[Posted 7:00 AM ET]
Real Estate and the Economy
As Lucy first told Charlie Brown about 40 years ago, it’s all
about real estate. Former Federal Reserve chairman Alan
Greenspan knows that and on Thursday he addressed a gathering
of the Bond Market Association, “This has been quite an
extraordinary (housing) boom. The boom is over. I think we can
safely say that with a strong degree of confidence.”
But Greenspan added there is “no evidence that home prices will
collapse,” while in a separate forum current Fed Chairman Ben
Bernanke also said the housing market was cooling but that the
slowdown was “moderate” and “orderly,” pointing to the overall
strength in the economy.
As one who has been writing of the housing bubble for years,
while being far too early in calling a top, I can’t say I disagree
with the logic of our esteemed money mavens but that’s only if
you can convince me the economy is going to hold up and
employment remain strong.
Alas, you know I don’t think this is going to be the case and
while I try hard not to make too much of one week, the evidence
from this past one is overwhelming; we are nearing the tipping
point.
Housing led the economy up, and housing is going to lead it
down.
After all, it was the Fed that fueled the boom in the first place by
going low (for you golfers out there) with interest rates, but after
16 rate hikes, and perhaps more to follow, it is finally sinking in
with the investor class that there is a world of hurt out there
among those who were far too aggressive in their home
purchases, in terms of the kind of mortgages they took on. As
the short end of the yield curve has gone from 1% to 5%, and as
adjustable rate and interest-only mortgages reset, you’re not
likely to see many of these folks at the Cannes Film Festival, if
you catch my drift.
Across the nation delinquencies are up (not spectacularly so as
yet, but that day is coming), inventories are rising, sales
dropping, and last but not least pricing is increasingly shaky.
To wit. The pace of home sales in southern California in the
month of April was at the slowest rate in 11 years, an
environment the Los Angeles Times described as “collective
inertia.” In New Jersey’s white-hot market, the evidence now
reveals that sales peaked in the third quarter of 2005.
Nationwide, April housing starts were down 7%.
As for prices, nationally, the median home price for the first
quarter was $217,900…still up 10.3% year over year. But the
trend is down. It was 13.6% in the fourth quarter. In most parts
of the country the year over year comparisons will be flat, if not
down, by the fourth quarter.
You are going to begin to see an unending litany of tales of woe
out of the national media and that is only going to help fuel the
slide. As for the ‘experts’ who say housing will have a “soft
landing,” it’s indeed different this time because of the aggressive
lending practices of the banks and the prevalence of these no
money down-type pieces of paper. You can go back to the Tulip
Bubble for examples of this kind of game.
No doubt, however, a vast majority of Americans have little need
to worry and the gains on their most valuable investment, even
after a probable correction, will in most cases still be quite nifty.
But there is the other side and they will have an impact on the
pace of consumer spending and the overall economy.
That is unless hyper-inflation hits us and homeowners suddenly
find that the value of their place once again exceeds their
mortgage, thus allowing a bank to give them a third home equity
loan……………..just kidding.
But speaking of inflation, as Fed governors debate the lag effect
of their earlier moves on interest rates as it relates to housing, the
hard data is presenting another conundrum. Deep down they
have to know another rate hike will be more than the market can
handle but the Fed’s #1 job is to fight inflation, not worry about
your personal financial situation…at least that’s the way it’s
supposed to be.
But a hiking they may go as this week’s report on April
consumer prices was up 0.6%, 0.3% if you strip out everything
we use; which means year over year prices have risen 3.5%, or
2.3% core, both of which are basically at the upper end of the
Fed’s comfort level.
The next Fed meeting, though, isn’t until June 28-29 and in
between we’re going to have a slew more reports on inflation,
including another reading on producer and consumer prices, so to
those parsing every word from the Fed this week save your
breath; just as we’re going to do in the headquarters of
StocksandNews.
I mean for crying out loud, I didn’t hear one guy on
BubbleVision mention that we have all this other stuff to digest
and if the preponderance of the evidence is that the economy is
becoming to take on gas due to a rapidly retrenching consumer,
the pressure to pause is going to be palpable regardless of the
inflation figures. Personally, though, I think they’ll hike one
more time because the data on growth will be respectable; thus
finally sending us over the cliff.
But to wrap up this segment, a few other key items.
First, real estate is not just a local issue, it’s global and you’re
going to start hearing more and more about it. For that matter
consider the following out of Bridgewater Associates and Tom
Petruno of the Los Angeles Times.
Out of 60 nations tracked by Bridgewater, not one is in
recession; the first time this has been the case since 1969. It’s
been fun, hasn’t it? Especially since in the midst of a war, as is
the case with the U.S., its citizens haven’t even been asked to
sacrifice.
Well, unless you can convince me the rest of the world is going
to pick up any slack from a soon to be faltering American
economy (though there is still a possibility this could be the
case), then it’s payback time.
For its part China has yet to show any sign of slowing but it’s
obviously dependent to a large extent on the health of the
American consumer. Urban fixed asset investment (like for
building roads and plants) has risen 29.6% the past four months,
while industrial production has ‘slipped’ to a 16.6% rate. Thanks
to rising incomes retail sales are up 13.6% year over year, though
I wonder how much debt consumers here are taking on.
At the same time government officials in China are doing all they
can to cool the housing market because increasing segments of
the population are being priced out which in turn will eventually
create unrest. Add it all together and it means one thing…China
will be raising interest rates, as will the European Central Bank
and the Bank of Japan. The BOJ held off this week but it’s just a
matter of time before it begins to move off the floor.
Street Bytes
–The major averages all fell about 2% and it’s the worst two-
week stretch since January 2003. The Dow Jones, just eight
trading days earlier threatening its all-time high of 11722, now
sits at 11144, while the S&P 500 has corrected 4.4% off its
multi-year high. Nasdaq, at 2193, is not only off 7.5% from
its peak of less than two weeks ago but also now in negative
territory for the year.
Technically, the market looks like garbage thanks in no small
part to losing streaks of 8 and 9 straight sessions by the Nasdaq
and Russell 2000, respectively, and while earnings have indeed
been strong, if the economy begins to slow as many a Wall
Street economist was suddenly predicting by week’s end, then
future earnings gains vs. current expectations must be called into
question.
–U.S. Treasury Yields
6-mo. 4.99% 2-yr. 4.96% 10-yr. 5.06% 30-yr. 5.14%
The long end of the curve rallied on the hope (a) the Fed is
serious about fighting inflation, (b) the slowing economy will
lessen inflation pressures, or (c) all of the above. Take your pick.
No one knows what the Fed is going to do in June, least of all the
Fed itself, but as I said last week that’s as it should be until they
sift through the remaining data.
It’s just that the market hates uncertainty and it’s not about to do
its own homework, which helps compound the problem. Of
course today bond traders have zero confidence in Chairman
Bernanke as well.
But back to Alan Greenspan, as part of his speech on housing the
other night he also took direct aim at the whole credit derivatives
market, saying he was “frankly shocked” at how these
instruments are traded; as in don’t look for formal confirmation
slips like you receive on your 100 share purchase of IBM.
“This is 19th-century technology that I find appalling. I don’t
want to use the term unconscionable, but I guess I would.” [Wall
Street Journal]
–One of the other huge stories on the week was the collapse in
commodities prices. In fact it was the single worst week for the
benchmark CRB index in over 25 years, down 6.4%. Few are
really surprised, though, after the spectacular gains of not just
this year but the past few. Copper, for example, had its biggest
one month gain ever in April, up 30%, and that kind of action
draws all the little guys in…at exactly the top. But is this week’s
drubbing merely a pause that refreshes? You tell me the pace of
global economic activity, particularly here and in China (India is
overrated in this particular story), and I’ll tell you where
commodities are headed.
–Stephan Wrobel, chief executive of Swiss-based Diapason
Commodities Management SA, addressed a Dow Jones /
European forum in Frankfurt the other day.
“Currently the world derives some 60% of its energy from fossil
fuels but these supplies are limited – the global ‘production peak’
of oil could be reached by around 2010.”
So Mr. Wrobel is just the latest to talk of ‘peak oil.’ But this
week Congress once again rejected an attempt to end a quarter-
century ban on oil and natural gas drilling off our nation’s
shores, just as it has continued to vote down plans to develop a
postage-stamp portion of the Arctic National Wildlife Refuge,
both of which only help accelerate the peak oil story.
But one point is getting lost in the debate, as it almost always
does. Energy prices are still determined by supply and demand,
so, for example, while there is this hue and cry across the land
about $3 a gallon gasoline, it behooves Americans to look at
their heating bills and praise the god of their choice for the fact
natural gas has fallen from a Dec. 13 high of $15.37 to below $6.
Why? There is a ton of supply, that’s why. And as my friends at
Pritchard Capital always remind me, pretty soon the drillers are
going to start “laying down their rigs” because if we drop much
further, many of the exploration projects don’t make economic
sense from a risk/reward standpoint…and then eventually the
supply comes down and the price goes back up, because that’s
how markets work.
The point being that even if Congress had approved drilling in
our coastal waters, for both oil and gas, that doesn’t mean every
Tom, Dick and Harry Oil Co. (symbol TDHO) is going to
immediately send their skiffs out and start prospecting. If the
current price doesn’t warrant it, most will opt out rather than take
a flyer on the future.
But these are also 5-10 year projects in many instances, just as
ANWR would be, and we must have the approvals in place to
allow those who want to take the risk to do so. As for the
environmental impact, along with the concerns over tourism,
they are incredibly overblown. But far be it for Congress to
exercise any kind of vision.
–China: The first home-grown computer chip, announced back
in 2003 as a technical breakthrough here, has been found to be a
fake; a huge embarrassment for China resembling the South
Korean cloning scam where the scientist there faked his research.
What’s not known is how the makers of the fake chip duped the
companies that purchased it, the Shanghai government and
prestigious Jiaoting University.
–“U.S. companies earned nearly $11 billion in Japan last year,
more than double what they could muster in China ($3.3 billion)
and India ($1.2 billion) combined, according to statistics from
the U.S. Bureau of Economic Analysis.” [Paul Wiseman / USA
Today]
As market strategist Joseph Quinlan avers, we often ignore Japan
with all the China / India talk, while Jesper Koll, chief economist
at Merrill Lynch Japan, adds that the key to winning over Japan’s
demanding consumers is to recognize that they are “discerning
customers…but once you’ve got him or her, you’re king. You
have to be the best. But if you are, you have infinite pricing
power.”
–Honda announced it will be building its fourth plant in the U.S.,
at a site to be determined, as Detroit’s Big Three flail away and
complain about the Japanese “falsely rallying around a flag
(they) don’t salute,” as a Chrysler spokesman told the Financial
Times.
–The Financial Accounting Standards Board’s mandate that
corporations include their pension liabilities on their balance
sheets by year end will erase some $537 billion in shareholder
equity, according to Bloomberg News.
–Milberg Weiss, the giant-class action firm, was indicted along
with two partners on charges it received more than $200 million
in attorneys’ fees as a result of conspiracy, money laundering,
obstruction, racketeering and filing false tax returns. This firm
has been a joke for decades and finally they’ve been nailed.
[Ohio’s attorney general immediately fired Milberg Weiss from a
class-action in that state.]
–In the “What the heck were they waiting for?” category, Dell
Computer is going to start using chips from Advanced Micro
Devices, the last major PC maker to do so. Shares in AMD rose
sharply, while rival Intel’s slipped a bit. AMD’s chips have a
growing reputation as being superior to Intel’s.
–Merck won approval for its drug Gardasil; a vaccine against the
sexually transmitted virus that can lead to cervical cancer. The
FDA went further in approving it for girls as young as nine years
of age.
–The latest revolt over executive compensation will reach a
climax this week as shareholders of Home Depot express their
disapproval of a system that has awarded CEO Bob Nardelli with
$200 million in cash and prizes over just the last five years while
the share price has fallen.
–Bausch & Lomb finally pulled ReNu MoistureLoc contact lens
solution from shelves around the world due to overwhelming
evidence it contributed to a serious fungal infection that can
result in blindness. But B&L waited five weeks after the initial
warning from regulators to carry through with the recall, let
alone the fact the first cases surfaced in Singapore and Hong
Kong all the way back in February.
–The federal probe into the backdating of stock options
continues to widen as up to 20 corporations are now under
investigation, including UnitedHealth Group. On the surface all
these cases appear to be simple fraud, but backdating in and of
itself is not necessarily illegal. It’s whether or not there was
appropriate disclosure. This issue is going to continue to
mushroom.
–Inflation Update: I buy a ton of paper and printer cartridges
and go to Staples at least once a month. So less than two months
ago (WIR, 4/1/06) I noted that the price of a stack of paper had
gone from $2.89 to $3.19. Well I walk in this week and see…
$3.99. $3.99! I checked and rechecked…called a clerk
over… “Is that right?” “Yup.” What is this, Zimbabwe?!
–Dirtball Kirk Wright, the former Atlanta hedge-fund manager
who preyed on professional athletes, was arrested in a Miami
hotel. Wright is accused of stealing up to $110 million in client
funds, though his capture (with $28,000 in cash on hand), gives
investigators some hope that a decent portion of the assets may
yet be recovered.
–Boy, when I was in the mutual fund industry Putnam
Investments was a giant the rest of us were jealous of. But today,
thanks to the fallout from its role in the fund trading scandal as
well as poor performance, Putnam has seen its assets plummet
from a peak of $240 billion in 1999 to $99.5 billion as of March.
–Despite some decent rainfall, Lucent’s headquarters lawn
continues to look like crap….an appearance that may in no small
part have something to do with the fact I saw 50 geese on it the
other day. But what I’ve been remiss in not reporting, as we
maintain our irregular lawn watch, is the fact that on Mondays I
pass another of Lucent’s complexes, this one in Whippany, N.J.,
and its lawn is in the exact same shape…with huge splotches.
These happen to be the two worst corporate lawns in America, I
imagine.
–From Elliot Blair Smith of USA Today:
“(New Orleans) owes investors $878.6 million, including nearly
$500 million in general-obligation bonds that it normally would
pay off with property tax receipts. But this year’s tax bills have
not gone out yet, five months late. And a recent assessment cut
city property rolls by 24% while the likely tax collection rate is
pegged as low as 50%.”
That’s just one example of the giant debt issue overhanging the
city. The water board, responsible for pumping hurricanes out
and such, is $408 million in debt, including $137 million due
investors in July. It’s having trouble paying its own bills and
providing basic services.
My portfolio: I haven’t deviated from the 80% cash / 20%
equities recommendation that is now outperforming the S&P
500 year to date, but my own portfolio remains skewed by my
large position in the carbon fiber stock. And it was slapped
around big time this week, so I bought more near the lows on
Friday. This is a long term play, but I do have an exit price in
mind.
Foreign Affairs
Iran: Early in the week, President Mahmoud Ahmadinejad told
the European Union what it could do with its latest offer to break
the deadlock in the nuclear program talks.
“They say we want to give Iranians incentives but they think they
are dealing with a four-year-old, telling him they will give him
candies or walnuts and take gold from him in return.”
The EU is proposing the same economic incentives it’s offered
before, political and financial guarantees for the construction of a
light water reactor, but Iran must suspend its uranium enrichment
program in return and cease work on a heavy reactor. The
mullahs will never give up their enrichment project, nor the quest
for the bomb.
Speaking of which, wouldn’t you know that after your editor has
been saying Iran is undoubtedly much further along in the
weapons process than the experts at the CIA say they are, now it
would appear the intelligence community is preparing to step up
the date by which Iran could develop a nuke. In a story in the
Financial Times, Francois Heisbourg, an adviser at a Paris think
tank, said:
“Perhaps the single most important factor in this whole dispute is
the CIA estimate of when Iran could get nuclear weapons and
whether in the light of present events they move the probable
date to before the end of President Bush’s term in office. With a
five to 10 year estimate he has more leeway. If the date was
moved he would have to explain why he wasn’t doing anything.”
Another weapons expert, Mark Fitzpatrick, says “Iran has made
progress, so it’s necessary to recalibrate it.”
In the same vein, and on the topic of dealing directly with
Tehran, Flynt Leverett, a former Bush administration official,
says that prolonging the diplomatic stalemate only results in the
obvious; that being Iran just moves a few steps closer to
shocking the world.
“If we had pursued this three years ago and been able to work out
a deal, the Iranians wouldn’t have 164 centrifuges today. Now if
we do a deal with them we’re probably going to have to accept
centrifuges and some kind of small-scale enrichment activity. If
we wait three years from now, who knows what the bottom line
will be?”
Of course I pointed out myself in the fall of 2002 (WIR,
11/16/02) that the time was right to support what was then a
more vibrant democratic movement in Iran and the Bush
administration, focused solely on Iraq, failed to grasp the
opportunity.
Retired Lt-Col. Ralph Peters had the following thoughts in an op-
ed for the New York Post.
“The Iranian regime is a murderous, anti-Semitic, nuke-hungry,
Islamofascist junta headed by apocalyptic nuts who support
international terrorists and view their god as a bloodthirsty
control freak.
“So let’s talk. Directly. With Tehran. Here’s why.
“We need to know this enemy better. Everything we hear is
second-hand. Whether in a business negotiation or a bid to
prevent a nuclear catastrophe, there’s no substitute for sitting
down face to face with the other guy and talking.
“By prolonging our snit and refusing to play with the other
children, we hand the playground to the Iranians. We need to
appear as the adult playground monitor, not the schoolyard bully.
“By refusing to hold direct talks, we only make it harder on
ourselves and easier for China and Russia to stiff-arm our efforts
to call Tehran’s bluff. Critics can depict us, rather than the
Iranians, as stubborn, close-minded and volatile.
“Talk is cheap.
“We’re missing a great opportunity (as we did with Castro, Hugo
Chavez and others) to use open contact as a means to reach past
vicious leaders to their people. If we appear rational and earnest,
we encourage the Iranian opposition. But a public stance of pre-
determined belligerence plays into the regime’s hands….
“For all the Ahmadinejad junta’s raving about the world ending
in the next couple of years and the Twelfth Imam catching a
direct flight in, these guys are psychologically needy. They
desperately want to be acknowledged by us – and we can work
that angle. A great interrogator will tell you that bullying is
counter-productive, but playing to the egos of powerful men is
nearly infallible….
“When you sit down and listen to the enemy, you learn an
enormous amount – even when you make no formal progress.
You come away from such contacts with a heightened sense of
the other guy’s reality – and an enhanced ability to target him
effectively, should war become necessary.”
So if it come to war, how would Iran fight it?
From an article by Riad Kahwaji in Defense News.
“Groups of (small boats) might swarm around U.S. warships,
then withdraw into the cover of islands, haze and shipping,
analysts and observers say. Suicide bombers might aim to
duplicate the 2000 attack that crippled the destroyer USS Cole.
Others might position mines and missiles to threaten the oil
tankers that carry one-fifth of the world’s daily petroleum traffic
through the Strait of Hormuz.
“ ‘Iranians are preparing for guerrilla warfare at sea,’ said Ali-
Asghar Kazemi, a retired Iranian Navy admiral who is a political
science professor at Tehran University. ‘Like operations on land,
when two unequal opponents face each other, the best way for
the weak side is to resort to a war of attrition and guerrilla
operations.’….
“Iran has a few dozen C-802 anti-ship missiles, which it
purchased from China in the early 1990s. The subsonic, radar-
guided C-802 skims the sea’s surface to strike targets up to 140
kilometers away….
“Iranian forces also might target Arab states’ coastal
installations, such as oil refineries, ports and desalination plants
with the C-802 and other missiles, said Sami Al-Faraj, president
of the Kuwait Center for Strategic Studies….
“In the 2002 Joint Forces Command war game Millennium
Challenge, anti-U.S. forces used swarms of small boats and
aircraft to rip into a U.S. invasion fleet, sending much of it to the
bottom of a shallow sea.”
[Note: I’m waiting 24 hours on a story that Iran’s parliament has
passed a piece of legislation mandating that minorities wear
badges to identify themselves. The major press has yet to
confirm it as I go to post.]
Iraq: Prime Minister-designate al-Maliki is to have announced a
cabinet by Sunday but as of this writing there are still questions
on the critical interior and defense ministry posts, as well as a
new rift between Shia factions.
Afghanistan: The ‘forgotten war’ erupted anew as Taliban-
inspired violence killed over 100, including 13 Afghan
policemen in one attack involving hundreds of Taliban fighters.
As NBC’s Jim Maceda put it in a report from the field, there are
millions in Afghanistan who just don’t like the thought of
democracy and religious tolerance.
[There’s a story this morning that Canadian and Afghan forces
captured a key Taliban leader on Friday. This would be a huge
morale boost not just for the Afghan military, but also NATO.]
Israel: With 165,000 Palestinian government employees unpaid
since March, there shouldn’t be any mystery as to why the
fledgling state is in an uproar. This week Hamas formed its own
3,000-man police force (primarily from its military wing) to
directly challenge President Mahmoud Abbas’s security forces.
Abbas said Hamas must immediately their militia. On Saturday
morning, Hamas appears to be responsible for a failed
assassination attempt on Abbas’s chief of intelligence.
So will it be civil war or just “civil jostling” as a BBC reporter
put it? The latter term refers to the perception that whoever has
the bigger security force has the power; but in either case it also
means Israel then has no incentive to restart talks and will just
continue with its unilateral withdrawal and strengthening of the
border, as it sees fit, while the power struggle between Fatah and
Hamas continues.
Russia: In just two months (July 15-17), leaders of the G-8
nations will meet in St. Petersburg in what is shaping up to be a
diplomatic disaster and a political minefield for both Russia and
the West. Setting agendas beforehand is important in these
gatherings and it’s already known the U.S. wants to bring up
Belarus and the territorial integrity of Moldova and Georgia,
while the others want to hammer away at energy security.
Separately, Vice President Cheney is reportedly furious with
Russia for its arms sales to Iran and resistance to UN sanctions,
while it was Cheney who fueled the pre-summit fires by saying
the Kremlin was using energy for “intimidation and blackmail.”
As for Russia, they are playing hardball with the U.S. and its
refusal to approve Russia’s World Trade Organization bid; the
U.S. having blocked it for decades. But now the Kremlin is
making waves about linking participation of U.S. companies in
Gazprom’s giant natural gas field, Shtokman. I can’t say I blame
Russia on this one, though for its part Gazprom said it is
independent and will not just do the government’s bidding. [You
can laugh now.]
Separately, President Vladimir Putin said he’d pick a successor
for 2008 and would not seek to change the constitution to allow
for a 3rd term. I still say he’s in office in 2009, citing a crisis of
some sort.
Turkey: A prominent judge was killed and four others wounded
as a gunman broke into Turkey’s highest court in Ankara in a
troubling episode that speaks to the divide in the country
between secularists and Islamists.
One of those wounded, Judge Mustafa Birden, had ruled last
week that schoolteachers, who are banned from wearing the
Islamic headscarf at work, could not cover their heads even when
out of school. The gunman shouted “Allah is great” as he
commenced firing.
The headscarf law has been condemned by Prime Minister
Erdogan, whose ruling party has Islamist roots, though he was
quick to condemn the attack.
But the leader of the opposition party blamed Erdogan’s policies.
“I hope those who still can’t see where Turkey is being dragged,
who refuse to see it, will take this as a warning….Turkey is
being dragged into a very dangerous situation. Everybody
should come to their senses.” [BBC News]
The day after the shooting about 40,000 marched in Ankara to
show their support for secularism and the principles first
established by the founder of modern Turkey, Ataturk. It was he
who first banned the fez, for example, and Turkey’s courts have
upheld secular principles ever since. Now it’s under attack like
no other time since then.
Netherlands: Just last November I spent some time here and
wrote of my observations in this space, 11/19/05. Back then I
noted that “beneath the surface there is fear and often violence”
with regards to the Islamic community and added, “The placid
Dutch landscape hides (a) seething cauldron that is now being
peeled back.”
I also wrote then of Ayaan Hirsi Ali, the Somali-born Muslim
woman who became a member of parliament and then received
death threats for speaking out against the abuse she said Muslim
women suffered even when living in Europe.
So this week Ms. Hirsi Ali’s citizenship was revoked by “Iron
Rita,” Rita Verdonk, the immigration minister, thus leading to an
uproar and backlash against Verdonk for her intolerance as Hirsi
Ali said she will move to Washington. Just last month she was
evicted from her apartment by a Dutch court after her neighbors
filed a lawsuit complaining that death threats against Hirsi Ali
violated their own “human rights.”
China: From an editorial in Defense News.
“Washington can’t turn its back on a democratic Taiwan as
undemocratic China rapidly rearms. But there is reason to hope
that the tension in the Strait of Taiwan is ebbing. The two
Chinas are increasingly bound by economic ties, and that means
the chances of armed conflict are diminishing. As the prospects
of economic growth beckon across the ocean strait, Taiwanese
support for a speedy declaration of independence is slipping….
“(But) China also is aggressively cultivating friends in the U.S.
Congress. Beijing hosts groups of U.S. lawmakers, who often
find that longstanding trade issues with companies in their
districts are miraculously resolved during their visits. That wins
China key allies in its efforts to curb U.S. arms sales and military
cooperation with other nations in Asia. Beijing, for example,
opposes U.S. weapons sales to India and the normalization of
Japan’s role as a regional power.
“This is part of China’s effort to supplant the United States as the
undisputed power in Asia.
“China is entitled to build a military structure commensurate
with its economic clout, fulfilling what many of its leaders
consider a destiny long thwarted by external powers. Yet the
buildup and its forces on offensive systems are worrisome.
“So is the lack of debate within the United States about China
policy. Beijing increasingly appears to be steering U.S. policy,
and pro-China sentiment is growing in Washington – or at least,
is outpacing vigorously anti-China feeling.
“The United States may abandon its leadership role in Asia, but
it shouldn’t do so without debating the question.”
Where I disagree with the above is in the realm of China /
Taiwan economic ties. For years I have written I do not trust
Taiwan’s business leaders to always act in the best interests of
their fellow countrymen. [Taiwan’s a country to me, no matter
what others say.] Yes, it’s pretty easy to buy these guys out.
North Korea: The New York Times reported the White House is
ready for a new approach to dealing with Pyongyang; a second
track outside the failing six-party nuclear weapons talks that
focuses on replacing the 1953 armistice, and the resulting
perpetual state of war, with a permanent peace treaty that would
include China and South Korea.
Meanwhile, former South Korean president Kim Dae-jung, with
the approval of President Roh, will visit Kim Jong-il in late June;
the second such visit between these two, the first being in 2000.
Finally, Japan is reporting that North Korea may be preparing a
long-range missile test. According to some, it is a ballistic
missile capable of reaching the mainland of the United States.
And you wonder why I sleep with one eye open.
Libya: The Bush administration announced it is restoring full
diplomatic relations with Tripoli while removing Libya from the
State Department’s list of state sponsors of terrorism.
Of course it’s largely about oil, not that I disagree with the move
assuming Libya has indeed taken the requested actions to get out
of the terror game. But what really ticks me off is just days
before the announcement Taiwan’s President Chen Shui-bian
was criticized by the U.S. for refueling in Libya on his way home
from his trip to Costa Rica and Paraguay. More than a bit
hypocritical, to say the least.
Egypt: Ayman Nour, the lawyer who challenged President
Hosni Mubarak last year, will spend the next five years in prison
after an appeals court upheld his trumped up fraud conviction.
Nonetheless, the U.S. is adamant that it continue to fork over
$2 billion in annual aid. As one Arab scholar put it in the
Washington Post, “The charade is over. Egypt is going back to
an earlier period of repression.”
Venezuela: Why the United States chose now to make an
announcement that it was suspending arms sales to Venezuela
I’ll never know. This is one instance where we should let
sleeping dogs lie. Of course we shouldn’t be selling Hugo
Chavez’s regime arms, but the move gave Chavez another
excuse, this time from London, to rail against the Bush
administration and garner more support in his spreading leftist
constituency across Latin America, which as Mary Anastasia
O’Grady points out in Friday’s Wall Street Journal could soon
include Nicaragua; where that ol’ Sandinista, Daniel Ortega, is
poised to make a comeback in his country’s November
presidential election.
And I need to remind you of something I wrote all the way back
on 12/4/04 in this space.
“The job of Commerce Secretary is normally an inconsequential
one but in the case of the recently nominated Carlos Gutierrez,
Kellogg Co.’s CEO, an exception can be made. I was surprised
how no one in the press seemed to recognize that if President
Bush were to let the Cuban-born Gutierrez loose in Latin
America, he could do a world of good in helping reestablish
tarnished relations across the region. Gutierrez has the
potential to be a real heavyweight in this administration if the
White House will let him.”
Today the White House wonders why the situation down south is
going from bad to worse.
For crying out loud, President Bush and Secretary Rice, this was
a no brainer! You’d think that Rice, in particular, with all her
traveling, would understand that when any U.S. official travels
abroad it’s front page news in the local papers, even if it’s ‘just’
the commerce secretary. I see this all the time. Gutierrez’s face,
splashed across the papers and television screens, could have
been a big help. I give up. Where’s my third party.
[Actually, in reading the last few items, why is Secretary Rice
getting such a free pass…including by me most of the time?]
Brazil: What an awful week here, especially in Sao Paulo, the
largest city in the hemisphere. Gangsters associated with the
First Command of the Capital (PCC) launched a wave of
coordinated attacks on police, killing at least 40 over a seven-day
period, before police regained control thanks to a shoot first, ask
questions later policy. Overall, at last count at least 170 were
killed in the violence.
This all started when authorities sought to separate the PCC
already in jails in an attempt to reduce their influence in the
overcrowded facilities, so 600 were transferred to a new
maximum security facility. PCC members on the outside then
took over.
Aside from the brazen grenade and machine gun attacks, over 60
public buses were torched and 100s of hostages taken in prison
revolts across the country.
You read quotes from the gang members and how little they
value life and it’s chilling. It’s also another major reason to
secure our own border. Way too many MS-13 members, for
instance, have already infiltrated America and what happened in
Sao Paulo can easily happen here.
Italy: New Prime Minister Romano Prodi, in his inaugural
address, said “We consider the war in Iraq and the occupation of
the country a grave error. It has not resolved, but complicated,
the situation of security.”
The speech was interrupted by cries of “Shame! Shame!” from
the opposition. [Ian Fisher / New York Times]
Uganda: I have to admit I forgot about the Lord’s Resistance
Army, a rebel group here. The Government is attempting to
negotiate a deal with them but the International Criminal Court is
saying ‘no way’ as it has already indicted five members of the
LRA for war crimes.
And who are these animals? The LRA “is a cannibalistic cult that
has slaughtered whole villages and left its victims without hands,
feet or faces. It abducted children, forcing the boys to become
killers and the girls to become ‘wives’ of fighters. It often made
them kill and even eat their relatives to alienate them from
society.” [Richard Dowden / London Times]
Children make up about 80 percent of the army. You know,
sometimes it’s tough to be optimistic about the future of our
planet.
Australia: At least Prime Minister John Howard had a good
week while in America. Howard was treated royally and
rewarded for his loyalty by the Bush White House.
Commented Kurt Campbell, an analyst with the Centre for
Strategic and International Studies, “I don’t think there’s any
country globally that punches as far above its weight as Australia
does.”
Mr. Campbell obviously hasn’t heard of my dream global
alliance [U.S., UK, Japan, Australia and India]. Australia is far
more important in the coming decades than he’s giving them
credit for. John Howard’s treatment was well-deserved.
Random Musings
–Yes, my own position on immigration is hardening and I find
I’m agreeing more and more with the likes of Pat Buchanan
when he says “Immigrants came to Ellis Island…this is not
immigration.” And as Donald Trump pointed out on Imus the
other morning, it’s absurd the way we handle those attempting to
get in this country, legally, versus those who storm across. Yes,
we need a bunch of skilled workers, especially in the tech sector,
so let’s raise the quotas on them, now.
But after dithering for over five years President Bush is finally
doing something and his speech the other night was if nothing
else pragmatic.
“First, the United States must secure its borders. This is a basic
responsibility of a sovereign nation. It is also an urgent
requirement of our national security.”
Then Bush announced only 6,000 National Guard troops will
augment the Border Patrol until more of the latter can be trained.
As Congressman Peter King of New York said on Fox News
afterwards, New York City alone has 35,000 policemen.
Well you’ve got to start somewhere, right? I just wish Congress
would focus on securing the border, today, and deal with the
‘guest worker’ issue after the November mid-term election in a
more rational atmosphere. Of course that’s not possible because
so many Republicans are afraid of losing the Hispanic vote if
they don’t cave. Alas, here is the thinking of my favorite
economist, Robert Samuelson of the Washington Post.
“President Bush’s immigration speech mostly missed the true
nature of the problem. We face two interconnected population
issues. One is aging; the other is immigration. We aren’t
dealing sensibly with either, and as a result we face a future of
unnecessarily heightened political and economic conflict. On the
one side will be older baby boomers demanding all their federal
retirement benefits. On the other will be an expanding
population of younger and poorer Hispanics – immigrants, their
children and grandchildren – increasingly resentful of their rising
taxes that subsidize often-wealthier and unrelated baby boomers.
“Does this look like a harmonious future? …
“There is much muddle to our immigration debate. The central
problem is not illegal immigration. It is undesirably high levels
of poor and low-skilled immigrants, whether legal or illegal,
most of whom are Hispanic. Immigrants are not all the same.
An engineer making $75,000 annually contributes more to the
American economy and society than a $20,000 laborer. On
average, the engineer will assimilate more easily.
“Testifying recently before Congress, University of Illinois
economist Barry Chiswick – a respected immigration scholar –
said this of low-skilled immigrants:
“ ‘Their presence in the labor market increases competition for
low-skilled jobs, reducing the earnings of low-skilled native-born
workers…Because of their low earnings, low-skilled immigrants
also tend to pay less in taxes than they receive in public benefits,
such as income transfers (e.g., the earned income tax credit, food
stamps), public schooling for their children, and publicly
provided medical services. Thus while the presence of low-
skilled immigrant workers may raise the profits of their
employers, they tend to have a negative effect on the well-being
of the low-skilled native-born population, and on the native
economy as a whole.’
Samuelson:
“Hardly anyone is discussing these issues candidly. It is
politically inexpedient to do so. We can be a lawful society and
a welcoming society simultaneously, to use the president’s
phrase, but we cannot be a welcoming society for limitless
numbers of Latin America’s poor without seriously
compromising our own future – and, indeed, the future of many
of the Latinos already here. Yet, that is precisely what the
president and many senators support by endorsing large ‘guest
worker’ programs and an expansion of today’s system of legal
visas. In practice these proposals would result in substantial
increases of low-skilled immigrants….
“As the president says, we need a ‘comprehensive’ immigration
policy. He’s right on some elements: controlling the border;
providing reliable identification cards for legal immigrants;
penalizing employers that hire them; providing some legal status
for today’s illegal immigrants. But he’s wrong in wanting to
expand the number of low-skilled immigrants based on the
fiction of U.S. labor ‘shortages.’ In his testimony, economist
Chiswick rightly argued that we should do the opposite – give
preferences to skilled immigrants. We should be smart about the
future; right now, we’re not.”
–By the way, remind me not to go to Nuevo Laredo, Mexico,
across the border from Laredo, Texas. The murder rate per
100,000 residents in Nuevo Laredo is 33.3, versus 4.9 in Laredo
(and 1.9 in New York). [USA Today]
–Last week I wrote the following in relation to the NSA phone
records flap.
“While more members of Congress appeared to have been made
aware of this than the wiretapping program, I still find it a bit
troubling. But I’m invoking my ‘24-hour’ rule before
commenting further.”
Once again, the advice from my old boss Jack L. came through.
While politicians and commentators railed last weekend, a few
days later Verizon, BellSouth, and AT&T all said, “What NSA
program? We weren’t even asked for the records, and if we were
we wouldn’t comply unless there was a court order.”
But we still don’t know what’s really going on, though Congress
has evidently been fully briefed. Beyond that, it’s hard to
comment on something when you don’t have all the facts.
–Columnist George Will / Washington Post:
“An aggressively annoying new phrase in America’s political
lexicon is ‘values voters.’ It is used proudly by social
conservatives, and carelessly by the media to denote such
conservatives.
“This phrase diminishes our understanding of politics. It also is
arrogant on the part of social conservatives and insulting to
everyone else because it implies that only social conservatives
vote to advance their values and everyone else votes to…well, it
is unclear what they supposedly think they are doing with their
ballots.”
–Researchers at the Max Planck Institute for Evolutionary
Anthropology have discovered that apes, specifically orangutans
and bonobos, are capable of planning ahead; such as in
recognizing certain tools should be taken along for various tasks
like retrieving grapes.
In other words, apes do a better job of planning ahead than
Secretary of Defense Rumsfeld did in preparing for post-war
Iraq.
–Clearly, the deaths of three Florida women at the jaws of
alligators (after just 17 fatalities in the previous 57 years) is the
responsibility of one man…..George W. Bush.
–Being a resident of the Garden State, I sincerely hope the body
of Jimmy Hoffa is finally found in Michigan. Then, to
paraphrase Richard Nixon, we could say “You won’t have New
Jersey to kick around anymore.”
–Ahem…former New Jersey Senator Robert Torricelli has been
implicated in the Iraq Oil-for-Food scandal……….never mind.
–We wish Mike Wallace the best in his retirement from “60
Minutes.”
–I had a great day after posting last week’s column down in
Savannah, Tenn. First, it was the Buford Pusser Home &
Museum. [If you’re not familiar with Sheriff Pusser, think
“Walking Tall” movies.] Good fun. Next, it was down to
Tupelo, Miss., to see Elvis’s birthplace. And then back up to
Shiloh to run through the battlefield again. But to top it all off,
dinner at Hagy’s Catfish Hotel where I finally found some beer.
Geezuz, how was I to know Savannah was dry?
Anyway, I just have to note that once again I go to a national
park, such as Shiloh, and can’t help but admire the park rangers;
super helpful yet incredibly underpaid and understaffed. It’s a
disgrace America can’t do better; something about our screwed
up priorities.
But moving along, I forgot to mention last time that in driving
from Nashville to Savannah, you go through Lawrenceburg,
home of former Sen. Fred Thompson. He would have made a
great president, in my estimation, but remember the hideous job
he did with the Republican’s State of the Union rebuttal that one
year when he was just coming into the forefront? He had a
breathing issue that day, wasn’t miked properly, and it was a
disaster. End of presidential ambitions.
Anyway, I also drove through Pulaski. You know, Pulaski,
home of the Ku Klux Klan. I had a discussion down in
Tennessee with a man who will go nameless (to protect him) but
he had some interesting stories when I mentioned Nathan
Bedford Forrest, the Confederate general who most also claim
was the founder of the KKK. It seems the “Devil Forrest,” as he
was called during the war, may have just been used as a
recruiting tool and there are some who say he made amends with
the blacks later in his life (a la George Wallace). Oh well, I
didn’t tarry in Pulaski, especially because I was wearing khaki
pants both times I was passing through. I looked a little too
preppy, if you know what I mean.
And I can’t help but note that there is no doubt President Bush’s
staunchest supporters, broadly speaking, remain in the deep
South. I have other observations along this line, but I better save
those for my memoirs.
–I see that Archbishop Theodore E. McCarrick is retiring from
his position heading up the Washington diocese. Years ago the
two of us exchanged letters on the situation in the Balkans when
he was Archbishop in Newark and one of my prized possessions
is a picture of us following his elevation to cardinal in Rome
back in 2001.
From an editorial in the Washington Post.
“Charming, outgoing and disarmingly impish, Cardinal
McCarrick is blessed with an avuncular touch that has earned
him affection and admiration in spades….
“Humble by nature and unassuming in his personal life – not the
usual descriptors of Washington public figures – the cardinal
nonetheless was a popular and influential figure both in the
White House and on Capitol Hill. Unusually clear and direct in
his pronouncements, he stood out among his prelate peers, some
of whom prefer to speak at length while saying little.”
It’s been a tough stretch for many of us Catholics. But I’m
forever glad I got to know Cardinal McCarrick.
–I’ve seen some terrific programs on the life of the great Nat
King Cole, but none better than the “American Masters” program
on PBS the other night. There are some documentaries that
should be required viewing for every kid growing up in this
country and this is one of them; as in the way he handled the
racism of his time. And from a pure entertainment standpoint, as
Isaac Hayes put it, Nat King Cole “was cool before it was cool to
be cool.”
–Elvis Presley: “I could never become so rich that I’d forget the
poor.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $659
Oil, $68.38
Returns for the week 5/15-5/19
Dow Jones -2.1% [11144]
S&P 500 -1.9% [1267]
S&P MidCap -3.4%
Russell 2000 -2.7%
Nasdaq -2.2% [2193]
Returns for the period 1/1/06-5/19/06
Dow Jones +4.0%
S&P 500 +1.5%
S&P MidCap +3.4%
Russell 2000 +7.3%
Nasdaq -0.5%
Bulls 46.3
Bears 25.3 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
