Ms. Rice will do. But history is calling her, or someone
like her. She is the object of a deep longing in America for race
to be finally handled, not by political idealisms, but by the classic
principles of freedom and fairness.
“Idealisms quickly descend into evil because they are so easily
seized as a means to ordinary power. The politics of black uplift
was once an idealism, but today it has become the work of hacks,
tired apparatchiks and petty demagogues looking for power.
And there, on TV last week, as if to illustrate this truth, was the
specter of Mrs. Clinton and Al Sharpton embracing at the
podium, mere captives of power making the tired charge – via an
encrusted plantation metaphor – that Republicans are racists.
What exhaustion! And what evil, to labor so hard at keeping
blacks mired in grievance. Kind of reminds one of a plantation,
though here the harvest is surely grievance rather than cotton.”
–I told you the Valerie Plame / Scooter Libby case should be
“thrown out,” while I have consistently believed the whole Jack
Abramoff affair was as serious as first advertised. First, I pray
President Bush is telling the truth, second, the White House must
come clean on who Abramoff was meeting with and why. This
is an admitted felon, for crying out loud.
–Am I the only one who found it incredible Judge Alito was the
first nominee to be subject to a straight party line vote in the
Judiciary Committee in 90 years? That sure speaks volumes
about our present system.
–I was encouraged to see that 11 eco-terrorists affiliated with the
Earth Liberation Front and the Animal Liberation Front were
indicted the other day for 17 incidents in five western states.
–Secretary of Defense Donald Rumsfeld once again lied when
he said the U.S. military was not at the breaking point; speaking
of a poster-child for institutional arrogance.
–I glance at Car & Driver from time to time but I missed an
article Scott P. brought to my attention relating to hydrogen fuel-
cell technology. Evidently, these are mobile hydrogen bombs for
terrorists and as Scott so succinctly puts it, “they get a tax credit,
too!”
–New York Times columnist Nicholas Kristof:
“Calcutta…Historians will look back in puzzlement at the way
our 21st century world tolerates the slavery of more than a
million children in brothels around the world.”
No they won’t. The only thing that is going to matter is whether
or not we got Iran and North Korea to back down, among many
other items along this line.
–NBC News uncovered an amazing embarrassment for the CIA.
Remember the picture of the al Qaeda “bombmaker” that was
supposedly killed in that attack in Pakistan intended to take out
Zawahiri? He’s still probably dead, but the man pictured, long
appearing on all our most-wanted lists, isn’t him. Our CIA at
work, folks.
–I have to tell you, Oprah sure looked sharp as she grilled fake
author James Frey.
–I got a kick out of the problems on the Queen Mary 2 the other
day because the commodore, Ronald Warrick, was formerly the
master of the QE 2 when I took that creaky ship across the
Pacific three years ago. Some of the passengers this week were
quite upset because on a segment from Florida to Rio de Janeiro,
intended to make all manner of stops in the Caribbean, the Queen
Mary was unable to do so because of damage suffered when it
grazed the side of a shipping channel in Florida.
I had an incident myself on my excursion. We had been in
Auckland, New Zealand, and were slated to spend a day off
Rotorua, if I recall correctly, but at the last minute they switched
the itinerary and we headed to Hobart, Tasmania. The
explanation was that there was a national holiday back on New
Zealand and they were afraid “the locals” would get too rowdy
around the passengers. [In my case I would have willingly
joined in the celebration, no doubt.]
But, alas, I couldn’t have been happier seeing Tasmania instead,
as I suspect I’ll never return there (though I can’t wait to go back
to the rest of the region), and I got to see the Tasmanian Devil. I
also left my sunglasses in a bar in Hobart … but that’s a different
story.
–Finally, in what is becoming our weekly space roundup, a new
planet has been discovered outside our solar system …OGLE-
2005-BLGE-390LB…thought to be some 25,000 light-years
away which means news of Kobe scoring 81, Jack Abramoff and
Brangelina’s baby, for that matter, is a ways off from having an
impact. And while we don’t know too much else about the
place, scientists are predicting the surface temperature is as low
as minus 364 degrees Fahrenheit. In other words, natural gas
demand must be soaring with the consumer sector in freefall
as Oglevanians struggle to pay their heating bills.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $558
Oil, $67.76
Returns for the week 1/23-1/27
Dow Jones +2.3% [10907
S&P 500 +1.8% [1283]
S&P MidCap +2.2%
Russell 2000 +3.9%
Nasdaq +2.5% [2304]
Returns for the period 1/1/06-1/27/06
Dow Jones +1.8%
S&P 500 +2.8%
S&P MidCap +5.0%
Russell 2000 +8.8%
Nasdaq +4.5%
*The Russell and S&P MidCap are both at all-time highs.
Bulls 53.7
Bears 25.3 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
