[Posted 7:00 AM ET]
Going for the Bomb
Iranian President Mahmoud Ahmadinejad announced “Iran has
joined the nuclear countries of the world” as scientists had
evidently successfully enriched uranium for the first time, in
direct defiance of the UN Security Council which had set a date
of April 28 for Iran to abandon the program. Ahmadinejad then
said the next day that large-scale enrichment would proceed,
using, first, 3,000 centrifuges and then expanding to a 54,000
centrifuge operation at a future date.
On Thursday the head of the International Atomic Energy
Agency, Mohamed ElBaradei, met with zero success in his
meetings in Tehran as he sought to get Iran to climb down.
Instead, ElBaradei was mocked as Ahmadinejad declared his
Islamic republic would not retreat “even one iota”. “Our answer
to those who are angry about Iran obtaining the full nuclear cycle
is one phrase: Be angry and die of this anger.” Ali Larijani,
secretary of Iran’s Supreme National Security Council and the
top nuclear negotiator, said UN demands that it freeze its nuclear
program were “not very important.” [London Times]
Earlier, Ahmadinejad and former President Rafsanjani, the father
of the nuclear program, played the West for fools. Ahmadinejad:
“Iran relies on the sublime beliefs that lie within the Iranian and
Islamic culture. Our nation does not get its strength from nuclear
arsenals” in explaining Iran wanted to operate its program under
the supervision of the IAEA.
Rafsanjani told a Kuwait newspaper:
“If those who are facing Iran in the nuclear issue are honest and
strive to build trust, then matters can be settled easily. We are
ready to allay their fears and to provide confidence-building
measures and to give assurances on the peaceful nature of our
activities.
“But if they continue with their pretexts and try to put pressure
on us through our nuclear activities, then matters will become
difficult and thorny for everyone, not just Iran.” [Tehran Times]
Two opinions on what could happen next.
Amir Taheri / New York Post:
“Some analysts suspect that President Ahmadinejad may actually
want a military conflict with the United States as the opening
shot in his promised ‘Clash of Civilizations.’ He seems
convinced that America, plagued by bitter internal dissension,
lacks the stomach for a serious fight with the Islamic Republic
and its radical allies throughout the Middle East. Thus he may
want a clash over the nuclear issue, which many Iranians (thanks
to the regime’s Goebbelsian presentation) see as a matter of
national pride.
“But even then Russia could either prevent a clash or hasten it by
vetoing or voting for a strong resolution in the UN Security
Council. The Russian position there is crucial because China,
which also has a veto, would not be prepared to isolate itself by
siding with Iran if Russia sides with the United States. If Russia
vetoes, so will China. If Russia doesn’t veto, the most that China
might do to please Iran is to abstain.”
And then there’s Russian President Vladimir Putin.
“The American calculation is that Putin, having won the
presidency of the G-8 for Russia for the first time, is unlikely to
start his tenure by splitting the group to please the Iranian
mullahs.
“Yet Putin won’t want to make an unambiguous choice between
Tehran and Washington. Russia needs the Islamic Republic for a
number of reasons – including as part of Moscow’s strategy to
counter U.S. influence in Central Asia, the Caspian basin and the
Middle East. [Tehran and Moscow have been working closely in
Afghanistan for more than a decade; they’re now developing a
joint strategy in anticipation of U.S. withdrawal once President
Bush leaves office.]
“Moscow also needs Tehran to prevent the United States from
imposing its proposed model for the exploitation of the Caspian
Sea’s immense oil and gas resources. And, having lost all of its
Soviet-era Arab friends and clients, Moscow needs Tehran as a
bridgehead to the Middle East, the Gulf and the Indian Ocean.”
Mark Helprin / Washington Post:
“Even were one to believe that, despite its low and stagnant per
capita gross national product and having the world’s second-
largest reserves of petroleum and natural gas, Iran would invest
uneconomically in nuclear power generation, one would also
have to disbelieve that it wanted nuclear weapons. But with an
intermediate-range strategic nuclear capacity, it could deter
American intervention, reign over the Persian Gulf, further
separate Europe from American Middle East policy, correct a
nuclear imbalance with Pakistan, lead and perhaps unify the
Islamic world, and thus create the chance to end Western
dominance of the Middle East and/or with a single shot destroy
Israel.
“Iran’s claim of innocuous nuclear ambitions comports both with
the Islamic doctrine of tazziya (literal truth need not be conveyed
to infidels) and the Western doctrine of state secrecy (the same
thing), and it is part of a strategy of deception and false
compromise deployed to buy time. After almost three years, the
Bush administration has maneuvered the International Atomic
Energy Agency to refer Iran to the UN Security Council, where it
will fall under the protection of Russia and China, which will
make any resolution meaningless or veto it outright. In the event
of sanctions, Iran can sell oil to China in exchange for all the
manufactures it might need, trade on the black market and
eventually reenter the world economy after the inevitable
unveiling of Iranian nuclear weapons stimulates the resignation
of the West.
“Were Russia not playing a double game, it would not have
agreed in December to upgrade the Iranian air force and sell Iran
29 SA-15 SAMs for the protection of key facilities. Russia and
China can operate in contradiction of what many assume to be
their self-interest because they have always had a different
appreciation of and doctrine relating to nuclear weapons, because
they are willing to live dangerously and because they are the
least likely targets. In addition, the agitation that they support
roils the smooth surface of the Pax Americana to their maximum
opportunity and relief. For example, chaos in the Middle East
makes Russia in comparison a stable supplier of energy and
shifts European resources and dependency to Russia’s
advantage….
“If, like his predecessors Saladin, the Mahdi of Sudan and
Nasser, Iranian President Mahmoud Ahmadinejad goes for the
long shot, he may have in mind to draw out and damage any
American onslaught with his thousands of surface-to-air missiles
and antiaircraft guns; by a concentrated air and naval attack to
sink one or more major American warships; and to mobilize the
Iraqi Shia in a general uprising, with aid from infiltrated
Revolutionary Guard and conventional elements, that would
threaten U.S. forces in Iraq and sever their lines of supply. This
by itself would be a victory for those who see in the colors of
martyrdom, but if he could knock us back and put enough of our
blood in the water, the real prize might come into reach. That is:
to make such a fury in the Islamic world that, as it has done
before and not long ago, it would throw over caution in favor of
jihad. As simply as it can be said, were Egypt to close the canal,
and Egypt, Saudi Arabia and Turkey to lock up their airspace –
which, with their combined modern air forces, they could – the
U.S. military in Iraq and the Gulf, bereft of adequate supply,
would be beleaguered and imperiled.”
While much of the talk this week centered around Seymour
Hersh and his New Yorker article about the U.S. employing
tactical nuclear weapons, bunker-busting bombs, against
suspected Iranian facilities, a notion which British Foreign
Secretary Jack Straw called “completely nuts,” the real issue is
one which I have raised time and time again. How quickly can
Iran come up with enough enriched uranium to produce a bomb?
After the Iranian announcement of its supposed success we
continued to hear the same talk from “experts” that Iran was still
5 to 10 years away. But no one really has any clue, including, it
would seem, the Israelis these days.
And may I remind you of two items I noted in this space, 2/4/06
and 2/11/06; the first that there had been increased activity at the
Iranian embassy in Pyongyang and that one shouldn’t forget
North Korea’s Kim Jong-il once sold 1.7 tons of uranium to
Libya, and, the latter, that there were strong reports North Korea
had smuggled ballistic missiles into Iran.
But after the Iraq experience, U.S. credibility is shot and our
position in the Security Council greatly weakened. Plus a
Bloomberg News / Los Angeles Times poll showed only 48% of
Americans now support military action against Iran if the
mullahs continue to defy the world, already down from 57% in
January.
Former national security adviser Zbigniew Brzezinski is quoted
in a David Ignatius op-ed for the Washington Post.
“Time is on our side. The mullahs aren’t the future of Iran,
they’re the past.”
Many said the same thing back in 1979 as Ayatollah Khomeini
assumed power (when Brzezinski also sat at the right hand of
Jimmy Carter). 26 years later, what has changed? The mullahs
have been both the past and the future.
For today, though, there are three possibilities. Iran is indeed 5
to 10 years away and the West can pray for regime change in the
interim; Iran, which lied for 18 years about its nuclear program
before admitting it had one, is much farther along than the
experts believe; and/or, three, North Korea has greatly aided
Iran’s quest and the mullahs have not only been brilliantly
stalling for time, they are also masterful poker players who could
at any moment reveal a powerful hand. Two of the three options
aren’t good. The third isn’t much better in relying on others to do
our job.
Iraq
It has been exactly four months since the December election to
fill the Iraqi parliament and the government has met for a grand
total of 30 minutes. There are rumblings they could get together
a second time this week, though to what effect is still not known.
Interim Prime Minister Jaafari is hanging on, despite calls from
the Sunnis, Kurds and the U.S. for him to step aside, while the
violence continues unabated. Shias targeted by Sunnis in one
bombing after another. Sunnis targeted by Shia militia and death
squads located in the Interior Ministry as well as the Iraqi police
and military.
According to the latest USA Today / Gallup poll, 64% of
Americans want some or all U.S. troops to come home now.
And in the aforementioned Bloomberg News / Los Angeles
Times survey, only 37% now believe President Bush and
statements that progress is being made.
This week Egyptian President Hosni Mubarak suddenly
interjected himself into the conflict and made matters potentially
far worse. In stating that “(Civil war) has pretty much started,”
Mubarak blamed the Shiite-led government and then added the
Shia, not just in Iraq but elsewhere, are more loyal to Iran than
their own countries.
This was not viewed favorably in the Shia community and I need
to remind you of the fact that Egypt, Saudi Arabia and Jordan are
84-93% Sunni. [See WIR 2/25/06]
The Iraqi government proceeded to boycott an Arab League
summit initially designed to help Iraq form a “united front” to
stabilize the country. Arab League Secretary-General Amr
Moussa said “The meeting has taken place because of our
unanimous belief that the situation in Iraq is so serious, that we
have to sit and talk to each other about it, and it would have been
much better to have an Iraqi representative here.”
A spokesman for Mubarak tried to play down the president’s
remarks, saying Mubarak meant “that Iraqi Shiites were
sympathetic to Iran because of the Shiite religious sites in Iraq
and because of their relationship as neighbors.” [Daily Star]
But Shia cleric Grand Ayatollah Ali Sistani voiced his
displeasure, let alone firebrand Moqtada al-Sadr, as well as
Hizbullah in Lebanon which called Mubarak’s remarks “lies
meant to stir up tension between the Arab world’s Sunni and
Shia communities.” [Tehran Times]
A Cairo-based analyst told the Tehran Times, “(Mubarak) is
giving an impression that there is a Sunni-Shia divide in the Arab
world. This way he is condemning half the population. Mr.
Mubarak used to be a man who calculated his words carefully,
but I think age makes a difference.”
Mubarak better hope his own security forces are loyal.
And a few last notes on Iraq.
Chairman of the Joint Chiefs of Staff Gen. Peter Pace, in
defending his boss, Sec. of Defense Donald Rumsfeld, against
the recent comments of retired generals that the planning for and
conduct of the war has been pitiful, said “I was very comfortable
with the pre-war planning. I am comfortable with the way it was
executed. And I would go back, given the same facts and
figures, and reach the same conclusion.”
My respect for Gen. Pace has plummeted, and when asked if the
United States had the resources to go after Iran, if necessary,
Pace replied, “We have sufficient personnel, weapons,
equipment, you name it, to handle any adversary that might come
along.” [AP]
Depends what kind of war you’re talking about.
Separately, the London Times has this telling tidbit, as reported
by Ali Rifat and Hamoudi Saffar.
“Iraqi pilots who flew in Saddam Hussein’s air force are being
targeted by armed militias in an apparent witch-hunt against
veterans who fought in the war against Iran two decades ago.
“According to official military statistics, 182 former pilots and
416 senior military officers had been killed by the beginning of
January 2006 as part of the campaign. At least 836 pilots and
high-ranking military officials have fled to neighboring Arab
states.”
And lastly there is the story of the newly crowned Miss Iraq,
Silva Shahakian, an Iraqi Christian who inherited the crown after
the initial winner stepped down upon receiving death threats and
two runners-up begged off. Silva’s whereabouts are unknown as
she, too, has now gone into hiding. Organizers of the pageant are
hoping to send her to the Miss Universe contest in Los Angeles
on July 23.
Avoid L.A. that day if she does end up surfacing there, and, by
the way, Happy Third Anniversary of the Fall of Saddam!
Wall Street
For the second straight week equity averages were virtually
unchanged but the seeming lack of action masked big moves
elsewhere, particularly in commodities and interest rates.
Whether you’re talking gold, silver, copper, zinc or oil, yes, even
cubic zirconium, commodities are either at or approaching all-
time highs. Gold, for example, may still be over $200 shy of its
high-water mark, but at $600 it’s a 25-year high. Copper has hit
all-time levels 12 straight days, while oil had its highest weekly
close ever, $69.50, which is just shy of its intraday high of
$70.85.
The action in copper is indicative of the entire commodities
arena. Global growth, tight supplies and big investment flows
are driving the price, but at the same time the miners are
skeptical high prices will last so they are holding off on investing
in new sources. The situation is compounded by labor issues
around the world where copper is king. In essence, it’s the same
as the oil industry where many executives still aren’t convinced
$50-$60 oil is here to stay and thus are reluctant to expand their
exploration budgets for long-term projects that could bump up
against falling prices at some point. But here external factors,
namely Iran, Iraq, Nigeria, and Venezuela (with the ever-present
terror threat in Saudi Arabia), add up to a substantial risk
premium.
In the case of oil, the market is also still dealing with the fact
23% of Gulf of Mexico production remains shut down after
Katrina and Rita, just as rig operators are beginning to check the
Weather Channel again in preparation for a new storm season.
And the International Energy Agency warns that Russian oil
production is slated to decline over the next four years at a time
when demand is still expected to be strong. Where it will be
made up is difficult to see, especially since OPEC, as we all
know by now, has little spare capacity.
Christophe de Margerie, head of exploration for France’s Total,
said in an interview with the London Times that forecasters such
as the IEA “have failed to consider the speed at which new
resources can be brought into production.”
For instance, the IEA is projecting demand of 120 million barrels
by 2030, up from the current 84-85 mmbd level.
“Numbers like 120 million will never be reached, never,” said
Margerie, who notes such an output rise is impossible given
available resources and geopolitical constraints on gaining access
to reserves such as those in OPEC countries.
“Take Qatar,” he says. “How many projects can you have at the
same time? You have more than 100,000 people working on
sites. It’s a big city of contractors. Now they have the problem
of having to build a new power plant to supply a city of
contractors.”
“The oil reserves are there,” he says “and that’s the good news,
but what we can bring on today to meet demand is limited by
factors other than what scientists see in a lab or think-tanks.”
On the topic of emerging markets and the spectacular
performance witnessed here the past few years, former Federal
Reserve chairman Alan Greenspan told an Asian economic
forum that we could be headed for a substantial fall in global
asset prices. Greenspan said the current positive environment
wouldn’t last forever.
The source of today’s liquidity is the boom in asset values
worldwide, but “A good part of this expansion is a direct
function of the decline in real equity premiums….I don’t know
when the liquidity is going to decline but I am reasonably certain
that what we’re looking at is an abnormal situation.” [Financial
Times]
The International Monetary Fund, though, said the current ability
of emerging market economies to weather storms is “as good as
it gets.” The IMF’s director of international capital markets,
Gerd Hausler, noted concerns about higher global interest rates
were greatly overblown, thanks in no small part to the fact
changes in monetary policy by the Federal Reserve, the
European Central Bank and the Bank of Japan were well
communicated.
Hausler conceded risks remain, including a flu pandemic, but
downplayed any short-term developments. “It would not be
serious for us to cry wolf and pretend that the [U.S.] dollar (for
example) was about to collapse in the next six months.”
But on the topic of debts, the IMF report said the most pressing
issue was an increase in corporate borrowing, while a second
concern was rising commodity prices that are then passed
through to the consumer. I’ve been attempting to point out,
however, that it’s rising consumer debt, as much as the corporate
variety, that should be a chief concern when measuring emerging
market risk.
The IMF also says little about the global real estate bubble. Josh
P. sent me a note on his San Diego neighbors who’ve been
attempting to sell their homes for over six months, with one
finally lowering the list price. But a piece in the Los Angeles
Times noted the median home price in L.A. County (not to be
confused with Orange or Ventura), passed $500,000 for the first
time. What you need to understand here is the median income is
$47,000. You start doing the math. How do you make ends
meet?
The Wall Street Journal had a piece this week titled “Hot Homes
Go Cold.” Michael Corkery writes, “real estate agents in some
of these formerly red-hot markets have been surprised at how
suddenly market conditions have deteriorated in the past few
months.”
Those in the soft-landing camp have always said something like,
“Well, if prices were to correct in an orderly fashion, Americans
will easily adjust, especially because the vast majority now have
built up sizable equity.”
But speed kills and if the real estate environment flips on a dime
in the regions that have seen the hottest markets, there’s no
telling what kind of damage to the overall economy it will
generate.
Lastly, I can’t help but comment on former ExxonMobil
chairman Lee Raymond’s golden parachute. Raymond, who
retired last year, is receiving cash and prizes of $398 million.
That’s sick. And the Journal had a story on CEO pay, overall,
for 2005, up an average 16%.
An old friend of mine from the fund business, Ron G., based in
the Midwest, wrote of what he sees in his travels. The rank and
file are suffering and the difference between the upper and
lower-middle class is widening exponentially. This isn’t
necessarily about class warfare or even one’s political persuasion
and government policies. I’m a capitalist as much as the next
guy, but some of the trends are deeply troubling and headlines
such as on Lee Raymond’s compensation compound matters.
Street Bytes
–The Dow Jones finished up 0.2% to 11137 while the S&P 500
and Nasdaq registered fractional losses for the shortened trading
week. Initial earnings reports, while slim, were generally solid
with Alcoa taking advantage of soaring demand for industrial
metals, while G.E. had revenue gains of 10% for the quarter. But
G.E. didn’t positively surprise and, in the tech sector, AMD
disappointed with its outlook.
Any big gains in 2006 thus far continue to be made in the small-
and mid-cap sectors. The cover of the April 17 issue of Business
Week was about the underperformance of large cap stocks.
Incredibly, for the five years ending March 31, earnings for the
S&P 100 companies are up a cumulative 213%, but share prices
for these bluest of the blue chips have risen just 0.9% on an
annualized basis (2% with dividends). That pretty much tells the
story. When will they play catch up? Seeing as I continue to
forecast a big economic slowdown at some point in the not too
distant future, don’t look to me to ring the bell giving the all-
clear.
–U.S. Treasury Yields
6-mo. 4.92% 2-yr. 4.95% 10-yr. 5.05% 30-yr. 5.11%
Yes, the 10-year Treasury, now at its highest level since June
2002, was another big story on the week. As I wrote last time,
what level represents the tipping point in the case of both interest
rates and oil? Or does the U.S. economy, helped by recoveries
elsewhere, such as in Europe and Japan, muddle through?
On the economic front, the trade deficit for February registered a
slight decline but before anyone gets too excited it was still the
third-highest figure on record, $65.7 billion. Retail sales for
March rose a respectable 0.6% and industrial production was
up a like amount. In all, pretty good stuff, though some Fed
governors are concerned that the capacity utilization rate, now
81%, is approaching a level that has historically led to upward
pressure on inflation.
–China says its economy grew at an 8.5% clip in the first quarter
and a government report noted it could slow to 7.5% by year end.
8% is generally viewed as the threshold needed to take care of
those workers that are displaced in closing obsolete operations
…as well as to prevent unrest.
–Bird flu is making inroads in Burma and Egypt. But while
perhaps it’s not a market-moving factor in 2006, H5N1 continues
to simmer and mutate and spread inexorably around the globe.
It’s also important to note that when you read about the current
mumps outbreak in the Midwest, it represents a classic example
of how quickly bird flu, if it ever truly mutated to person-to-
person status, could spread like wildfire around the world; as in
the mumps case it’s been traced to two individuals who flew
extensively the past month or so.
–According to the Wall Street Journal, Russia’s long sought
after goal of gaining World Trade Organization member status
could be wrapped up by midyear; that is if Congress goes along.
While the U.S. has remained the only stumbling block for
Russia, and even as President Bush has promised his support,
Congress looks at the 2001 WTO deal with China and doesn’t
want to sign another one where the beneficiary games the system
and pirates U.S. goods and intellectual property.
But for all the problems I have with Russia, I just think we have
to allow them in the WTO. I was for admitting China, as well,
but I see the issues that have arisen since as being as much the
fault of the Bush White House as it has been Beijing’s. Only
now, as President Hu Jintao prepares for this week’s trip to the
U.S., has the administration begun playing hardball.
And while the U.S. has been working with the European Union
(which has the same issues as the U.S. in terms of Chinese
dumping and pirating of goods), the Bush team has been too soft.
Believe it or not, WTO mechanisms for resolving disputes work.
Not always to our satisfaction but the United States isn’t exactly
an angel in this sphere; see government sugar and lumber
subsidies, for example.
My broader point being in the case of Russia that the Kremlin
will continue to hold the White House and the U.S. responsible
for their failure to be admitted to the WTO and it’s a card
President Putin will play to his advantage when it comes to other
disputes where we need Russia’s cooperation. Let Russia in and
you take away that card.
[I appear to be in a distinct minority on the trade issue, however.
According to a USA Today / Gallup poll, by a 50-39 margin
Americans said the current environment mostly hurts U.S.
companies.]
–I loved this story from George Parker of the Financial Times.
“Germany…accused Austria of ‘aggressively’ poaching jobs and
investment by slashing its company tax rates, as a wave of lower
taxes spreads westwards from Eastern Europe.
“Peer Steinbruck, Germany’s finance minister, complained
Vienna’s decision to cut corporate tax rates from 34 percent to 25
percent had led to an increasing number of German companies
investing across the border in Austria.
“His complaint was greeted with satisfaction by Karl-Heinz
Grasser, Austria’s finance minister, who said it showed his
polices were working.”
–In the week ended April 7, program trading accounted for a
whopping 60% of all New York Stock Exchange activity. At a
casino, the house always wins.
–In the Enron trial, former CEO Jeffrey Skilling testified he was
unaware of CFO Andrew Fastow’s partnerships that we all know
were designed to hide losses and inflate earnings. Skilling also
alleges he resigned because he was depressed over the
company’s tumbling share price and he was flat tired. “I am
absolutely innocent,” he said.
–Russian energy giant Gazprom’s market cap now exceeds that
of Royal Dutch Shell and British Petroleum. A full 20% of the
Russian government’s revenues, by the way, are from taxes paid
by Gazprom. [Moscow Times]
–General Electric said by 2008 foreign revenues will equal those
generated by U.S. operations.
–Delta’s pilots union reached a tentative contract agreement with
the airline, thus averting what would have been a crippling strike
this coming week.
–New York City office rents are soaring and could rise another
20% by yearend, according to Crain’s New York Business.
–As Edward Wong of the New York Times reported, one need
only look at Iraq’s stock exchange to gauge confidence levels in
the country. Today there is little, as best told by a 66% plunge in
share prices the past year. Unemployment by most estimates
exceeds 50% (Wong pegged it at 60%).
–Bausch & Lomb has quite a crisis on its hand with word from
the FDA that ReNu contact lens solution is under investigation
for being the cause of a seeming epidemic of eye disorders, a
fungus that if left untreated can lead to blindness. The theory
originated in Singapore and elsewhere in the Far East. In all
seriousness, I bet a contributing factor is people simply not
taking care of their lens cases.
–Michael Jackson has been forced to sell off a large percentage
of his song catalog to Sony, one that contains 250 Beatles hits as
well as other titles, as part of a $300 million refinancing that
should help him stave off bankruptcy. Among the non-Beatles
titles are Bob Dylan’s “Blowing In The Wind.” Another, though,
is Neil Diamond’s “Sweet Caroline,” which I think most of you
would agree has not aged well. Basically, it’s become a lounge
lizard favorite, i.e., Bill Murray on the auto train.
–Inflation watch: Trader George reported a dozen bagels in
Chatham, NJ now cost $7.20 vs. $5.40 just nine months ago.
–As part of his retirement package, the aforementioned Lee
Raymond also gets his country club fees ($210,000) paid for
along with home security and a car and driver. Which means
he’ll never have to pump his own gas….so he’ll never really
come in contact with the product that made him so wealthy.
–There has been quite a bit of talk about “naked shorting” these
days; this being the practice by some short sellers of trading
shares they don’t physically hold. Under SEC rules, this is
supposed to be illegal. But I have to admit I never knew short
sellers paid a fee to a brokerage or trading firm for the right to
borrow shares, then sell them, until I was approached by my own
broker the other day to see if I’d sign up for a program whereby
the shorts could borrow my carbon fiber shares. In return, I
receive 4% on an annualized basis. Sign me up! I said. [My
holding’s value is unchanged over the past few weeks, still up
over 100% just this year, but the intraday volatility has picked
up…in part because the shorts keep probing the defenses, I
muse.]
–It’s amazing how some Wall Street professionals still don’t
understand just how closely regulators monitor suspicious
trading activity. So when a 63-year-old Croatian seamstress
suddenly turned a $2 million profit in options on Reebok
International after the company announced it was going to be
acquired by Adidas-Salomon, alarm bells went off at the SEC. It
turns out the woman’s nephew, a 29-year-old former Goldman
Sachs bond analyst, spearheaded an insider trading ring the likes
of which haven’t been seen in years on the Street.
Foreign Affairs
Israel: With Ehud Olmert now formally prime minister as Ariel
Sharon was finally deemed permanently incapacitated, the
government cut all ties to the Palestinian government.
But on Friday, Russia said it would provide “urgent financial
aid” to the Palestinian Authority; while Iran’s Ayatollah Ali
Khamenei called on his Muslim brothers to help Hamas, adding
the U.S. was openly threatening the Islamic world by “talking
about launching a crusade against it,” as reported by BBC News.
President Ahmadinejad then offered that Israel would be
“eliminated by one storm.”
Italy: Prime Minister Silvio Berlusconi lost an exceedingly close
vote to Romano Prodi, with just 25,000 votes out of 38 million
separating the two parties and only a two seat difference out of
315 in the Senate. But Berlusconi, who in his last campaign rally
warned Catholics that the opposition left included “priest eaters,”
refused to accept the tally in calling for a recount. The courts
have been ruling against him. Regardless, Italy is looking at
another dysfunctional government to go along with the other 50
or so since World War II.
Meanwhile, the man identified as the boss of bosses in the Italian
mafia was captured after being on the run for over 40 years. So
the United States isn’t the only nation that has trouble nabbing
those on the most wanted list.
France: In a humiliating climb down, President Jacques Chirac
was forced to scrap the labor law that was to make it easier for
employers to fire young people entering the workforce. 90% of
the French believe that Chirac and his protégé, Prime Minister
Dominique de Villepin, have been weakened, with de Villepin in
particular suffering a big blow to his own presidential
aspirations.
Pakistan: Three prominent Sunni clerics were killed in a bomb
blast that claimed over 50 lives in Karachi. The bomber was
sitting right behind them at a religious celebration when he blew
himself up. Rioting followed. No one as yet has claimed
responsibility.
President Pervez Musharraf did achieve a victory of sorts as
parliament approved the purchase of 77 F-16s from the United
States.
Sudan: Count Bob Geldof among the small group of enlightened
rockers, a la Bono. Geldof, organizer of last year’s Live 8
benefit, accused China of being responsible for the carnage in
Darfur.
“I was in Darfur 20 years ago and people were killing each other
then. It’s an ancient battle between nomadic people and settled
people, between Arab-Africans and black Africans, between
Islam and Christians, (but) the reason why it has not been
resolved is because of China.
“The Chinese protect the Khartoum government” and won’t
allow action in the UN Security Council because Sudan provides
China with 6 percent of its oil needs, Geldof said.
[This week Chad broke off diplomatic relations with Sudan,
blaming its neighbor for a failed attempt by rebels to overthrow
the Chadian government. 350 were killed in the attack and many
of those taken prisoner claimed they were Sudanese that had
been conscripted into the rebel force. More than 200,000
refugees from the Darfur region in Sudan have fled to Chad and
now its leader has vowed to expel them unless he receives UN
and African Union aid in helping repel Sudan’s efforts to
destabilize Chad’s government.]
Random Musings
–In another distressing poll for the White House, this one
tabulated by the Washington Post / ABC News, President Bush
registered a 38% overall job approval rating, but only 35%
approve of the job Congress is doing. Nonetheless, Republicans
can still hold onto their majorities, particularly in the House,
since we like to tell pollsters we’re upset with Congress in
general but we obviously still tend to vote for our individual
representatives.
–In the earlier aforementioned USA Today / Gallup survey, 80%
of Americans said illegal immigration was “out of control.” I
think the issue is dead until after the election cycle, outside of a
bill that solely addresses increased border security.
–A study by the Department of Homeland Security concludes
FEMA wasted at least $1 billion in the aftermath of Hurricane
Katrina on the temporary housing program. Tens of thousands of
allocated trailers, for example, are still not in use (though
needed), while 25,000 manufactured homes and 1,300 modular
homes cannot be used because they are either too big or unsafe in
flood zones.
In addition, “FEMA spent $632 million to subsidize hotel rooms
for tens of thousands of families at an average cost of $2,400 a
month, three times what it later paid families to rent two-
bedroom apartments.”
And, “the agency spent $249 million to secure 8,136 cruise-ship
cabins for six months, at a cost…estimated at $5,100 a month per
passenger. That is six times the cost of renting two-bedroom
apartments.” [Spencer Hsu / Washington Post]
–It was Waylon Jennings who first sang, “Mama, don’t let your
babies grow up to be Bandidos.” Or was it “cowboys”? Anyway,
last week the Bandidos biker gang killed 8 of its own in a rural
part of Ontario, Canada. A “cleansing of the ranks” as
authorities put it.
–A hydrofoil in Japan, traveling at 50 mph, hit an unidentified
object in the sea and 90 passengers were injured. Experts say it
was a whale. I’m thinking Godzilla.
–I have to give the Mexican government credit for the
rehabilitation of Cancun following Hurricane Wilma last Oct. 20.
It didn’t look good in the immediate aftermath, but the
government quickly sprung to action and by summer officials
expect the area to be virtually back to normal….until the next
one hits and cuts a channel straight through to the Pacific.
–Through the end of March, 286 tornadoes hit the U.S. vs. an
average of 70 for the first three months each of the prior three
years. With the action thus far in April, the spread must be even
greater.
–The situation at Duke University with the lacrosse team and the
exotic dancer is but another example of my “24 hour” rule.
Unfortunately, in high-profile cases such as this one it’s
impossible to enforce.
–Supreme Court justices make between $149,000 and $208,000.
Justice Anthony Kennedy is among those complaining. This is
absurd. A rookie major league ballplayer has a starting salary
over $300,000, for crying out loud, and few ever graduate from
college.
–Anyone watching Tiger Woods in the final round of the
Masters knows he putted terribly. Woods himself said, “Once I
got on the greens, I was a spaz.”
But it turns out “spaz” is an offensive term in certain countries,
referring to people affected with a form of cerebral palsy.
Woods was forced to apologize through his spokesman.
[Reuters]
–Richard Rubin had a piece in the Sunday Times Magazine on
the depopulation of North Dakota. The numbers are staggering.
“In 1930, (North Dakota’s) population peaked at 680,845. In
2000, it was down to 642,200, and by 2004, the last year for
which statistics are available, it had dropped to 634,366. [By
comparison, the national population more than doubled, to 294
million from 123 million, during the same period.] Of the 25
counties nationwide that lost the largest portions of their
populations in the 1990s, 12 were in North Dakota.”
–Last Sunday, Andy Rooney commented on one of my favorite
topics (discussed most recently in WIR 3/25/06) as part of his
spot on “60 Minutes.”
“The children going to school these days may look the same, but
the subjects they’re taking are not….
“Reading and math are the only subjects tested by national
exams, so schools are desperate to have their students do well in
those subjects. That’s why they’re spending more time on math
and reading and less time teaching everything else….
“Subjects like science, art, history and music are being taught
very little in a lot of schools. We’re going to raise a generation
of cultural idiots – people who don’t know Beethoven from
Mozart, Cezanne from Van Gogh, or Albert Einstein from
Charles Darwin.”
You got that right, Andy. Just remember, sports fans; it’s Monet,
good….Manet, bad.
–It’s quite apparent we’re also raising a generation of bullies,
thanks to the latest in technology. From Greg Toppo of USA
Today:
“Now research suggests that mean girls, at least, are keeping up
with changing times: They’re text-messaging their threats.
“In a small-scale study presented at a meeting of the American
Educational Research Association…researchers surveyed 65
girls ages 15-18 in an upscale Sacramento suburb in 2004 and
found that self-identified female bullies most often text-
messaged harassment by cellphone, preferring it nearly 2 to 1
over e-mail, websites and instant messaging. About 45% had
been victims of cyber-bullying.”
As one expert put it, “It’s a non-stop type of harassment and it
creates a sense of helplessness.”
–The average life expectancy for a male in Zimbabwe is down to
34 years, 37 for women; both the worst in the world.
–To those who think we would make a martyr out of Zacarius
Moussaoui by executing him, fret not. This man needs to go to
Hell ASAP.
–And sadly, the effects of 9/11 are still being felt in the New
York area. A New York City coroner has ruled for the first time
that the actual cause of death of a rescue worker on the scene in
the immediate aftermath of that day, who then died this past
January, was directly related to the toxic dust and fumes he took
in.
Earlier, a study by the New York Post of a contaminated shirt,
worn by a volunteer at Ground Zero and then packed away in a
sealed plastic bag until now, showed a concentration of asbestos
“93,000 times higher than the average typically found in the
environment in U.S. cities.”
Separately, the Centers for Disease Control concluded last week
that 62 percent of those caught in the massive dust cloud when
the Twin Towers fell suffered respiratory problems. 46 percent
of civilians living or working in the immediate area but not
caught in the cloud still experienced problems.
But as a leading physician told the Post, because it can take
decades for cancers to develop “We just won’t know the effect
(of Ground Zero exposure) for years.”
–I was thinking the other day of how slack I’ve become,
especially living in the New York area, about keeping my
survival kit in order. For all the knowledge we have, none of us
should be that stupid.
–I was watching CBS’ broadcast last Sunday of Jack Nicklaus’s
stirring triumph at the 1986 Masters and at the end of the
program, Nicklaus was asked about his farewell round at
Augusta in 2005 and what he whispered to his son who was
caddying after finishing up on 18. Jack teared up and recalled he
echoed his father’s last haunting words from back in 1970 when
he was heading into open heart surgery, an operation Mr.
Nicklaus wouldn’t survive.
“Don’t think it hasn’t been charming!”
–As part of the meditations on the Stations of the Cross, a
Roman Catholic tradition, as well as that of other churches on
Good Friday, Pope Benedict XVI said the following:
“Where is Jesus in the agony of our own time, in the division of
our world into belts of prosperity and belts of poverty…in one
room they are concerned with obesity, in the other, they are
begging for charity?”
—
Pray for the men and women of our armed forces.
God bless America.
Happy Easter.
—
Gold closed at $601
Oil, $69.50
Returns for the week 4/10-4/14
Dow Jones +0.2% [11137]
S&P 500 -0.5% [1289]
S&P MidCap -1.0%
Russell 2000 -0.7%
Nasdaq -0.6% [2326]
Returns for the period 1/1/06-4/14/06
Dow Jones +3.9%
S&P 500 +3.3%
S&P MidCap +6.3%
Russell 2000 +11.6%
Nasdaq +5.5%
Bulls 53.2
Bears 24.5 [Source: Chartcraft / Investors Intelligence…on
Mar. 14 (reading is taken after the close on Tuesdays) the ratio
was 42.3 / 33.0. For a few days it looked like a classic contrarian
signal but the rally failed.]
Have a great week. I appreciate your support.
Brian Trumbore
