[Posted 7:00 AM ET]
What Now?
Let me give you an example of what has really been frustrating
me over the past few years, if you haven’t already figured it out.
The following is from “Week in Review,” 11/16/02.
“Iran: Now here is something to write about and it’s a potentially
very exciting development for freedom-loving peoples
everywhere. Student protests are growing, not just in Tehran but
around the country as a result of the death sentence handed down
to an academic who questioned the clerics’ role in governing the
country (though few expect it to be carried out). Finally, we
could be witnessing the beginning of the penultimate challenge
to the conservative hardliners, headed by Ayatollah Khamenei.
The reformers, led by President Khatami, need to press their
case, but the problem has been that in the past Khatami has been
too weak of character to take on the clerics, who for their part
constantly threaten use of the military to put down any serious
threat to their rule. But if Khatami finally shows some spine,
change could come about in Iran at lightspeed. Keep the faith. It
would be a gigantic positive, surpassing the impact of Saddam’s
demise, especially as it pertains to the rest of the Islamic world.
The Bush Administration needs to speak out more forcefully to
encourage the students and Khatami, but it also must stay
committed to the cause, and this is where past administrations
have been seriously lacking.”
That was the fall of 2002, and of course the White House didn’t
raise its voice one iota then and now we are paying the price.
I’ve said time and time again that President Bush’s legacy will be
shaped more by outcomes in Iran and North Korea than Iraq and
I stand by that. And of course this week Chinese President Hu
Jintao came to America, Bush needed some kind of support for
our fleeting efforts on both the Iranian and North Korean fronts
and none was forthcoming.
Focusing on Iran, at this point military conflict seems a certainty
if the White House seeks to prevent Iran from getting the bomb.
Bush said “all options are on the table” and here he is to be
believed. But our intelligence is virtually non-existent and the
best we can do for now is acknowledge that satellite photos show
Iran is strengthening its facilities at Natanz and Isfahan in
preparation for an attack.
Iran also asserted this week it was working on a new advanced
centrifuge that would greatly speed up the uranium enrichment
process. The claim is questionable, but the only prudent thing to
do is take it at face value, especially since Iran initially hid its
program for 18 years before coming clean.
Former Iranian president Rafsanjani said “All neighboring and
Muslim states should defend and stand by Iran…any attack on
Iran would have implications for the region.”
The New York Times’ Thomas Friedman wrote this week:
“So if our choice is another Rummy-led operation on Iran or
Iran’s going nuclear and our deterring it through classic means, I
prefer deterrence. A short diplomatic note to Iran’s mullahs will
suffice: ‘Gentlemen, should you ever use a nuclear device, or
dispense one to terrorists, we will destroy every one of your
nuclear sites with tactical nuclear weapons. If there is any part of
this sentence you don’t understand, please contact us. Thank
you.’”
This is flat out stupid and Mr. Friedman clearly doesn’t
understand those in power in Iran. Iran can not get the
bomb…period.
This week the Security Council receives the final report of the
International Atomic Energy Agency. Russia and China will
vote against sanctions. The U.S., France and Britain, with
Germany on the side, will have reached some agreement on
penalizing Iran. I have normally been with those who say
sanctions, in general, don’t work, but in this case the civilized
world must show a united front, however limited, and get the
clock started on further action. Yes, because of our failures in
Iraq the credibility of the United States is shot. But we must still
lead.
William M. Arkin, a military strategist, wrote the following in an
op-ed for the Washington Post.
The White House must acknowledge the United States “is
preparing war plans for Iran – and that this is not just routine. It
is specifically a response to that country’s illegal pursuit of
nuclear weapons, its meddling in Iraq and its support for
international terrorism.
“Iran needs to know that the administration is dead serious. But
we all need to know that even absent an Iranian nuke or an
Iranian attack of any kind, there is still another catastrophic
scenario that could lead to war.
“In a world of ready war plans and post-9/11 jitters, there is an
ever greater demand for intelligence on the enemy. That means
ever greater risks taken in collecting that intelligence.
Meanwhile, war plans demand that forces be ready in certain
places and on alert, while the potential for WMD necessitates
shorter and shorter lead times for strikes against an enemy. So
the greater danger now is of an inadvertent conflict, caused by
something like the shooting down of a U.S. spy plane, by the
capturing of a Special Operations or CIA team, or by nervous
U.S. and Iranian forces coming into contact and starting to shoot
at one another.
“The war planning process is hardly neutral. It has subtle effects.
As militaries stage mock attacks, potential adversaries become
presumed enemies. Over time, contingency planning transforms
yesterday’s question marks into today’s seeming certainty.”
Editorial in the Wall Street Journal:
“Nothing Iran has done in recent years offers any indication it
would honor (a grand bargain). It has consistently lied to the
IAEA, trashed its agreements with Europe, openly flouted a UN
Security council resolution, provided explosives to insurgents in
Iraq, developed ballistic missiles of increasing range, selected a
president with apocalyptic religious impulses, and engaged in
vitriolic anti-American and anti-Semitic rhetoric.
“This is not the behavior of an ordinary state – a ‘status quo
power,’ in diplomatic jargon – that aims to ‘normalize’ its
position in the world through diplomacy. Rather, they are the
acts of a revolutionary regime seeking to spread its ideology and
power by force and intimidation….
“The task now for the President is to begin speaking publicly
about why a nuclear Iran is, as he calls it, ‘unacceptable.’ Far
from preparing for war with Iran, the Administration has barely
begun to confront the tough choices at hand. The reasons for this
reluctance are easy to appreciate: The future of democratic Iraq
is far from assured; Mr. Bush’s approval ratings are in the tank
[ed. 33% in the latest Fox News poll] and his political capital is
depleted; and the military options against Iran have their own
limitations and risks. But Mr. Bush remains President for 33
more months, with a Constitutional responsibility to ensure our
safety. And there is no more clear and present danger than Iran’s
nuclear programs….
“Above all, the President must begin to educate the American
public about what is at stake in Iran and what the U.S. might be
prepared to do about it. Until he does so, he will be hostage to a
series of increasingly distressing Tehran ‘announcements,’ the
pace and timing of which will be dictated by the clerics and
zealots who wish us ill.”
Iraq
There is some hope that parliament will convene shortly now that
the ruling Shia have a new candidate for prime minister, Jawad
al-Maliki; al-Jaafari having finally agreed to step down. Those
of us who have remained supporters of the war simply believe
you have to see the mission through until the Iraqis form a
government. But there is obviously a long way to go and Sunni
politicians have been rapidly losing patience with the Shia
military and its death squads, threatening at one point this week
to join the insurgency. Al-Maliki is said to be a hardliner with
ties to Syria and Iran. Wait 24 hours.
Israel
The Israeli government of Ehud Olmert has thus far not retaliated
militarily for the suicide attack in Tel Aviv that killed nine, while
the new Hamas government called Islamic Jihad’s act a
legitimate response to Israeli “aggression.” Jordan then canceled
a visit by Hamas’s foreign minister after Jordan claimed it found
weapons that were being smuggled into the country by Hamas.
Hamas then selected a prominent militant to head up a new
security force and the Palestinian Authority, led by President
Mahmoud Abbas, attempted to block the appointment. The PA
is $1.3 billion in debt with the cut-off in aid from Israel, the U.S.
and the European Union (except for humanitarian purposes) and
Abbas took off for neighboring lands, tin cup in hand.
Wall Street
Chinese President Hu Jintao’s visit to the United States was a
bust, unless you were an American corporation that picked up a
contract or two. And while most Americans will poo-poo the
embarrassment of having a protester from Falun Gong shouting
at Hu during his speech at the White House on Thursday, as well
as the introduction of Hu as being from the Republic of China,
the formal name for Taiwan, just understand these slights are
seen as major insults to the Chinese and, being a suspicious and
conspiratorial people to begin with, the trip could eventually go
down as an unmitigated disaster.
The White House accomplished nothing despite a year’s worth of
preparations and China is not going to let its currency, the yuan,
strengthen anywhere near as much as the Bush administration
wants it to. [A stronger yuan makes Chinese assets more
expensive for foreign investors and Chinese exports less
desirable for buyers, while foreign goods, such as those from the
U.S., would be more competitive in the China market; the
purpose of this exercise being to reduce the exploding trade
deficit.]
China’s economy, meanwhile, continues to boom. Last week I
supplied an estimate of first quarter growth from a government
think tank that proved to be far too pessimistic as GDP for the
first quarter officially came in at 10.2%, though the government
still projects only 8% for all of 2006; a figure which will
obviously be revised substantially upward. Fixed asset growth
for items such as new factories and roads continues to soar, up
27.7%. Those of us waiting for the bubble to burst here could
not have been more wrong thus far, but we’ll have our day.
For now, though, China is the 4th-largest economy in the world,
behind just the U.S., Japan and Germany, and the communists
have to do what they can to keep the engine running on all
cylinders because they are scared to death of civil unrest at the
slightest hiccup.
No doubt the global economy is also booming and the real
trigger to this recent leg has been Japan’s recovery, helped in
large part by the return of the consumer after over a decade of
being in the shadows.
A potential drag, though, is Europe where recovery seemed
certain but political issues in Italy, France and Germany could
offer some resistance. And it’s not as if the continent doesn’t
have its own problems with China.
Erik Berglof of the International Herald Tribune:
“In Italy, Portugal and most worryingly in Turkey, Chinese
competition is threatening key industries like textiles and shoes.
These countries are facing important choices about whether to
move up the value-added chain in these industries or abandon
them….
“Despite huge political challenges, China’s low cost advantage
may well persist for decades. Unlike exports from Eastern
Europe, where low wages are likely to be short-lived, especially
for high-skilled labor, Chinese exports could retain their cost
advantage for many years to come. The movement of hundreds
of millions of underemployed workers from rural agriculture to
urban manufacturing will take at least another decade.”
But enough on this topic. Stocks rose smartly in the U.S., driven
both by solid earnings news as well as the release of the Federal
Reserve’s minutes from March 27-28, the first meeting chaired
by Chairman Ben Bernanke. It would appear most members
thought “the end of the tightening process was likely to be near,”
while some expressed fears of tightening too much.
Just what the stock jocks wanted to hear. Forget that if inflation
indicators pick up, the Fed will have to continue to tighten
beyond the next hike on May 9. And the full impact of past rate
increases is a ways from taking hold, particularly in the case of
those with adjustable rate mortgages that are slated to reset over
the coming two years.
The current news on inflation, though, was pretty solid, if you
believe the government’s figures, and the bond market can only
react to the raw data, not the pain you or I feel in paying for
healthcare, property taxes and college tuition. The core producer
price index, ex-food and energy, is up 1.7% year over year, while
the consumer price barometer is up 2.1%.
But speaking of energy, it’s pretty tough to exclude it these days,
isn’t it? Like try $75 for a barrel of black gold, a new world
record. And then we have this issue of $3 a gallon gasoline. It’s
a killer, politically, but whether or not it has ‘legs’ and will
markedly hurt consumer spending and corporate profits remains
to be seen. For starters, it certainly sent a shudder through the
airline industry this week as stocks in that sector were crushed.
Oil was symptomatic of the boom in commodities overall. The
Goldman Sachs CRB index of 19 equally weighted items soared
to a new all-time record, while gold hit $645 and silver $14
before a wild rollercoaster ride at week’s end. Heck, even my
Vic Roznovsky baseball card saw its value rise from 1 to 2 cents.
Of course the commodity boom is another bubble that will pop,
along with housing, but these things can run a long time as I
discuss further below. Money is flooding into metals and other
commodities. Institutional holdings by money managers, for
example, are now in the $100 to $120 billion range compared to
just $6 billion in 1999. [Barclays Capital / Wall Street Journal]
And a word about real estate. There was an interesting piece in
Business Week on the subprime market; those who fail to meet
normal mortgage standards. Subprime lenders issued $650
billion in this paper in 2005, some 23% of all new loans vs. just
5% in 1994. In California, one in five buyers spends more than
½ of pre-tax household income on housing (30% being the
recommended max).
So it should be no surprise to learn, as the Journal pointed out the
other day, that there is an exodus from cities such as San
Francisco and Boston where affordability is a big issue.
Street Bytes
–Earnings drove market performance, ignoring the implications
of soaring oil and gold. Texas Instruments, Merrill Lynch,
Yahoo, Merck, 3M, Apple Computer and even General Motors
were among those beating expectations; while Motorola, Juniper
Networks, Ford and eBay disappointed and were hammered.
Then you had issues like Citigroup and IBM whose reports were
so-so and the stocks acted in kind.
Overall, the Dow Jones hit a six-year high, up 1.9% on the week
to 11347, while the S&P 500 closed at 1311, up 1.7%, and
Nasdaq added 0.7% to 2342.
Don’t worry. I didn’t forget Google which blew away the Street
with its earnings and closed the week at $437. After a brief
slump, Google is back on track to take over the world and there’s
really nothing you and I can do about it.
Just a few tidbits. GM lost $320 million but because this was
better than expected the stock rose 10%. GM’s sales in Asia, in
particular, were strong. Ford lost $1.2 billion and there was little
good to say here, while Apple shipped 8.5 million iPods in the
quarter, causing audiologists to jump for joy at the prospects for
more business as users go deaf. Lastly, German software giant
SAP continues to take market share from Oracle.
–U.S. Treasury Yields
6-mo. 4.90% 2-yr. 4.90% 10-yr. 5.01% 30-yr. 5.09%
At first Treasuries rallied strongly on word the Fed may be
finished raising rates after the next meeting, but then everyone
looked around and said, “Hey, what if some of the inflation data
comes in hot, say in June and July? Then what would the Fed
do?” And so rates creeped back up, though the yields were still
below the prior week’s on the longer end of the curve.
As alluded to above, how our government measures inflation is a
hot topic these days and Bloomberg’s John Wasik had a good
summary of the issue.
“If the full impact of consumer-price increases were accounted
for, investors would have a lot more to worry about, and you
should prepare for a threat that’s much greater than labor
Department reports indicate.
“The government has a vested interest in keeping official
inflation measures low. Everything from Social Security cost-of-
living increases to marginal tax rates is adjusted annually to this
all-important gauge.
“The total cost of what we are paying for big-ticket items is
much higher than what’s reflected in the CPI.
“Take housing costs, for example. The Bureau of Labor
Statistics, or BLS, the U.S. Labor Department’s agency that
calculates the price index, estimates housing costs by figuring
‘owners’ equivalent rent,’ or a proxy of what homeowners would
pay in average rent increases.
“As the largest component of the CPI at 23 percent, housing
represents a huge portion of the overall cost of living. Yet the
Labor Department’s indirect measure vastly underestimates
actual housing costs since it doesn’t reflect home-purchase
prices, financing, maintenance or property taxes. Done any
roofing, remodeling or painting lately? Have you noticed how
much your property-tax bill has climbed to match higher home
values?
“How understated is the Labor Department’s rent metric? Jim
Floyd, senior analyst for Leuthold Group, notes that ‘since 1996,
existing-home prices are up 81 percent, but the BLS owner-
equivalent rent numbers are up only 30 percent over this entire
period.’”
Yes, as John Wasik notes, housing alone represents “the big lie.”
But then there’s this from Sandy Habermann of Miller Tabak
(courtesy of David P.).
“Most agree that the housing market has slowed, especially after
the weak data seen this week and in recent months. By the same
token, those who believe (this to be true) should also expect the
housing portion of the CPI to trend higher. When the housing
market was strong, it suppressed the CPI because there was a
large shift from renting to buying. With rents accounting for
such a large part of the CPI this was a big deal. Similarly, now
that the housing market has slowed, demand for rental units is
increasing, putting upward pressure on rents.”
So, looks like the government will have to play with the books
again, doesn’t it? Change the formula back to a focus on home
buyers, just as values fall or stagnate, mused the editor.
–The other day in the Rose Garden, President Bush gave an
embarrassing response to a question on the high cost of gasoline.
“And let me remind people that these high gasoline prices are
caused by primarily three reasons: One, the increase in the price
of crude oil. It’s one of the reasons I stood up in front of the
Congress and said we’ve got to have strong and active research
and development to get us to diversify away from crude oil. It’s
tight supply worldwide, and we’ve got increasing demand from
countries like India and China, which means that any disruption
of supply or perceived disruption of supply is going to cause the
price of crude to go up. And that affects the price of gasoline.
“Secondly, there’s increasing demand. At this time of year
people are beginning to drive more, getting out on the highways
[oh brother], taking a little time off, and they’re moving around.
[ed. you know, like squirrels] And that increasing demand is
also part of the reason the price of gasoline is going up.
“And, thirdly, we’re switching fuel mixes. The summer fuel mix
is different from state to state, and is different from what is being
used in the winter. And, therefore, the combination of these
creates higher gasoline prices. And I’m concerned about higher
gasoline prices. I’m concerned what it means to the working
families and small businesses, and I’m also mindful that the
government has the responsibility to make sure that we watch
very carefully, and to investigate possible price gouging. And
we’ll do just that.” [whitehouse.gov]
I double-checked the transcript because I was incredulous as I
was watching him. To be fair, though, his explanation has a
kernel of truth to it, but just tell people what’s really
happening….and forget for the time being the whole ethanol
debate which is clouding the true issue.
It’s about the fact Iran pumps a bunch of oil in an already tight
global market and we could be headed towards a military conflict
that could shut down the Strait of Hormuz, through which 25%
of the world’s oil flows. That, plus the lesser, though still highly
important issues of Nigeria’s insurgency and the wacko
pronouncements of Venezuelan President Hugo Chavez. Bush
should also admit the flow of oil from Iraq is still well below
pre-war levels, when three years ago the plan was for it to be
gushing at a rate at least a million barrels per day higher. Plus
the president forgot to mention the equally significant impact
Katrina and Rita had on Gulf production to this day.
Oil is $70+ and without these major issues, as well as the
accompanying speculation, it would be $50, or potentially lower,
and no one would be complaining about the price of gasoline.
–President Bush didn’t have a good week. Another dumb move
was moving Rob Portman over to Office of Management and
Budget from chief trade representative. I thought Portman was
doing an outstanding job in that position and instead Bush
promoted Susan Schwab. No offense to all you Susan Schwab
fans out there, but being outside the Beltway myself, wasn’t
there someone else available? We are at a critical stage in the
Doha round of global trade talks and our international partners
are already ridiculing the selection.
–Despite a wicked correction on Thursday, many remain bullish
on commodities. And no one has been more bang on than hedge
fund manager Jim Rogers. On Tuesday, Rogers was interviewed
for Bloomberg News.
“The shortest bull market for commodities lasted 15 years, the
longest 23 years.” So if history is any guide, “they’ve got a long
way to go.”
“Supply and demand is terribly out of balance for nearly all
commodities right now. This is not a bubble.”
But Rogers sees the best opportunities these days in the
agricultural sector. “That’s where prices have moved least,” with
cotton, soybeans and sugar still “cheap on any historical basis.”
–Chile, the world’s largest producer of copper, reported exports
of the product rose 63 percent in March, year over year. In the
first quarter of ’06 this amounted to $6 billion. The Santiago
Times also reported that worldwide copper stockpiles in
February were the equivalent of just four days of global
consumption.
–For a third time, Yahoo helped put away a dissident who was
posting his musings on the search engine. Jiang Lijun was
sentenced to four years for sharing his pro-democracy views,
similar to two earlier cases where online journalists received 8
and 10 years, respectively.
–Russia tidbits:
Former Yukos chairman Mikhail Khodorkovsky was slashed in
the face in his Siberian prison. He is serving an eight-year
sentence and there are obvious concerns whether or not he will
survive the full term.
Russia’s KBG-led gas monopoly Gazprom warned European
Union nations to butt out when it comes to its expansion plans.
CEO Alexei Miller told EU ambassadors, “It is necessary to note
that attempts to limit Gazprom’s activities in the European
market and politicize questions of gas supply, which in fact are
of an entire economic nature, will not lead to good results.”
Gazprom is threatening to devote more of its resources to central
Asia and China, once again proving that the Kremlin will wield
the energy card at a moment’s notice.
Meanwhile, Moscow’s residential housing market continues to
skyrocket (along with the Russian stock market, up 43% year to
date thru Thursday). Apartment prices in March rose 7.5
percent, the largest monthly price jump in 15 years.
And surging equity prices, oil, and real estate have led to a surge
in Forbes Russia’s Golden 100 richest people list. To be
included you now need a net worth in excess of $450 million. In
one year the 100 wealthiest businessmen in Russia saw their
combined assets grow 76 percent to $248 billion.
The CEO of LUKoil, Vagit Alekperov, tripled his fortune to
$12.7 billion, but Roman Abramovich of oil company Sibneft is
still Russia’s #1 with a net worth of $18.3 billion.
But as opposed to America’s wealthiest duo, Bill Gates and
Warren Buffett, Russia’s richest scare the hell out of me….which
I would submit is not exactly a great commentary on this nation’s
future direction. [Khodorkovsky was an exception, when he still
had his wealth….which is why it’s unlikely he’ll emerge from
prison alive to lead a new political movement.]
–As evidence the retail investor has been rushing back into the
U.S. market, Charles Schwab & Co. reported new accounts were
up a whopping 25% in one year.
–But as the little guy reemerges from the 1999-2000 Bubble and
its aftermath, much of his funds are flooding into emerging
markets, thus fueling that sector’s mania. There is no more
seasoned investor in this realm than Templeton’s Mark Mobius
who told the Journal, “We’re not yet at the danger stage, but
we’re getting there – and history does repeat itself.”
–The hottest emerging market has been the Middle East until a
recent major correction. Henry T. Azzam, commenting in
Lebanon’s Daily Star, offers this cautionary note.
“One of the main risks facing Arab banks is their sizeable
exposure to the region’s equity and real estate markets….
Although the large Arab banks are well equipped to deal with a
major correction in the two markets, the impact on the banking
sector as a whole would be noticeable if the ongoing correction
in the region’s stock markets is followed by a major shock in the
real estate market.”
You don’t have to be a rocket scientist, or Bedouin, to know that
when you see pictures, such as in Dubai, of gobs of new
construction soaring to the sky that there is trouble ahead. Then
again if you believe oil will forever remain above $60, the
danger here is probably muted.
–Merck lost a Vioxx case in Texas and is now 3-3 in these cases.
–Dow Jones is having problems with the Saturday edition of the
Wall Street Journal, introduced last September. Thus far it’s a
big drag on earnings.
Now I have to admit I wouldn’t mind seeing the company shelve
it because I’d save 30 minutes out of my weekend.
–Freddie Mac, the #2 U.S. mortgage financing company next to
kissing cousin Fannie Mae, agreed to pay a fine of $410 million
to settle a shareholder lawsuit resulting from its accounting
shenanigans.
–Forbes values the New York Yankees at $1 billion.
–8.3 million Americans now have a net worth, excluding their
home, of $1 million, up 800,000 from 2004. But in a study by
TNS Financial Services, as reported by Investment News, 60%
of affluent households use a financial adviser, a drop from 70%
in 2004 and 79% in 2001. Not exactly super news for my friends
in the industry. 67% of respondents simply felt they could do a
better job managing their own money.
–I was in Moscow in the fall of 2002 and wrote then of how
Russian art seemed to me to be a good play, though I wasn’t
thinking the buying would be fueled by the hedge fund crowd as
much as it has been. For example, the New York Post reported
that a 1919 Russian work that sold at Christie’s for $30,000 in
1989 was recently purchased at auction for $2.9 million.
–In the latest on the ‘haves’ vs. ‘have nots’ front, UnitedHealth
Group’s William McGuire, CEO of the HMO giant, was reported
by the Wall Street Journal to have $1.6 billion in unrealized
gains on his stock option holdings. Regulators, though, are
looking into whether or not he backdated the grants to give
himself the lowest share price for a specific period….say hitting
the quarter low, each quarter. The timing is highly questionable.
But as to the issue of whether or not McGuire is entitled to such
a haul, who am I to say? What got me, though, was McGuire,
after getting heat following the Journal piece, suddenly
recommended his company forego options for most senior
executives in the future. Nothing like getting ye olde time
religion.
And of course this goes back to the previous week’s big story on
the compensation front; former ExxonMobil’s Lee Raymond and
his nearly $400 million retirement package. As one shareholder,
Emil Rossi, told the AP, he’s done well by owning Exxon shares
but the pay is a little out of whack.
“(Raymond) took over a good company. He didn’t bring it out
from being a bad company, so his pay is clean out of reason. It’s
not because of his smartness.”
In other words, this isn’t a case of an entrepreneur such as Bill
Gates or Michael Dell…or the Google boys for that matter. No
one can ever begrudge them as long as they obtained their gains
legally.
But the real bottom line will be how most Americans feel and to
that end it doesn’t bode well when anchors such as NBC’s Brian
Williams are making fun of Raymond as he did on Monday’s
broadcast.
–And then there’s Citigroup’s Sandy Weill who was given a
fond farewell gala attended by the likes of Bill and Hillary. I’ve
written enough on this guy over the years and in the end history
will show him to be what he was….a vastly overrated Wall
Street kingpin who bent the rules, often at the expense of clients.
No doubt, those who were swept up in his orbit did well, but the
returns you see quoted for shareholders are for a period of time
where just about any stock did well and lately Citi has lagged
badly.
If you disagree with my take on his career, just remember
regulators put the clamps on Citigroup as a result of Weill’s “bad
business practices.” If there hadn’t been a Sandy Weill, the free
market would have found someone else to fill any perceived gap.
–Finally, for purposes of providing a portfolio allocation I have
stuck with an 80% cash / 20% stock split and I’m grading myself
by using the S&P 500 as the proxy for the equity portion.
But I’ve also said that at the start of 2006 I had the lion’s share of
my own equity holdings in a carbon fiber company…about 15%
overall. Well, that 15% position is up over 200% in the first four
months of the year and I mentioned a few weeks ago I was
sticking with this one in true pig fashion.
The point is I’m currently far from an actual 80 / 20 split in my
own account until I sell the one stock, but I’m maintaining that as
the recommendation and as the mechanism by which I’m graded.
Foreign Affairs
China: The United States and China could be engaged in an
armed conflict by 2010, and to those experts who say China is far
behind the U.S. technologically when it comes to a comparison
of our two militaries, as was put forward in some circles this
week, may I remind them that China already has a developed
capacity to take out an aircraft carrier or two; at which point the
issue would become, do the American people have the stomach
for full-scale war with China? Particularly after Iraq and what is
almost certain to be action in Iran.
Before he left for the U.S., Chinese President Hu spoke of
holding talks with Taiwan “on an equal basis as soon as
possible.” Taiwan’s government said Beijing was being totally
“insincere” as it rejected the call, citing the mainland’s continued
missile deployment across the Strait that is threatening the island.
Hu refers to the 1992 “consensus” with the nationalist
government on Taiwan at the time, the KMT, and an agreement
that said the two sides were part of “one China,” with each
having its own interpretation of what “one China” means.
And you saw this week how much Hu focused on the issue of
Taiwan in his discussions with President Bush. Taiwan’s
President Chen Shui-bian, who seeks independence without
publicly proclaiming this, is in power until 2008 and while polls
show the Taiwanese people desire the status quo, Chen correctly
feels that Taiwan should be recognized for what it is….a
thriving, independent democracy; though China treats such
thoughts as an act of war.
The United States is in a box, and as Hu and his fellow commies
worry about keeping civil unrest to a minimum the leadership
won’t hesitate to play the nationalism card when necessary to
placate the masses; two of the prime targets being Washington
and Taipei (the other is Tokyo).
War seems almost inevitable over natural resources alone.
Michael Green, who directed policy on China at the National
Security Council until late last year, told Bloomberg News that
while we observe China buying up oil, for example, from every
unsavory place on earth, such as Sudan and Iran, the United
States looks for crude, and other commodities, elsewhere.
“(China) says it is benign, because they don’t interfere with the
internal affairs of other nations. And we say it is anything but
benign, because it finances these regimes’ bad behavior.”
Pang Zhongying, Director of Global Studies at Nankai
University, Tianjin, China, is also a contributing editor for The
National Interest.
“As an emerging great power, China must be willing and able to
take on a larger and more responsible role in global affairs – but
this should not occur haphazardly. Chinese universities and
think tanks need to do much more in discussing the role China
should be playing in the world. Regrettably, China has failed to
be an ‘an intellectual actor’ in addressing questions of global
governance. When President Hu speaks of China desiring to
facilitate a ‘harmonious world,’ this must be translated from the
realm of ‘good wishes’ into formulating policy
recommendations, identifying the challenges requiring China to
assume a greater role of leadership, and developing the norms,
rules and institutions that will define the international order of
the 21st century.
“China’s ‘peaceful rise’ or ‘peaceful development’ has enormous
implications for the international system – and in turn, China
needs to be prepared to shoulder the responsibilities for global
peace and stability befitting a power of its stature.”
Meanwhile, looking to the Olympic Games of 2008 in Beijing,
Chinese authorities are scared to death of the pollution issue.
What a PR disaster if the skies turned a disgusting yellow as they
did this week as a result of a massive sand and dust storm that
had many fleeing indoors. China tried to combat it with artificial
rain and while officials say the Games in August won’t be
subject to such an occurrence, which often happens in the spring,
other pollutants are a constant factor. The only good thing,
though, is that this experience and ones like it are getting China
to focus on the nation’s pitiful air and water quality standards.
Lastly, Canada is increasingly concerned about 1,000 suspected
Chinese agents and informants on its soil, most of whom are
probably visiting students and business people. The former
Liberal government did nothing about the problem, but the new
Conservative government of Prime Minister Stephen Harper has
vowed to crack down; though what it will actually do is anyone’s
guess. Until such time, China just keeps stealing industrial and
high-tech secrets.
India: The problems in Nepal and Katmandu bear watching as it
threatens to spill over into India. A longstanding Maoist
insurgency had sought to topple Nepal’s monarchy and 13,000
have died in the conflict. But last year the king seized power and
has refused to hold elections, until an announcement late Friday
that he was prepared to turn over power to an as yet named prime
minister. Protests continue nonetheless and the king’s security
forces have killed a number of protesters.
India’s Prime Minister Singh is concerned because India’s rural
regions are breeding grounds for Maoist movements such as
the one in Nepal.
Russia: Former senior adviser to President Vladimir Putin,
Andrei Illarionov, in an op-ed for the Washington Post.
“Does Russia really belong in the Group of Eight – the assembly
of the world’s leading industrialized democracies? As things
stand today, it meets only one criterion for membership; the size
of its economy. So far as political rights are concerned, Russia
ranks 168th out of 192 countries, according to Freedom House.
In terms of corruption, the organization Transparency
International ranks Russia 126th out of 159 countries. The World
Economic Forum calculates that when it comes to favoritism in
governmental decisions, Russia rates 85th of 108 countries, in
protection of property rights 88th of 108 and in independence of
the judicial system 84th out of 102.
“The principal difference between the original G-7 countries and
Russia lies in their disparate approaches to nearly every essential
issue on the global agenda. Russia pursues ‘wars’ against its
neighbors on matters relating to visas, electricity, natural gas,
wine and now even mineral waters.
“Russia’s official media have whipped up propaganda against the
hard-won democratic road chosen by Ukraine, Moldova and
Georgia, as well as against the Baltic countries, Europe and the
United States. These countries became the enemies in the new
‘cold war’ being waged by Russia’s authorities. At the same
time, new friends have emerged in the leaders of Belarus,
Uzbekistan, Iran, Algeria, Venezuela, Burma and Hamas – a very
different sort of G-8.
“The question now occupying the minds of leaders of the G-7
countries is whether to participate in the upcoming G-8 summit
in St. Petersburg. Idealists have proposed a boycott. Pragmatists
oppose that approach. In either case, a bad outcome is
inevitable.”
Ukraine: In case you were wondering what’s going on here after
the March 26 vote, so am I. As of this writing, a ruling coalition
still hasn’t been formed as Tymoshenko, the former prime
minister fired by President Yushchenko last year, wants her job
back in return for her party’s support. It’s a mess, as predicted.
And a potential disaster looms over in Chernobyl as we approach
the 20th anniversary of the catastrophic explosion at the nuclear
plant there. According to a report by Mara Bellaby of the AP,
the sarcophagus that was constructed over reactor No. 4 is close
to breaking down. A new one is being built but will it be
finished in time? And could there yet be another explosion
before then? Bellaby writes:
“No one knows exactly how much radioactive fuel remains since
only 25 percent of the reactor is accessible. Some estimate it all
was discharged during the 10 days when the reactor spewed out
its insides. Others counter that as much as 90 percent is still
there. Sensors constantly check for signs of new reactions taking
place.”
Chernobyl is about 70 miles from Ukraine’s capital of Kiev.
Lebanon: The latest UN report on the assassination of former
Lebanese prime minister Rafik Hariri cites Syrian intelligence
chiefs for threatening Hariri if he didn’t move to keep Syria’s
lackey, President Emile Lahoud, in office longer than the
constitution warranted at the time. The Security Council is to
take up the report this week.
Separately, Prime Minister Fouad Siniora traveled to Washington
to meet with President Bush. Afterwards, Siniora said he was
“really convinced” that “Bush and the United States will stand
beside Lebanon to have Lebanon remain a free, democratic,
united and sovereign state.”
Following is an editorial from the Daily Star:
“The significance of these words cannot be overstated, given the
enormous expectations that so many Lebanese held ahead of
Siniora’s controversial visit to the U.S. Many had hoped that the
premier would secure a promise from Bush to help end Israel’s
occupation of Lebanon’s Shebaa Farms, halt Israel’s incursions
into Lebanese territory and free Lebanese detainees from Israeli
prisons. Indeed, as he was setting out on his visit to America,
Siniora said that he intended to seek U.S. assistance in ‘enabling
it (Lebanon) to recover its occupied Lebanese territories.’
“So far Bush has not met any of the high expectations of the
Lebanese people. In a statement after his meeting with Siniora,
Bush merely reiterated what many consider empty words of
support for a ‘free and independent and sovereign Lebanon.’
Such words of support for Lebanon’s sovereignty are of little
value if they are not followed up with action. The people of the
region, particularly the Lebanese, are well aware of the fact that
through its annual aid packages to Israel, the U.S. holds
considerable sway over Israeli policy. But they also know that
the U.S. has rarely – if ever – used this influence to encourage
Israel to halt its aggression and behave like a civilized
neighbor….
“As a leader in a part of the world where resentment over U.S.
policy has reached unprecedented levels, Siniora has taken a
dangerous step by so openly allying with Bush. He has in effect
put his credibility and therefore his future as a politician in the
hands of an often clumsy U.S. president. If Bush now fails to
show genuine support for Lebanon’s sovereignty, he will not
only be once again disappointing the Lebanese, he will also be
terminating the career of a man who could have proven himself
to be a valuable U.S. ally.”
This is sad. I continue to maintain the fate of Lebanon is just as
important as that of Iraq in the long run because of the influence
Syria has over the land as well as the presence of Hizbullah.
Lebanon can break apart at a moment’s notice.
As to the editorial’s comments on Bush, personally, they are
bang on.
Japan / South Korea: The two are trying to keep the lid on a
simmering dispute involving a group of islands both claim called
the Liancourt Rocks; a resource-rich strategic chain. Cooler
heads should prevail.
Chad: The World Bank is withholding $124 million that was
supposed to be used to ease poverty in the country, claiming the
government wants to use it for arms. Well, it does because
Sudan is being a poor neighbor. Early in the week, Chad said it
would stop its flow of oil (about 160,000 barrels per day) unless
it got its way but it pulled back that threat and is evidently going
to buy more arms anyway with the oil revenue regardless of the
World Bank’s complaints.
Venezuela: Since the recall vote on President Hugo Chavez two
years ago, many of the 3.4 million who signed the petition
forcing the vote have been fired from the civil service and taken
out of the running for government contracts. [Bloomberg News]
Chile: Neo-Nazis have been linked to a number of murders here,
unsettling the country. Authorities have vowed to crack down on
these self-styled “defenders of normalcy.”
Random Musings
–Ret. Lt. Col. Ralph Peters in an op-ed for the New York Post.
Regarding the criticism of the defense secretary, “Generals such
as John Batiste, Gregory Newbold, Paul Eaton and Tony Zinni
have something else in common, too: They’re leaders respected
by their peers for flawless integrity. Their reputations within
their services – the Army and Marines – could not be higher.
They are not and never have been political generals.
“And these men have much to lose by going public with their
criticism. They’ll never get the lucrative defense-industry jobs in
corporations whose profits depend on the favor of the Pentagon.
They’re not going to be offered plum appointments in any future
administration, Republican or Democrat. They’ll be frozen out
of the Washington-insider’s club. They face organized political
attacks upon their personal reputations.
“And yet they feel it their duty to speak to their fellow citizens,
no matter the cost.
“Who are the retired generals rallying to Secretary Rumsfeld?
Check their credentials, please. When you see those ‘dead
generals’ pontificating on cable or network news, the crawl at the
bottom of the screen doesn’t tell you their corporate affiliations
or explain their relationships with the Pentagon. If it did, you’d
find that few are objective commentators….
“(The generals) who rush to defend the SecDef…fall into three
categories:
“Pathetic, aged retirees who desperately want to believe they’re
still Washington players and who will do anything for a scrap of
official attention.
“Air Force generals – while the Army and Marines fought,
Rumsfeld funded all of the Air Force’s toys and can count on its
support.
“And, most troublingly, serving officers selected by the SecDef
for the military’s highest offices….
“Rumsfeld’s critics played by the rules and retired before stating
their cases. But what should we make of the Joint Chiefs
chairman, Gen. Peter Pace, his predecessor and their colleagues
who’ve offered Manchurian-Candidate praise of the defense
secretary in public?”
–President Bush made some further staff changes, aside from the
aforementioned move of Rob Portman to OMB. Karl Rove lost a
little power, while Press Secretary Scott McClellan was shown
the door. Outside the Beltway no one gives a damn about these
moves, just as no one cared about Josh Bolten taking over as
chief of staff from the tired Andrew Card.
But I loved this bit from Gerard Baker of the London Times.
“Perhaps mindful of the futility of so many reshuffles on either
side of the Atlantic, George Bush is leaving nothing to chance.
Instead of a Night of the Long Knives, President Bush is
currently in the middle of a Month of the Short Spoons – a long,
drawn-out process in which he gently scoops out the detritus of
his crushed and mangled Administration in an attempt to retrieve
something of value in his remaining two and a half years….
“(On Wednesday) came the defenestration of the comically
hapless Scott McClellan….In the past three years Mr. McClellan
has become about as plausible a spokesman for Mr. Bush as the
inimitable Comical Ali was for Saddam Hussein. The poor man
is blamed for being the face of the Administration’s
communications problem. You can see why.
“At his daily press conference Mr. McClellan conveyed a terror
of speaking off the narrow line of his talking points that left the
powerful impression of a man incapable of the most elementary
of independent thought. His stilted, frightened response to
reporters’ questions made you wonder what his home life must
be like. You had visions of him being asked by his children
whether they could go to the beach this year: ‘Well, I think, as
we have always made clear, the beach is certainly a possibility
but right now we’re keeping all available vacation options
open.’”
–The New York Times had a story on the plight of Texas and
other states that have taken in Katrina refugees. They are
overburdened and feeling abandoned. An aide to Texas Rep.
Senator Kay Bailey Hutchison said, “Texas opened its doors and
hearts, and that is something we will continue to do. However,
we need to be reimbursed.” Damn right. And it’s a shame many
of the dregs of New Orleans have now chosen cities like Houston
to continue their crime wave.
–The Duke lacrosse team story is going to be with us a long
time, sadly. This is a nightmare.
–I always thought Purdue University was a good school, full of
smart kids. But one has to wonder what kind of idiots are
peopling the place these days. Two fraternities were suspended
earlier this year for violating hazing rules, and with this
knowledge a third was suspended the other day for doing the
same thing. What don’t these kids understand?
–Boy, if I was a parent I would be scared to death of not just
what my kids saw on the Net, but specifically MySpace.com.
Five high school students posted details of an alleged plot to
shoot up their high school in Riverton, Kansas on the site. Not
that MySpace itself had anything to do with it, but this online
‘community’ of tens of millions of kids, as well as perverts
looking to prey on them, has been nothing but trouble.
–Happy Birthday to Queen Elizabeth II who turned 80 on
Friday. I’ve always been a fan of the monarchy; in fact I’ve
mused on more than one occasion that I wish George
Washington had taken up the offer to be king. [Like the current
system of government we have is great?!]
–Former Illinois Governor George Ryan was convicted on all
counts in his corruption case and faces up to 20 years. But this
dirtball will best be known for emptying the state’s death row
without any regard for the victims’ families; a travesty.
–The New York Times’ Thomas Friedman, 4/21.
“I was visiting Williams College a few days ago and heard a
student speaker there mention that at the end of the day, she had
gone back to her dorm room to study and to ‘do it in the dark.’
“Hey, I thought, I’m not a prude, but did she have to be so
explicit – and in public, in front of parents no less?
“Fortunately, I quickly discovered that ‘doing it in the dark’ is
not some new sexual escapade, but a new Williams energy-
saving competition in honor of Earth Day. Student dorms,
classrooms and campus buildings are pitted against one another
to see who can save the most energy. Students are encouraged to
turn off lights every time they leave a room, to unplug cellphone
chargers when not in use, to take advantage of daylight to study
or use precise task lighting, and to change old light bulbs to
compact fluorescents.”
Oh brother. This is a three-time Pulitzer Prize winner? And
what does this say about Williams? This is grade school stuff.
–From Lebanon’s Daily Star.
“Repugnant smells coming from the direction of Beirut Port have
been emanating from a large ship carrying cattle which was set to
leave the capital’s seaport on Wednesday night…
“The accumulated manure of the cows since their arrival to
Lebanon has produced the odors….
“The ship…transported around 7,000 ‘wild cows’ coming from
Brazil.”
Goodness gracious. Wild Brazilian cows?! As Marlon Brando
uttered in ‘Apocalypse Now,’ “the horror.”
[I never said I myself was gunning for a Pulitzer.]
–I have heard a number of stories recently about the explosion in
steroid use among high school athletes. As my friend Mark R.
and I talk about all the time, this is part of Barry Bonds’ legacy.
And note to parents. A club I belong to had a speaker this week
who advises athletes on nutrition and she said obtaining any
steroid over the Internet is a piece of cake.
–Two definitive studies on dental fillings for children finally put
to rest the theory that kids develop health problems from the
mercury amalgam. They don’t. That’s the good news. The bad
news is that salmon and tuna young are still at risk.
–In a Sunday Times Magazine piece by Professor Stephen Mihm
we learn that a study conducted by researchers in Finland found
that prisoners convicted of violent crimes had lower levels of
omega-3 fatty acids than ordinary, healthy subjects. Other
studies have reached similar conclusions.
So it’s just another reason to save the salmon and kill the seals
that are devouring them in the Pacific Northwest and California;
unless you have a better idea.
–Congratulations to Josephine Crawford, 84, who won a
staggering $10 million on a nickel slot machine at Harrah’s
Atlantic City. Down to her last few dollars, her granddaughter
convinced Josephine to keep going on a progressive machine that
hadn’t paid out a grand prize winner in three years.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $638…holy Toledo!
Oil, $75.17……Yikes!
Returns for the week 4/17-4/21
Dow Jones +1.9% [11347]
S&P 500 +1.7% [1311]
S&P MidCap +3.1%
Russell 2000 +2.8%
Nasdaq +0.7% [2342]
Returns for the period 1/1/06-4/21/06
Dow Jones +5.9%
S&P 500 +5.1%
S&P MidCap +9.5%
Russell 2000 +14.7%
Nasdaq +6.2%
Bulls 48.0
Bears 26.0 [Source: Chartcraft / Investors Intelligence]
Note: I’m off on a long trip….my 4th in five years to the Far East,
including the island of Yap in Micronesia. If all goes according
to plan I will have a real treat for you next week. On Saturday, I
hope to visit one of the world’s true ‘hot spots’. [With the time
difference I expect to be able to post at my normal hour.] But
there are a lot of moving parts to this adventure, beginning with
ten flights, so we’ll see what happens.
Have a great week. I appreciate your support.
Brian Trumbore
