[Posted 7:00 AM ET]
Iran
An editorial in the Washington Post offered that when it comes
to Iran and its suspected nuclear weapons program the time for
action is now, “ideally within the Security Council, but if
necessary outside it.”
But when you look at the parties that are setting policy,
permanent Security Council members Russia, China, the U.S.,
Britain and France, plus Germany, hopes for a consensus are
bleak. The United States is now sniping at Russia (more on this
later), both Russia and China don’t want to rile up Iran, let alone
the fact they are supplying it with arms, the U.S. has lost a ton of
credibility with its missteps in Iraq, Britain’s leadership is in a
total state of disarray, France’s government is enveloped in a
crippling scandal involving a rival for the presidency, and
Germany’s new chancellor is weak.
The only nation Iran has to fear these days would appear to be
Israel, and at least for now Israel can ill-afford to act alone.
Once again, we are fed lines like the following that appeared in a
front page story in Sunday’s New York Times. In terms of Iran
and the bomb, “intelligence estimates say that day is still 5 to 10
years away, assuming there is no clandestine effort that no one
has detected.”
Call me naïve, but just who are we dealing with? A regime that
lied for 18 years to the International Atomic Energy Agency,
that’s who. At this point, for any journalist, intelligence official
or head of state to act as if anything Iran says is truthful is
patently absurd. What we lack is the intelligence to know just
where and at what level Iran’s nuclear activities are taking place.
The EU-3 – Britain, France and Germany – have advocated a go
slow approach and a resolution is being advanced that calls for
cessation of Iran’s uranium enrichment activities while offering
no fixed deadline or specific threats.
As for the Russian and Chinese positions, just know that
Moscow sold a battery of sophisticated air defense systems to
Iran as the Kremlin prepares to host a G-8 summit. This is nuts.
Is it 1938 all over again as some Israeli officials claim? Yes.
Can Iran be stopped before we wake up one morning to find
world financial markets in freefall because Tehran tested its first
nuclear weapon? Doubtful.
And when it comes to U.S. leadership these days, which has been
reduced to the White House pleading with the world that “Iran is
not Iraq” and that the administration desires a diplomatic
solution, William Kristol of The Weekly Standard offered:
“(It’s) true the Europeans don’t fear the Bush administration any
more. Nor, unfortunately, do others. One might also note that,
despite all the goodwill built up by our outreach to the capitals of
Europe, President Bush seems much weaker today than he was in
the bad old days of unilateralism and bellicosity, and so does the
United States. But the State Department is popular, and at least
we don’t look like Neanderthals in the drawing rooms of Europe
and Georgetown.
“Condi (Rice) and her colleagues may come home and say,
privately, it ain’t so. But it is so. Much of the U.S. government
no longer believes in, and is no longer acting to enforce, the
Bush Doctrine. ‘The United States of America understands and
believes that Iran is not Iraq.’ That’s a diplomatic way of saying
that the United States of America is in retreat.”
Wall Street
Without a doubt, in the opinion of your scribe the big news on
the week was the pronouncement of long-time bear, Morgan
Stanley chief economist Stephen Roach, that he is “feeling better
about the prognosis for the world economy for the first time in
ages,” citing orderly global currency adjustments and an Asia
that is increasingly less reliant on exports as consumers begin to
open up their pocketbooks.
I’m not saying Mr. Roach is right, especially since he then fails
to make a point I’ve been offering up the past few months. These
same Asian consumers, as well as their emerging market
brethren on other continents, are also beginning to pile up debt;
many having discovered those little rectangular cards made out
of plastic for the first time.
“Why this is so easy!” “Yeah, isn’t it?” Now just wait for your
bills to start rolling in.
But to give Roach his due, the economy is indeed cooking. This
week readings on personal income and consumption were both
up big, the wage growth component of the April employment
report was at its highest level in five years, various indicators on
manufacturing activity were solid, first quarter earnings continue
to be generally well received, chain store retail sales, led by Wal-
Mart, rebounded from March’s desultory pace, and even energy
prices cooperated this week and fell across the board.
Globally, Euro-zone manufacturing was at its highest pace in
five years and the Bank of Japan had a rosy forecast for that
nation.
Fundamentally, there is little not to like. But you don’t expect
me to end here, do you?
If we’re doing so well, why did a recent NBC News / Wall Street
Journal poll show that only 19% are confident about the state of
the economy vs. 77% who aren’t? It’s not necessarily about high
gasoline prices, but even bigger issues such as ever rising health
care, job insecurity, the safety of one’s pension, rising interest
rates and the impact on adjustable rate mortgages, as well as a
general feeling that it is far tougher just to ‘keep up’ than in the
past.
This last point, more theoretical than quantitative I’ll admit, is
perhaps best exemplified by our continuing need to tap our home
equity; record levels in the first quarter despite the rising rates.
Some of it is used to pay down debts, much of it to fill this
almost psychotic need of ours to have the best of everything,
whether or not we can actually afford it.
But to finish on a more positive note, the federal budget deficit is
declining at a rapid rate and the Congressional Budget Office
now pegs it at as low as $300 billion in 2006 vs. $318 billion in
fiscal ‘05. The Bush tax policies deserve a lion’s share of the
credit here, but it also helps spotlight the fact that the deficit
could have been far lower still had the president showed some
guts on the spending side of the ledger. At the same time there is
no rosy outlook as the demands on Medicare, Medicaid and
Social Security begin to explode in the coming years.
In the meantime enjoy the ride, if that’s your predilection. At
week’s end the Street soared on hopes the Federal Reserve is
finally done raising rates after a last hike this coming
Wednesday. I myself will stick with my large cash position,
earning about 4% these days, and a little carbon fiber as the
world turns to increasing use of alternative energy sources like
wind power.
You see, there are some major geopolitical storm clouds
gathering on the horizon, some currently well below the radar.
We really don’t like each other, sports fans, and in many cases
we absolutely despise our neighbors. The consequences are
likely to be both many and tragic.
Street Bytes
–The Dow Jones Industrial Average finished the week at 11577,
just 145 points shy of its all-time record level of 11722 set on
Jan. 14, 2000. For the week the Dow was up 1.9%, with the S&P
500 adding 1.2% to 1325 and Nasdaq tacking on 0.9% to 2342.
For the S&P it was a significant technical breakthrough on
Friday. On the year, as you see down below, we could finish up
right where we are at year end and be fully satisfied with the
performance. My own forecast for negative returns doesn’t
look too good these days, does it? But I shall return…even if
you don’t want me to. [He wrote…half tongue in cheek.]
Regarding equity returns around the globe, by the way, the Dow
Jones World Index, ex-U.S., is up 16% this year.
–U.S. Treasury Yields
6-mo. 4.98% 2-yr. 4.93% 10-yr. 5.10% 30-yr. 5.19%
The Federal Reserve meets on Tuesday and Wednesday of this
week and will raise the funds rate another 25 basis points to 5
percent. As always the issue is the language in the
accompanying statement. I suspect it will provide little clue as to
the future course of action as the Fed says it will monitor all
upcoming data just like the rest of us. If the pace of growth stays
hot and inflation continues to creep up, then rates are rising
higher still as those with adjustable mortgages increasingly
commit hari-kari in response.
Australia raised its own rates for the first time in 14 months last
week and the European Central Bank is close to doing the same
again. As for the Bank of Japan, most are now estimating it will
finally initiate its own tightening regime between June and
August.
None of this is good for the U.S. dollar as the world continues to
diversify away from the greenback and while a falling dollar is
beneficial to some American exporters, it’s not necessarily great
for all of them as the cost of goods sold may end up rising faster
than the final price in foreign markets.
–Little Evo Morales, newly elected president of Bolivia, sits on a
pile of natural gas that supplies half of Brazil’s needs. But Evo,
who is morphing into Venezuelan President Hugo Chavez’s
Mini-Me, has decided to nationalize his natural gas industry and
retake control of 1990s privatizations. This most impacts
Brazil’s Petrobras and Spain’s Repsol and the leaders of both
nations were livid. The budding dictator is seeking an increase
on royalties from 50 to 82 percent and at that extortion rate
much-needed investment would hardly be forthcoming.
But at week’s end, leaders of Argentina, Brazil and Bolivia
agreed to open talks on revising old contracts and we’ll see just
how bold Evo proves to be. If you glance at a map and look at
the shape of Brazil, it almost looks like a blob….about to
swallow Bolivia. Not that this is happening anytime soon, mind
you, but you won’t hear any outcry from me if it were to occur.
Back to the here and now, gasoline futures in the U.S. took a
breather on slower demand (we really do cut back a bit when the
price hits $3.00 at the pump), as well as rising inventories as
refineries ramp up production following spring maintenance
projects.
Lastly, I loved the reminder from the Wall Street Journal
concerning then President Clinton’s rejection of drilling in the
Arctic National Wildlife Refuge back in 1995, arguing that it
would take 5 to 10 years for any production to come on line. So
we would have had use of ANWR’s extensive reserves by now,
right?
–The real estate bubble continues in much of the world. New
Zealand keeps registering record home prices while in South
Korea I saw that prices for condos and townhouses are up 16%
year over year. But domestically, both home builders Toll
Brothers and Hovnanian talked of growing inventory gluts.
–U.S. auto sales were abysmal yet again in April for General
Motors, down 11%, and Ford, off 6.6%; while Toyota’s rose
4.5% and Honda’s were up 2.6%.
But interestingly, while we keep playing up the Japan-U.S. sales
differential here, in Japan itself car sales for its own Big Four
(Toyota, Nissan, Honda, and Mitsubishi) were off 7-27% in
April; the 10th straight month of declines there due to “lack of
new models.” [South China Morning Post]
[Back in the U.S., long-haul tractor trailer driver Ken S. tells me
he passes six Ford dealerships on a regular basis in Nebraska,
Iowa and South Dakota and they are all loaded with inventory,
even on the grass as they say, especially pickups.]
–The Financial Times had a story on the hedge fund industry and
how institutions, not just wealthy private investors, are piling in.
But the institutions, with their different mindset, have been
changing the rules of the game, telling managers that while 20%
gains would be nice, 10% is fine. A down year, though, is
forbidden.
So the hedge fund managers weigh this mandate and say, hey, I
just want to make sure I at least take in the 2% fee each year so
I’ll give them the 10% they want. Thus, many of the larger
operations are actually taking on far less risk than before when
they were mostly beholden to individuals who were looking for
lights-out performance.
–Following up on my comment last week concerning a new
liquid crystal display / flat panel plant opening in South Korea,
on Monday I saw these headlines in a local paper.
“Sharp rakes in record profits on flat TV boom”
“Sony to announce robust turnaround…due to brisk sales of flat-
screen televisions”
I’m waiting for the cost to come down to about $19.95 before I
buy one myself.
–I picked up the following on my trip, an op-ed from Professor
Lim Hua Sing of Waseda University in Japan. Just thought
you’d like to see how the U.S. is viewed in certain circles.
Regarding Japan’s ban on beef imports:
“Washington should listen to Japanese consumers. It should
invite Japanese consumer groups to U.S. cattle ranches to discuss
the problems, and with U.S. officials….
“The United States is the world’s largest producer of beef. It
raises about 100 million head of cattle of which about 35 million
are processed annually for human consumption. In 2003, Japan
was the top importer of U.S. beef at 37 percent (417,000 tons) of
total U.S. exports, followed by Mexico and South Korea both at
23 percent (267,000 tons) and Canada at 9 percent (103,000
tons).
“On Dec. 23, 2003, a Holstein cow in the United States tested
positive for…mad cow disease.
“The news immediately sent shock waves through the U.S. beef
industry….
“Before the ban on U.S. beef imports, Yoshinoya D&C Co. and
four other restaurant operators were serving more than 1 million
bowls of rice topped with beef each day. U.S. beef was the key
ingredient. With a moderate amount of fat, U.S. beef seems to
suit the Japanese palate….
“Japan took very strict measures to ensure that beef available to
Japanese consumers is safe. When a calf is born in Japan, its
date of birth, breed, the address and name of the producer and the
identification number of its mother are registered with the
government. A tag with a number of its mother are registered
with the government. A tag with a number assigned to each calf
is affixed on its ear….
“Since October 2001, Japan has blanket-tested all cattle
slaughtered for human consumption, as well as those that died of
illness or accidents. There are four U.S.-approved facilities
within Japan that process beef for export to the United States.
U.S. inspectors visit them once a year. A manual for U.S.
exports lists a strict set of rules that must be observed by
processors. For example, they are required to wash their hands
each time after processing an individual animal, check each hour
the temperature of refrigerators where beef for export is kept and
ensure once a day that thermometers are not broken.
“In the United States, cattle are put out to pasture for a year and
then moved to large production farms where they are kept and
raised until they are butchered. There is no strict traceability
system as in Japan. Compared with Japan’s strict safety control
measures, I am flabbergasted at the slipshod manner in which the
United States failed to remove risky animal parts from a beef
shipment to Japan.” [Asahi Shimbun]
–In South Korea, foreign investment in the country is at record
levels while the economy generates record exports. GDP is
anticipated to be at least 5% this year. When you talk of tipping
points, here, as in other Asian countries, the stronger currency (in
this case the ‘won’) makes Korean goods more expensive but it
hasn’t hurt that much; just as in the case of high oil where a local
newspaper said the economy here was better equipped to deal
with surging oil prices than in the past. Where have you heard
that before?
I also observed in my walks around Seoul that there appears to
be a Starbucks and Dunkin’ Donuts on every other corner.
But, just as I’ve been discussing in this space recently, there is
another worry in Korea. Headline in the Korea Times:
“Rich Poor Gap Widening at Alarming Rate Since 1997”
This continues to be a growing issue worldwide. In Korea, the
top 10% of households earn $97,600 vs. the bottom 10% at
$2,000.
–Despite the fact there have been more human deaths in
Indonesia from bird flu than anywhere in the world the past few
months, 32 by last count, people here are back to eating a ton of
chicken. Day to day, they look at the numbers and view the
threat as negligible.
–Singapore, a nation of just 4.4 million, has a fertility rate of
1.24. [2.1 is the breakeven replacement figure] That doesn’t
bode well for their economic health. And Japan’s remains at
around 1.3. Here, there is also a severe shortage of doctors.
–A Picasso portrait of his mistress with a cat sold at auction for
$95.2 million, while a Van Gogh sold for $40 million and
another Picasso scored $34.7 million. All highly overrated
works of art.
But what this brings up is a big fact of life for museums these
days. Do you take advantage of the bloated market, fueled by
hedge fund operators for the most part, to sell some of your own
prized possessions in order to fund museum operations and
expansion plans?
–Coca-Cola and Pepsi have bowed to pressure and agreed to
stop selling sugared sodas in schools. Kids said, “Whatever.”
–Despite living just three blocks from Lucent’s headquarters, I
normally don’t drive by unless I’m returning from the airport.
[Otherwise, you get hit by ‘negative gamma vibes’ that just bring
you down.] So I noticed upon my return on Thursday that the
lawn was in horrible shape. Now granted, we’ve been short on
rain in this area thus far this spring, but if you’re trying to make
an impression on prospects visiting HQ you’d think this would
be money well spent. If you want people to think you’re quality,
project it!
–Inflation Update: Friend Brad K. passed along that steel prices
for his business, in-ground swimming pools, are up 14-50% in
just the past few weeks. And Trader George reported that New
Jersey Transit instituted a 7% fare hike. On the deflation front, I
can report that not all my beer purchases in Seoul were $16; as I
noted last time, this having been the cost of a pint in one
establishment. So to me, if you start at $16 and then find another
joint selling $4 beer, that’s deflation.
–Finally, the great Louis Rukeyser passed away. It’s a shame he
never got a chance to say good-bye appropriately. Some
thoughts on his passing.
“Before CNBC, before the Internet, before the over-amped
exhortations of Suze Orman and Jim Cramer, the wry Rukeyser
was the most important source of financial advice on the air.
That is no small mantle; the rise of the mom-and-pop investor
class in the latter half of the 20th century was easily one of the
most transformative economic movements in American history.”
–Paul Farhi / Washington Post
“Fridays at 8:30 find me – amply fed, digestive organs
ruminating contentedly to the rhythmic sloshing of martini juice
– sitting in my Louis Quinze armchair awaiting another
installment of ‘Wall Street Week.’ By 8:33 my mind is reeling
so wildly with gyrations of the Dow Jones average and the
pinwheeling of money funds, Treasury bills and gold markets
that I often require a calming infusion of brandy.”
–Russell Baker, back in the 1980s, as reported by the New York
Times
“To be sure, during Rukeyser’s 32 on that show, and later on
CNBC’s ‘Louis Rukeyser’s Wall Street,’ the optimist label
wasn’t always meant as a compliment. Critics carped that he
was ‘too bullish,’ and even fans recall that Rukeyser was fond of
teasing or even dismissing experts on his show who he believed
were too negative about the markets.
“In the long term, however, Rukeyser was right, and not only
about the stock market as a generator of wealth over time. More
significantly, he had faith in the ability of ordinary folks to play
the investing game alongside the pros, albeit with a set of wise
rules. He was both a proponent and an exemplar of the rise of
the middle-class shareholding society – the ‘opportunity society,’
long before it became a political slogan. Many Americans who
followed his show were richer for it, whether they took the stock
picks of his guests or merely honed their own instincts….
“History has already validated Rukeyser’s optimism about the
American system, and thus about the ultimate course of the stock
market. As (money manager and frequent guest) Brian Rogers
notes, ‘If you think back over the past 30 years, it was a good
time to be bullish.’ On balance, it always is when you’re
investing in America, and we will miss having this particular
cheerleader for the next 30 years as well.”
–Editorial in the Wall Street Journal
Personally, there is little doubt my own interest in Wall Street
was stimulated by Uncle Lou. Many a night I would watch his
program with my parents on Friday nights (when I wasn’t
playing poker with the guys), and later at PIMCO Funds I saw
firsthand the love Middle America in particular had for Rukeyser
when we co-sponsored one of his events in Las Vegas. Fans
lined up for hours just to have their picture taken with him (while
my co-worker Ralph P., frequent guest Alan Bond and I took in
the scene). [Alas…Mr. Bond is now serving time in prison for
collecting a few too many classic cars at the expense of clients,
but I digress.]
Rukeyser was harshly criticized in later years, particularly as the
bull market came to a thudding crash, for dumping then bear Gail
Dudak and Chief Elf Robert Nurock. His treatment of them was
cruel.
But in looking at his career in full and his huge role in investor
literacy, one can only conclude that Louis Rukeyser was a giant.
Foreign Affairs
Iraq: You get to a certain point on an issue such as this and there
is so little to say. Prime Minister-designate al-Maliki is in the
process of shaping a new government and Sunni cooperation is
dependent on their receiving what it believes is a fair share of the
oil revenues, even though the other two players, the Kurds and
Shia, physically control the resources. Without agreement on
this ultimate issue there is no unified country for the U.S. to
defend and it will be time to exit.
Israel: Prime Minister Ehud Olmert’s Kadima-led coalition has
67 seats in the 120-seat Knesset, though the cost of the Labour
party’s support was to grant their leader, Amir Peretz, the
defense minister slot even though Peretz has zero experience in
this realm.
But Olmert also announced his strategy for redefining Israel’s
borders. Settlers were told to abandon their dream of holding
onto all biblical lands while Olmert told the Palestinian Authority
he’s pushing through his program with or without its agreement.
“The borders of Israel that will be formed in the coming years
will be significantly different from the territories that the State of
Israel holds today….I, too, like many others, dreamt and yearned
that we could keep all of the land of Israel in our hands and that
the day would not come when we would need to give up parts of
(it),” said Olmert.
But faced with the demographics and high Palestinian birth rates,
it was impossible to hold onto scattered settlements without
jeopardizing the Jewish state
Right-wingers such as Likud’s Benjamin Netanyahu countered,
“There has never been a government that has given up so much
ahead of time and relieves the other side of its obligations.”
China: Thinking the Vatican would put up little resistance,
Chinese authorities ordained two Catholic bishops despite their
not having been approved by Rome. Pope Benedict XVI lashed
out through a Vatican spokesman.
“The Holy Father has learned of the news with profound
displeasure. It is a grave wound to the unity of the church.”
A Vatican expert, Marco Politi, labeled the statement “the
strongest protest, not only of this papacy but the strongest protest
in the last decade surely.”
Benedict vowed to excommunicate the bishops and negotiations
on normalizing relations between the communists and the
Vatican have been shelved.
I noted awhile back to watch the Pope’s new selection for Hong
Kong, Cardinal Zen, and Zen has already stepped to the forefront
of this issue. Remember how John Paul II helped change the
face of the Soviet Union? Remember how Stalin, back in 1935,
famously proclaimed, “The Pope! How many divisions has he
got?”
Taiwan: Meanwhile, as the Bush administration tries to get some
shred of support from China in dealing with Iran and North
Korea, the White House totally abandoned Taiwan’s President
Chen Shui-bian.
Chen is making a trip to Latin America to visit two of the 25
nations that still recognize Taiwan over the mainland, Paraguay
and Costa Rica. In the past, Chen has been allowed to stop in the
United States for refueling and a speaking engagement or two to
a pro-Taiwan group.
But this time the administration humiliated Chen by saying he
could only refuel in Alaska. Chen opted out and was flying to
Latin America the other way, west, where he was to refuel in
Lebanon. But the Chinese ambassador there caught wind of it
and Lebanon pulled the request while Chen’s plane was in the
air. He was then allowed in to Abu Dhabi, and later, secretly,
Amsterdam. This is a black mark on the Bush administration,
especially in light of the following. [Though I have newfound
respect for the Netherlands.]
Russia: So whereas the White House is loath to offend China,
this week it blasted the Kremlin in the form of a presentation
Vice President Cheney gave in Lithuania.
“In many areas of civil society – from religion and the news
media, to advocacy groups and political parties – the government
has unfairly and improperly restricted the rights of her people.
Other actions by the Russian government have been
counterproductive, and could begin to affect relations with other
countries.”
Cheney also decried the Russian government’s growing use of
the energy card as “tools of intimidation or blackmail.”
Needless to say these remarks came as a shock to President
Vladimir Putin, who wasn’t directly named by Cheney, so soon
before Putin hosts the G-8 summit and while the United States is
seeking Russia’s support in the Security Council on the issue of
Iran.
[Flashback, “Week in Review” 12/31/05: “Russia’s true
relationship with Iran will also become readily apparent over just
the next few months. The U.S. probably won’t like what it
sees.”]
Relations between Moscow and Washington are rapidly
approaching Cold War levels at the worst possible time. Putin
himself gives his state-of-the-state address on Wednesday. He’s
likely to fire back.
On a related topic, Cheney headed to Kazakhstan in an effort
to push that government to build a new gas pipeline that bypasses
Russia on its way to Turkey; an effort to protect European
supplies from any further mischief by the Kremlin’s Gazprom.
This is also part of an effort by the U.S. to fight back against
China’s exploding influence in the region as it seeks to secure its
energy future.
India / Pakistan: After 2 ½ years of on-again, off-again talks
between these two, little progress has been made on contentious
issues such as the fate of Kashmir. Matters were further
complicated by an attack on Hindus in the disputed territory that
claimed at least 35 lives. And, as feared, Maoist rebels killed 15
in a rural part of India.
Also, an Indian telecom worker in Afghanistan was beheaded by
the Taliban, as the Indian government is increasingly concerned
Pakistan is supporting the Taliban, once again, in order to limit
India’s own presence in the country.
Finally, Pakistan tested a new nuclear-capable missile.
Britain: Prime Minister Tony Blair’s Labour Party suffered a
crushing defeat in local elections and Blair cleaned house on
Friday, including the dismissal of foreign secretary Jack Straw,
Condi’s boyfriend. Blair should have stepped down last year in
favor of Gordon Brown, but now Brown himself is severely
tarnished goods.
France: According to published reports, in 2004 President
Jacques Chirac asked Prime Minister Dominique de Villepin to
investigate rival Nicolas Sarkozy for his role in a long-running
corruption scandal. De Villepin supposedly used a senior
intelligence officer to reach a conclusion both Chirac and de
Villepin knew to be the case beforehand; that being any linking
of Sarkozy to this particular scandal was bogus.
This incredible abuse of power now threatens not just de Villepin
but also shreds Chirac’s legacy to nothing as he prepares to exit
the scene, though for his part de Villepin has vowed to hang on.
It’s also obviously a big boost for Sarkozy’s presidential
aspirations.
Italy: Prime Minister Berlusconi finally conceded the election to
Romano Prodi. I mentioned last week, though, that Prodi’s
elevation may impact the fate of Italy’s troops in Iraq but at
week’s end Prodi has not let on that he would change the
timetable already in place for Italy to remain through year end.
Sudan / Darfur: The peace agreement signed between the
government of Sudan and the largest rebel faction in Darfur
won’t last. But it’s finally a step in the right direction.
Serbia / Montenegro: After ten years the government here
continues to refuse to arrest and handover war crimes suspect
General Ratko Mladic so the European Union suspended talks
aimed at Serbia’s membership. For the Serbs to be this dumb is
really quite amazing and obviously speaks volumes about the
hard-core element here that refuses to see the light of progress.
Sri Lanka: Last time I observed that civil war here is important
if for no other reason than the spreading of terror techniques by
the leaders in the field, the Tamil Tiger rebels. By way of
backing up my claim, know that this week the rebels set off a
remote-controlled bomb concealed in a bicycle that was
detonated as a naval foot patrol passed, killing five and strewing
body parts all over the place. These guys are terrorist
masterminds and passing their knowledge to other groups spells
further trouble for the West. [Think dirty bomb in a bicycle.]
South Korea: And finally, last week I literally got off my DMZ
tour bus and started wrapping up WIR in order to meet my
deadline. Some further thoughts, given the passage of a bit more
time for contemplation.
South Korea’s youth is hopelessly naïve, though their optimism
on future relations with their cousins to the north is also to be
admired to a certain extent.
The youth here conveniently ignore the fact that no one has a
handle just what is going on in Kim Jong il’s bomb works. What
we do know is North Korea is transferring know-how and
hardware to the highest bidder; most recently, Iran.
It is true, however, that North Korea has not been linked to a
specific terrorist act since the bombing of a KAL flight in 1987,
and the United States has actually asked Seoul to shift its focus
internally to the threat from al Qaeda owing to the fact Korea has
3,700 troops in Iraq.
It’s an intimidating drive from Seoul to the border, with barbed
wire and watchtowers all along the Han River. You also pass all
manner of tank traps and concrete overpasses that can be
exploded to block highways in the case of an invasion.
But after seeing some of the defenses, and having a good idea of
what I couldn’t see, I don’t envision how it’s remotely possible
to carry out a massive invasion without it getting repelled
immediately. Clearly, the North had its chance in the 1970s as it
was building the tunnels before they were discovered, and only
after a defector came in from the cold and warned Seoul about
their existence. Even still, it took six years to find the first one!
So that leaves Kim with but one option if he ever decided to
cross the line; an all-out artillery strike with the potential use of
nuclear weapons.
Would he do this? More importantly, would his generals carry it
out? Are his generals crazier than he is? One suspects at least
one or two of them are.
If you face nuclear annihilation in the form of U.S. retaliation, do
you still cross the line?
But this isn’t like the days of MAD (mutual assured destruction)
and the Cold War.
Or does North Korea just move along, develop some areas for
capitalism, such as in Kaesong, to bring in hard currency while
continuing along its criminal path as best it can, selling weapons
and possibly nukes to the likes of Iran?
What is needed is another defector as in ‘68 who can pinpoint the
nuclear facilities. Or does the North send a dupe over, a la what
basically happened with our intelligence screw-ups in Iraq?
I admire South Korea for the huge strides it has made as a
country, but the worry for the U.S. is that one day the people
elect a leader who lets down his guard. It’s the same concern I
have with the U.S. electorate, of course. And it is just as much
an issue in Britain, France and other key spots.
So this is what I think about, having been to the DMZ and looked
over into Mordor. The Bush administration, as pointed out
above, is fond of saying “Iran is not Iraq.” I think you could also
say “Iran is not North Korea.” But both must be dealt with.
Random Musings
–Wow, did Porter Goss turn out to be a miserable selection to
head the CIA or what?
–The Wall Street Journal’s Daniel Henninger on the sentence
handed down to Zacarias Moussaoui.
“Defenders of Moussaoui’s life sentence say he will ‘rot in
prison.’ Perhaps in a better world Zacarias Moussaoui would
share a cell with Hannibal Lecter. But if our moral betters aren’t
going to let Saddam’s torturers rot in Abu Ghraib, if they aren’t
going to let the CIA’s most important al Qaeda captives rot in
‘secret’ foreign prisons, they certainly aren’t going to let
Moussaoui rot in Florence, Colo. He will be treated more than
well.
“Not to mention the Moussaoui trial itself. We arrive at the end
of these interminable trial circuses of procedural delay and then
claim ‘the system works’ and ‘justice’ has been done. No, it has
done damage to the normal idea of justice. He saw the game
early on and made a mockery of it. Moussaoui achieved a two-
year delay in his trial by demanding to interview al Qaeda
detainees. But our moral betters insist that the whole lot of
Guantanamo detainees be given access to this same system of
justice. They would diminish and crush it.
“The odds were strong, as Moussaoui’s lawyers knew and the
government’s should have known, that 9 of 12 jurors would vote
that Moussaoui’s childhood was ‘dysfunctional’ and ‘mitigating.’
This is the therapeutic vocabulary that the West has developed to
explain anything in the years from the postwar period to, say,
September 11.
“For quite awhile after September 11, we were a people united in
the war on terror. By now we have let the adrenal pleasures of
political fighting over the presidency dissipate the difficult
emotions of staying united against a real enemy. The war in Iraq
has contributed, but you can’t lay it all off on Iraq. The
ambiguity of the Moussaoui jury is a portent.”
–The World Cup football matches commence June 9 in Germany
and the latest threat, according to the London Times, emanates
from Poland in the form of fascist-style groups that vow to “carry
truncheons and axes.” Lovely.
–I’ve decided the Asian custom of bowing needs to be adopted
in the West, soon, in order to prevent a pandemic. Why should
the rest of us be spreading germs while shaking hands, eh?
–Let’s see…Duke Cunningham, Cynthia McKinney, Patrick
Kennedy…what is this, Britain?
–In the past five years I have spent time in Taipei, Shanghai,
Singapore, Seoul and Hong Kong, among other places in the Far
East, and it struck me the other day in Seoul, as that city was
being hit by a “yellow dust storm” with origins in China and
Mongolia, that I had never seen blue sky in all my travels to this
part of the world. As opposed to the great skies we often have in
New Jersey, believe it or not.
Most leaders in Asia recognize they have to come to grips
immediately with the severe pollution problems in their nations
and the United States shouldn’t have to put up with the garbage
that then rides the winds over here.
–Ah, the Web is funny. Among the top ten cities for traffic on
StocksandNews these days are Colombo, Sri Lanka (#6), and
Selangor and Kuala Terengganu, Malaysia (#9 and #10).
–A headline from Kuala Lumpur:
“Man, 33, weds woman, 104”
Won’t last.
–In a survey of 18- to 24-year olds for Roper and National
Geographic, six in 10 can’t find Iraq on a map. Fewer than three
in 10 think it’s important to know the locations of countries in
the news, while 47% could not find the Indian subcontinent on a
map of Asia. 75% were unable to locate Israel on a map of the
Middle East and six in 10 didn’t know the border between North
and South Korea is the most heavily fortified in the world. 30%
thought it was the U.S.-Mexican border. [USA Today] Oh
brother.
–Of course Americans aren’t the only ones who suffer in this
realm. Chilean textbooks on Korea, for example, describe North
Korea as “an advanced nation” while South Korea is an
“intermediately advanced” one. [Santiago Times] Worldwide,
the content in so-called history textbooks is appalling. It’s a
huge issue in Asia where Japan and China, in particular,
whitewash large portions of their histories to the detriment of
future relations with their neighbors.
–Some more random musings on my little experience in South
Korea.
My very nice hotel room in Seoul (Westin Chosun) came
equipped with a fire extinguisher. A large flashlight and first aid
kit was also in one of the closets. Flashlights are mounted all
over the hotel. Aside from the danger posed by earthquakes and
plain old hotel fires, it was also a sign that the Westin, at least, is
aware of the nut case north of the 38th parallel. [I forgot to ask if
these precautions are by law.]
I was told by more than one individual that Seoul was as safe as
any big city you would find in the world, mostly because there
are thousands of plainclothes police and agents attempting to
monitor suspicious activity by the estimated 30,000 North
Korean spies operating in the area.
That said, it was disturbing when a group of Canadians and I
were outside a store that we had shopped in, half-watching a
bunch of teenage boys in their school uniforms just horsing
around, when suddenly one whipped out a gun and pretended to
shoot his buddy in the head. I have no idea if it was real, but we
all said to each other at once, “What the heck was that all
about?”
In South Korea, military service is compulsory…two years…and
if you’re not in good physical condition that doesn’t let you off
the hook; it’s then two years of desk work.
Finally, when you go to the DMZ, one of the things you learn is
to look at the mountains on the North side. You find few trees
compared to those in the South. The reason? They’re used for
fuel by the starving villagers (or the army, one can also presume)
while the bark is eaten. Last week there was a series of articles
on the prospects for renewed famine in the North, the last one
having killed 500,000 at a minimum, as the international
community has cut off some of Kim Jong il’s food aid.
–And a few words on Guam. I’ve been here countless times but
took my first tour of the entire island (most of it) this past week.
You forget just how big this place of 154,000 is until you realize
it takes 2 ½ hours to drive all the way around it. The island’s
economy is not good, despite the large, and growing, U.S.
military presence and the charm and spirit of the locals (the
Chamorros) was missing compared to what I’ve observed in the
past. As I mentioned last time, 8,000 more troops are being
transferred here over the coming years and Washington just
announced it was spending $1 billion on a road to connect the
Air Force on one end of the island with the Navy in the South
(pending congressional approval).
But during the tour, our terrific guide, Hope, pointed to a black
marker on a hillside that represented the spot where a Korean Air
flight back on May 8, 1997, crashed, taking 227 lives. This
occurred a year after my first visit here and I had forgotten all
about it.
As Hope said, the final cause was determined to be pilot error
as he simply came up short on landing. [The runway is on the
top of a plateau.] What was interesting here is that many believe
the crash was a result of the Korean culture whereby authority
figures find it hard to take advice from below. Specifically, the
co-pilot / navigator warned they were too low and the pilot
ignored him.
But to end on a cheery aviation note, I was one fortunate guy on
this last trip. Eleven flights in all and every single one on time
(nine were Continental). I spent 50 hours in total in the air.
“Hi, I’m Larry Kellner, chairman and chief executive officer of
Continental Airlines…welcome aboard. You’re riding in an
aircraft that is part of one of the youngest fleets in the
industry…..”
Personally, I’ll always be a fan of Gordon Bethune.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $685
Oil, $69.96
Returns for the week 5/1/-5/5
Dow Jones +1.9% [11577]
S&P 500 +1.2% [1325]
S&P MidCap +1.7%
Russell 2000 +2.3%
Nasdaq +0.9% [2342]
Returns for the period 1/1/06-5/5/06
Dow Jones +8.0%
S&P 500 +6.2%
S&P MidCap +10.7%
Russell 2000 +16.1%
Nasdaq +6.2%
Bulls 43.9
Bears 28.6 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
*Boy, talk about a contrast. Next Saturday, Net connection
permitting, I’ll be coming to you from a small town in Tennessee
after having done some work at Shiloh battlefield. And then no
more travel for months.
Brian Trumbore
