[Posted 7:00 AM ET]
Real Estate, Part II
Last Sunday I was driving around my community here in the
New Jersey suburbs and couldn’t help but notice a staggering
number of ‘Open Houses.’ So the next day I talked to two
realtor friends of mine and they said, yes, it was a record level of
activity and they could have held a lot more.
I see two things happening. One, I don’t know where everyone
is going but in the hot markets such as mine, people are throwing
their house up for sale, sensing a top. [Nationwide, inventory
levels hit a record in April.]
But at the same time many folks are just as quickly pulling it off
the market as soon as they see they won’t get the price they
thought they would. Most of these people have the attitude “the
market will turn around in a year and I’m really not in a hurry.”
When I say homeowners aren’t receiving anything close to the
asking price, we aren’t talking $20,000 or $40,000. I’m hearing
tales of prices in hot counties such as Westchester, New York,
dropping $70,000 to $100,000 in a heartbeat.
Couple this with rapidly rising foreclosure rates and you can see
how the worm has turned. But will it be a “soft landing?” Don’t
count on it.
Just last week I wrote, “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.” Wouldn’t you know that on
Wednesday, NBC News had a segment “Housing: On the
Bubble.”
You don’t need big declines in housing values, though, to impact
consumer confidence but that is what you will increasingly see.
And as I’ve been bringing up for years, this real estate bubble is
global. Ask anyone who’s been to Europe in the past few years,
chatting up a few blokes in a pub, and you’ll find everyone is
buying a second home in Spain, to cite but one prominent
example; thanks in no small part to the prevalence of low-cost
airlines that make it far easier to jet away for the weekend. But
these same communities are going to slide like the rest.
In China, both commercial and residential vacancy rates are
soaring because of the other big issue when it comes to real
estate, whether in Beijing or Boston….affordability.
But this week we had an issue of a different sort come to a head;
carnage in the emerging markets. In one two-week period,
representing ten straight declines, the Morgan Stanley Capital
International Emerging Markets Index fell 15%. Russia was off
25% over that time. India’s market was forced to close one day
after an initial decline of 10%. [It finished down 4% after re-
opening.]
Volatility in the commodities markets remained at record levels,
with copper rising 12% in one day (after nearly a 20% decline),
the biggest single advance ever.
So on one hand investors were fleeing the riskiest of investments,
while another group was embracing them on the dip. All in all, it
was quite exciting, actually, especially if you had a majority of
your assets in cash and could sit back with a cold frosty and
observe the bloodletting from afar.
The Financial Times’ Martin Wolf asked the question, “Why
have markets reached their exposed position? The answer is that
success breeds excess.” Mr. Wolf cited William White, advisor
to the Bank for International Settlements, who offered this
explanation.
“Buoyed by justified optimism about some particular
development, credit is extended which drives up related asset
prices. This both encourages fixed investment…and increases
collateral values, which supports still more credit expansion.
With time, and underpinned by an associated increase in output
growth, this process leads to increasing willingness to take risks
(‘irrational exuberance’), which gives further impetus to the
credit cycle….Subsequently, as exaggerated expectations
concerning both risk and return are eventually disappointed, the
whole process goes into reverse.”
And in this reversal are the seeds for a global economic
slowdown, the speed of which could surprise just as the decline
in real estate seems assured of doing so.
By week’s end, though, markets around the world were rallying
because it is assumed any slowdown will be manageable; that
inflation fires will be suppressed and central banks thus won’t
have to apply the brakes as hard as they otherwise would had
inflation kept rising. It’s a nice story, very comforting. But I’m
betting it”s not that easy.
Street Bytes
–I’m declaring victory. I said after the first week of the slide it
would evolve into a correction and by two readings it was. From
its highs to its intraday lows on Wednesday, the Russell 2000 fell
10.8% and Nasdaq 9.9%; 10% being the decline required for the
correction label. [At its worst point the S&P 500 was off 6%.]
For its part, after snapping back the Dow Jones finished the week
up 1.2% to 11278, while the S&P gained 1% to 1280. But
Nasdaq lagged once again (the 8th straight week it has
underperformed the Dow), adding just 0.8% to 2210, though
enough to get it back into the black for the year (+0.2%).
General Motors was the big winner among the Dow issues,
rallying 14% on the strength of some analyst upgrades.
–U.S. Treasury Yields
6-mo. 5.00% 2-yr. 4.94% 10-yr. 5.05% 30-yr. 5.16%
Despite some wild intraday swings, by week’s end yields were
virtually unchanged. There was a certain flight to quality
element early on as equity markets swooned, plus the number on
durable goods was far weaker than anticipated, but the housing
starts data wasn’t quite as bad as feared (I chose to focus on the
record inventory figure instead), while a key inflation indicator,
the PCE deflator, showed core inflation to be running at a 2.1%
pace, not as worrisome to some but still above the Fed’s comfort
level.
–Reporter Kurt Eichenwald of the New York Times, who
covered the Greed Era extensively, on the guilty verdicts for
Enron’s Jeffrey Skilling and Kenneth Lay.
“The Enron case will forever stand as the ultimate reflection of
an era of near madness in finance, a time in the late 1990s when
self-certitude and spin became a substitute for financial analysis
and coherent business models. Controls broke down and
management deteriorated as arrogance overrode careful
judgment, allowing senior executives to blithely push aside their
critics….
“It was not simply that the ethics of the corporate world changed
overnight; the ever-rising bubble of market prices created a sense
of invincibility among corporate executives, who read market
delusions as proof of their own genius. Arrogance gave way to
recklessness, which in turn opened the door to criminality.”
And I loved this piece from the Seattle Post-Intelligencer (and
the AP), passed on to me by Charles K., concerning Ken Lay’s
charitable works.
“Seven years after donating $1.1 million in Enron stock to his
alma mater and with little to show for the gift, company founder
Kenneth Lay asked the University of Missouri to steer the
unspent money to Hurricane Katrina relief.
“The school rejected the request, according to records obtained
Monday…By February, a Lay attorney was asking the school to
return the money so Lay could pay legal bills stemming from the
fraud and conspiracy case against him. The school again turned
him down….
“Lay donated a total of 16,500 shares of Enron stock in two
installments, according to university records. The first batch of
10,000 shares were valued at $57.56 each in November 1998,
with the remaining 6,500 shares worth approximately $80.46
each when donated in July 1999.
“The university quickly cashed in those shares, avoiding the
huge losses that plagued other Enron stockholders once the
company collapsed.”
My opinion of Mizzou just increased ten-fold.
–Government regulators fined Fannie Mae $400 million for its
egregious behavior in manipulating earnings to benefit top
executives directly. It’s amazing former chairman and CEO
Franklin Raines isn’t joining Skilling and Lay in the slammer,
though this is still a small possibility as a criminal investigation
continues.
From 1998-2003, Raines received $52 million out of $90 million
in compensation based on hitting incentives that were only
achieved because Fannie played with the books. Other officers
and directors benefited as well.
And Fannie employed lobbyists (like former Reagan advisor Ken
Duberstein) to block the investigation into its accounting
practices.
Dan Denning is publisher of a newsletter I subscribe to called
“Strategic Investment” and aside from being jealous of Mr.
Denning’s ability to live in Melbourne, Australia (I loved my
brief visit here a few years ago), I liked his take on a topic
he has been all over.
“It is hard to be surprised anymore about the depth of the
incompetence and negligence at Fannie Mae. For one, we still
don’t know exactly what’s going on with the accounting. The
company is so complex and has been so poorly managed that
nobody seems to know how to keep track of the figures. We do
know that it’s cost Fannie some $800 million just to investigate
itself. That is an accomplishment in waste, even by government
standards.
“Fannie’s outside contractor on the job, Deloitte & Touche, gets
about $7.7 million per week for its help in sorting out the mess.
This once again proves how integral the mortgage lending
business has been to growth in America during the bubble years.
It’s also an outrageous testament to how much misallocated
capital costs an economy, and how little you have to show for it.”
Denning wrote this before release of the regulators’ report, but as
he warned beforehand, “Should Fannie shareholders and Fannie
bondholders be worried about the sound of a latex glove
snapping in place behind them?”
–Trade rules prohibit U.S. companies from exploring for oil and
gas in Cuba’s Gulf of Mexico waters, so this week companies
from India and Norway signed on with Spain’s Repsol to begin
drilling in this area where a U.S. Geological Survey estimates
there are substantial reserves of both. U.S. environmental law
prohibits exploration on the U.S. side of a dividing line
negotiated back in 1977.
–With the wicked volatility in the commodities markets, Merrill
Lynch strategist Richard Bernstein had some valuable input, as
reported by Barron’s Michael Santoli.
“(Bernstein) estimated that there was a 50% speculative premium
in commodities through the end of April. He did so by
comparing the spot prices of commodities that have exchange-
listed futures versus the spot prices of commodities that do not
have futures.
“ ‘Our theory was that speculators were more likely to be active
in the futures markets than in the actual physical commodity
markets,’ he writes. By looking at the spread between the two,
he could estimate how much speculation versus actual demand
existed for that commodity. At the end of March, the speculative
premium was about 30%, the biggest premium in the history of
his data. By the end of April the premium had inflated to 50% –
so prices were about 50% higher than they would be if they were
based on fundamentals.”
And sure enough those with the highest premiums tumbled.
–While there was a surge in discussion on bird flu due to the
cluster in Indonesia, I am no longer as alarmed as I had been;
though we’ll see what happens in the fall when the birds start
migrating again.
–PIMCO’s Bill Gross on trade and the currency market.
“Our point is that protectionism and reactions to perceived
threats of it are potentially destabilizing events that threaten the
current status quo. Yes, the world needs a cheaper dollar to help
rectify the U.S. current account deficit and the excesses of
American consumption. Yes, a cheaper dollar will allow for a
decrease in Asian imports and a rebalancing of our current
‘disequilibrium.’ But prior currency protectionism followed by
too swift of a policy reversal by public policymakers or the
inevitable invisible hand of the market, risks asset volatility that
is potentially destabilizing. The outcome depends importantly on
decisions made by the Chinese themselves with regard to their
(renminbi) revaluation. In plainer English, watch the pace of
dollar depreciation or periodic re-appreciation if that be the case.
Currency volatility can ruin the global economy’s day, week, or
year(s) for that matter.” [pimco.com]
–From the Wall Street Journal:
“Though the Bush tax cuts mean that the best-off Americans face
lower effective tax rates than under President Clinton, they do
pay a bigger share of all federal taxes. Data from the
(Congressional Budget Office) and projections by the Tax Policy
Center…show that the top 10% of income earners (with incomes
above $251,400) will pay 56.2% of all federal taxes this year, up
from 52.2% in 2000. That includes income and payroll taxes,
Social Security and the like. The growing tax take from the rich
reflects their growing share of the nation’s income. In 2006, the
top 10% is projected to receive 44.7% of all household cash
income, up from 40.6% in 2000.”
–A survey by USA Today estimates that the cost of future
government entitlements such as for Social Security and
Medicare – at the federal, state and local levels – is the
equivalent of $510,000 per household.
–Former Federal Reserve chairman Alan Greenspan told an
audience that Medicare is a “highly unstable situation” and a
“very dangerous” one, with costs that will eventually put the U.S.
in a “very serious state.” Other than that, everything’s fine.
–Yahoo and eBay announced a joint agreement to share more in
terms of online advertising and communications; an alliance that
was well-received by the Street….even though it really has no
clue what it all means.
–Senator John McCain is turning up the heat on the Pentagon
and its procurement process. Good. This could be a big positive
for him in his presidential bid. Remember, it was President
Dwight D. Eisenhower in his highly underrated farewell address
who first warned of the excesses of the military-industrial
complex.
[Ike was underrated as a president in many other respects.]
–Automakers warned that consumers shouldn’t use E85 ethanol
blend gasoline in their conventional vehicles. Anything more
than a 10% blend can corrode the parts on a vehicle not intended
to use ethanol. [Of course future models will correct this issue.]
–Remember Liu Qibing, the Chinese government copper trader
who lost $300 million late last year by betting the wrong way?
He hasn’t been seen since, though it’s assumed the communists
are ‘just’ holding him under house arrest.
–Las Vegas Sands won the competition for Singapore’s first
casino, which is bound to be a winner (even at $5 billion)
because gamblers will want to stay inside in order to avoid the
oppressive humidity outside.
–Treasury Secretary John Snow will be departing soon. Good
guy…as in he’d be a good neighbor…but not the greatest
spokesman for the administration. But I seem to be the only one
who doesn’t like Snow’s probable replacement, former
Commerce Secretary Donald Evans. He just strikes me as too
slick.
–In a survey of hedge fund compensation for Institutional
Investor magazine, it was revealed that James Simons took home
$1.5 billion last year. No. 2 on the list was T. Boone Pickens Jr.,
the 78-year-old oilman, at $1.4 billion.
Again, these are hedge fund operators, not corporate chieftains,
so if the performance is there more power to ‘em. Pickens’s
flagship funds, for example, returned 650 and 89 percent.
[Boone likes leverage.]
Most hedge funds have a “2 and 20” compensation scheme; 2%
management fee and 20% of the profits, though in the case of
Simons it’s 5 and 44.
But you have to question someone like Bruce Kovner taking
home $400 million when his key fund has posted single-digit
returns for three years running. Then again, investors can almost
always pull their money out if they’re unhappy with the
arrangement.
In all, 26 hedge fund managers earned $130 million or more.
–The New York Stock Exchange is attempting to acquire
Euronext, which runs the Paris, Brussels, Amsterdam and Lisbon
exchanges, as consolidation in the stock trading biz continues;
Nasdaq having recently acquired a 25% interest in the London
Stock Exchange.
–It’s interesting to note that in the uproar over Home Depot CEO
Bob Nardelli’s compensation, over $200 million aggregate for
the past five years despite a falling share price, one of the
members of HD’s compensation committee is Countrywide
Financial’s Angelo Mozilo, who took home $70 million himself
last year. But we’re assured there’s no conflict of interest at
play.
–Charlie Cameron of the Van Eck Fund Family on real estate:
“It’s better to be two years early selling your home than five
minutes late.”
–This week the Senate Banking Committee held a hearing on
economic literacy. The same day Katie Couric asked the
president of Shell, “Is there any way to give customers a rebate?”
Well I don’t want to get into a long discussion of how the market
works and supply and demand (I did that last week), but the
Federal Trade Commission’s ruling on the oil industry this week
gives me an excuse to give my own little lesson on literacy.
The FTC concluded Big Oil did not manipulate prices post-
Katrina, much to the dismay of congressmen who need a red-
meat issue for back home.
But anyone can tell if their local gas station is perhaps
overcharging by simply following the gasoline futures contract,
which should be on the nightly news alongside the closing prices
of the Dow Jones and Nasdaq.
It’s pretty simple. First, the futures contract is currently around
$2.10 and has generally been in the $1.90 to $2.10 range over the
past month or so. To figure out what the average price at the
pump should be, tack on 70 to 80 cents, which covers items such
as taxes, refining, blend requirements, transportation costs and a
small profit. Of course the price is going to vary state to state
based on availability and closeness to refineries.
There’s a lag in the futures price vs. when that particular gas
makes it into the pumps, but it’s nonetheless a good gauge. All
things being equal, for example, if the futures price stayed
around $2.00 for the next month, then we should be averaging
about $2.80 (max) for regular. If you see $3.40 instead, then
that’s probably gouging…at the local level…not by Exxon or
Shell.
So start following the gasoline futures and hope for zero
hurricanes this summer because you now know what damage to
the pipelines and refineries can do to prices.
–While I have been a defender of Big Oil, should a federal
investigation find that workers may have “improperly repaired
two giant storage tanks used by the (Trans-Alaska) pipeline,
potentially putting the structures at risk,” [Wall Street Journal]
I would fine the consortium headed up by BP, ExxonMobil and
ConocoPhillips, $billions. Each tank holds 500,000 barrels of oil
and a breach could dump the oil into Prince William Sound.
–What a dreadful reception for Internet telephony player Vonage
and its initial public offering. Priced at $17 a share, after two
days it was down to $13. MasterCard’s giant IPO, on the other
hand, the largest U.S. one in two years, fared much better; up
14% the first day.
–Back to real estate, Josh P. in San Diego tells me notices of
default there – the first step toward mortgage foreclosure –
jumped 60% in the first three months of this year, according to
DataQuick Information Systems.
–XM Satellite Radio lowered its subscriber forecast, not exactly
a great sign for the medium. Personally, I love their 60s music
channel.
–The aforementioned Charles K. weighed in on the Lucent lawn
debacle. Goodness gracious, he offered, “It won’t green unless it
gits its nitrogen.” Yes, he’s right. It’s as much about fertilizer as
anything else.
–U.S. tourism to Canada was off 5% in 2005, kind of surprising.
–My portfolio: The carbon fiber play calmed down a bit by
week’s end. I’m kicking myself over one factor here; failing to
recognize there would be some substantial insider selling, though
in this instance I can’t blame the officers and directors one bit as
it’s the first time in ages they’ve been able to take a profit on
their positions. I just should have been on top of this more.
Anyway, I’m going to stop talking about the position unless I
make a move…for those of you playing along at home.
Foreign Affairs
Iraq: Prime Minister al-Maliki put together a cabinet with the
following makeup.
17 Shia, 7 Kurds, 7 Sunnis, 5 secularists (Alawi’s faction) and
three yet to be determined; the important defense, interior, and
national security posts.
President Bush labeled it a “turning point,” but the question is
can the relative security of the Green Zone be replicated
throughout the land and can al-Maliki deliver on his promise that
Iraqi security forces will control the entire country within 18
months, thus enabling the United States et al to withdraw?
But one item could determine ultimate success or failure long
before then; control of the oil revenues. The new oil minister
said the central government should handle all contracts related to
production, but the Kurds have already been working
independently in lining up development deals for oil within their
zone of influence.
Separately, commentator William Shawcross had these
observations after spending time with British forces.
“(Al-Maliki) must set a clear mandate and he must implement it.
People must see long overdue improvements in water, electricity
and sewage systems, as well as security. He must also improve
all levels of governance. An early test will be if he can get rid of
the governor of Basra…who is regarded as useless.
“All this will be terribly hard, not just because of terrorist
disruption but because the politicians concerned are unused to
government. After 30 years of terror, Iraqis are understandably
scared of making decisions.
“However, if the government is seen as broadly representative of
the Shi’ite, Sunni and Kurdish populations and is seen to be
effective, it will be much harder for the insurgents.” [London
Times]
Well, that’s a pretty optimistic take. For another one, strategists
Steven Simon and Ray Takeyh wrote of Iran’s influence in Iraq
in an op-ed for the Washington Post.
“Since the collapse of Saddam Hussein’s regime, Iran has
methodically built and strengthened its military, political and
religious influence in Iraq. Iran’s Revolutionary Guard has
extensively infiltrated Iraq’s Ministry of the Interior and police
force, both mainstays of Shiite power. The hundreds of Iranian
mullahs and businessmen who have slipped across the border
have a commanding presence in southern Iraq’s commercial and
religious sectors….
“Iran’s paramilitary and intelligence buildup in Iraq would put
some members of the ‘coalition of the willing’ to shame. Over
the past three years, Tehran has deployed to Iraq a large number
of the Revolutionary Guard’s Qods Force – a highly professional
force specializing in assassinations and bombings – as well as
officers from the Ministry of Intelligence and National Security
and representatives of Lebanese Hizbullah.
“The Qods Force has a longstanding relationship with Hizbullah,
which it trains and supplies in coordination with Syria through an
Islamic Revolutionary Guards Corps unit in central Lebanon. In
the words of Iranian Maj. Gen. Yahya Rahim Safavi, the IRGC
commander, ‘The range of (the IRGC’s) duty is not limited to
our land and we have extra-border missions.’
“Iranian personnel have established safe houses throughout
southern Iraq. They monitor the movement of coalition forces,
tend weapons caches, facilitate cross-border travel of clerics,
smuggle munitions into Iraq and recruit individuals as
intelligence sources. Presumably, Tehran has recruited networks
within U.S. military bases and civilian compounds that could be
activated on short notice. Iran is also believed by regional
intelligence agencies to have armed and trained as many as
40,000 Iraqis to prevent an unlikely rollback of Shiite control.”
Iran: Aside from the above, Iran wants to be loved, as
incongruous as that might sound. It seeks respect, and so it
desires talks with the United States which would simply tack on
another year or two to its bomb-making operation as it dragged
any diplomatic effort out until they are ready to shock the world.
And Iran has its Gulf neighbors running scared. In a conference
at Sharm El-Sheikh, Egypt, Arab League chief Amr Mousa said
American claims regarding Iran’s nuclear program have no
credibility in the Arab world, and demanded any allegations be
supported by proof from the International Atomic Energy
Agency.
But then Mousa brought up an issue that is the Arab States’ hole
card. Yes, the region should be nuclear weapons free but that
includes Israel’s arsenal. One must understand that this stance
resonates throughout the region, regardless of what your own
feeling is, and while the Bush administration can call it a non-
starter in any negotiations with Tehran, Iran and its neighbors
can just keep hammering away at it.
At the same conference, Egypt’s President Hosni Mubarak
blasted the U.S., in a case of biting the hand that feeds him,
accusing Washington of a double standard on nuclear policy
when it comes to Israel while at the same time challenging the
Bush White House to steer clear of unilateral actions such as the
invasion of Iraq. Mubarak added that democratic reforms in the
Middle East should “emanate from within the region,” a slap at
administration attempts to promote Western-style democracy.
[AP]
Again, most Americans would like to throw up their arms when
they read such talk, knowing we ply Egypt with $2 billion in aid
annually, but it’s a further example of U.S. failure to win over
hearts and minds.
Israel: Prime Minister Ehud Olmert came to Washington for his
first meeting with President Bush and Bush essentially agreed
with Israel’s unilateral steps to redraw the borders between itself
and the Palestinian territories as it sees fit, as long as Israel
exhausts all diplomatic efforts first.
To which Israel, and Olmert, say; we have no one to negotiate
with.
And certainly for much of the past few weeks that’s been the
case as Palestinian President Mahmoud Abbas’s Fatah movement
battles it out with Hamas in a kind of low-grade civil war.
But give Abbas credit. He’s proven to have more guts than I
thought he had. Long ago he could have sought a cushy asylum
in Egypt, or the West, but he’s hung in there and now appears on
the verge of winning the power struggle with Hamas. He’s
certainly put them on their heels.
So Abbas’s plan is to call for a national referendum on the
outline of a Palestinian state if no agreement with Hamas is
reached in the next week on a joint platform. The referendum
would then ask Palestinians to accept or reject a plan for the
creation of a Palestinian state in the West Bank, Gaza and East
Jerusalem. And whose plan is it? One worked up by leading
Hamas and Fatah prisoners.
Hamas accepts the referendum in principle (at last word), though
it would then have to negotiate with Israel and of course its own
platform is still based on Israel’s destruction.
So is there any reason for optimism? Probably little, but as long
as Abbas is the central figure on the Palestinian front, there is
some hope the level of violence between Israel and its neighbor
won’t escalate to full-scale war.
Then again, you always have Hizbullah and this week Sheikh
Nasrallah reiterated his forces have “thousands” of rockets
capable of hitting Israel at any time, while the Lebanese
government remains powerless to disarm them.
But I have to end this segment with a discussion of a story that
broke right before I posted last week’s review. This is what I
wrote.
“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.”
Unfortunately, not every one employs my “24-hour” rule. It all
started Friday, when Canada’s National Post ran a piece from
columnist Amir Taheri that the Iranian legislature had approved a
law requiring all non-Muslims to wear clothes with colored
badges to identify oneself as a Christian or Jew, for example.
The story went that yellow was chosen for Jews, same as during
Nazi Germany.
I watched CNBC’s Larry Kudlow, Friday afternoon, as he
irresponsibly railed about the legislation and to NBC terrorism
expert Steve Emerson’s credit he told Kudlow that he hadn’t
been able to confirm the story.
I then received a mass e-mail Friday night, passing the item off
as gospel. Well, this is a hazard of my job…late-breaking news
where I have to make a decision on whether or not to include it
without all the facts.
As you all know by now, the story was false and the National
Post was forced to apologize for running it. As for Taheri, I’ll
ignore his work in the future.
This of course is in no way a defense of Iran, but the reaction in
some quarters to this fake story further points out the dangers of
today’s journalism. Some in the community have incredible
power and we’ve seen countless examples in the past few years
how actual lives have been lost as a result. Some, like yours
truly, run up against constant deadlines and the pressure that
entails. For my part I will continue to seek the truth as best I can
and if it sometimes means holding off on the commentary until I
learn more, in the long run that’s all for the good.
Afghanistan: And in line with the above, it turns out another
late-breaking story last week, the capture of a key Taliban
commander by Afghan and Canadian forces, also proved not to
be true, and on this one I guessed wrong. Days later we learned
it wasn’t the same guy.
The bigger story here, though, is the resurgence of the Taliban
and I was having flashbacks to my youth when I’d listen to the
weekly death tolls from Vietnam on the radio Sunday evenings
and wonder why we weren’t winning. We’re killing 10 of them
for every one of us, I’d think. Where do the Vietcong find all
these people?
And so it these days with the Taliban, and for that matter the
Iraqi insurgency. We’re killing a lot, it appears, but they just
keep coming.
China: The latest Pentagon threat analysis is more of the same,
though it places a bit more emphasis on China’s angling for
confrontation with Japan down the road. To those who insist that
the United States maintains its naval superiority in the region,
however, I would remind them that China is rapidly improving
its capability to take out our ships and, again, should China
attack Taiwan and then knock out one of our destroyers or
aircraft carriers, would the American people have the appetite for
all-out confrontation? These days? No way.
Russia: Following is an AP report on a press conference
President Vladimir Putin held after a meeting with the European
Union. Putin was asked about Vice President Cheney’s recent
criticism of Kremlin policy.
“We see how the United States defends its interests, we see what
methods and means they use for this. When we fight for our
interests, we also look for the most acceptable methods to
accomplish our national tasks, and I find it strange that this
seems inexplicable to someone.”
And while Putin said the United States remained “one of our
major partners,” he suggested no one had the right to interfere in
Russia’s relations with other nations.
“ ‘As far as the view of our relations with other countries, we
will discuss our relations with them directly,’ Putin said icily.”
Yup, the G-8 in St. Petersburg is going to be a real tension
convention, sports fans.
Germany: The World Cup starts in less than two weeks and
government fears the competition will be used by far-right
groups to draw attention to their movement appear to be
warranted. Recently a German politician of Turkish origin was
brutally beaten by neo-Nazis.
Turkey / Greece: These two rivals skillfully handled a ‘dogfight’
over the Aegean Sea that claimed the life of a Greek pilot. These
‘fake’ episodes occur all the time, though in this instance the
Turkish and Greek jets collided with the Turk pilot evacuating
safely. This could have precipitated a nasty imbroglio but cooler
heads prevailed.
South Korea: Opposition leader Park Geun-hye (daughter of the
late dictator Park Chung-hee and the leading female politician in
the country), was slashed across her face by two allegedly drunk
assailants at a rally in Seoul, though many are wondering if this
was some kind of conspiracy. Political violence used to be the
norm here but hasn’t been for decades, basically since her father
was assassinated in 1979.
But you’ll recall when I was in South Korea just a few weeks ago
I thought the young people were rather naïve concerning their
relations with their cousins to the North so I got a kick out of a
New York Times piece by Norimitsu Onishi that talked of the
popularity of North Korean theme restaurants in the South. To
wit:
“The North Korean waitresses wore traditional dresses in the
bright colors that were fashionable in the South some years back.
The singer’s interpretation of ‘Whistle,’ a North Korean standard
of the 1980s, was shaky and off-key. Service was bad and
included at least one mild threat. Drinks were spilled, beer
bottles left unopened and unpoured.
“But the South Korean customers could not get enough of the
Pyongyang Moran Bar.”
This is disturbing. Need they be reminded hundreds of
thousands, if not millions, have starved to death in North Korea
in just the past decade?
Saudi Arabia: Three years after 9/11, Saudi officials claimed the
religious curriculum needed to be reformed after a royal study
group found it “encourages violence toward others, and
misguides the pupils into believing that in order to safeguard
their own religion, they must violently repress and even
physically eliminate the ‘other.’”
But as the Washington Post found, recent Saudi claims, including
an ad campaign in the U.S., that it had reformed its textbooks is a
bunch of garbage.
The Post had two independent, fluent Arabic speakers examine
the latest offerings. For example:
First Grade – “Every religion other than Islam is false.
Fifth Grade – “Whoever obeys the Prophet and accepts the
oneness of God cannot maintain a loyal friendship with those
who oppose God and His Prophet, even if they are his closest
relatives.”
“A Muslim, even if he lives far away, is your brother in religion.
Someone who opposes God, even if he is your brother by family
tie, is your enemy in religion.”
Ninth Grade – “The clash between this [Muslim] community
(umma) and the Jews and Christians has endured, and it will
continue as long as God wills.”
“Muslims will triumph because they are right. He who is right is
always victorious, even if most people are against him.”
Twelfth Grade – “Jihad in the path of God – which consists of
battling against unbelief, oppression, injustice, and those who
perpetrate it – is the summit of Islam. This religion arose
through jihad and through jihad was its banner raised high. It is
one of the noblest acts, which brings one closer to God, and one
of the most magnificent acts of obedience to God.”
[Source: Nina Shea, director of the Center for Religious Freedom
at Freedom House / Washington Post]
Colombia: Voters go to the polls this weekend as President
Alvaro Uribe, one of America’s good friends, stands for re-
election. Last week, however, Uribe had to deal with a tragic
friendly fire incident where troops accidentally shot and killed 10
undercover police officers working an anti-drug operation.
Montenegro: The required 55% of the voters here (55.4%) opted
for statehood and a break from Serbia so Europe has its newest
nation. StocksandNews was there to capture the scene on the
streets.
“Now what do we do?”
“I dunno. I thought you knew.”
“Nope. You think anyone does?”
Ukraine: Since my visit here and the March election, I’ve been
trying to figure out just what the heck is going on. As it turns
out, nothing. Parliament convened on Thursday for the first time
and promptly adjourned until June 7. President Viktor
Yushchenko has thus far refused to give the prime minister slot
to the former holder of the office, Yulia Tymoshenko, despite her
strong showing in the polls.
Random Musings
–The coach of Iraq’s tennis team and two players were shot to
death for wearing shorts. Earlier, militants had issued a warning
forbidding such attire. Oh, and they were shot in the head.
–The following is a partial transcript of the press conference
held by British Prime Minister Tony Blair and President Bush.
Question: Mr. President, you spoke about missteps and mistakes
in Iraq. Could I ask both of you which missteps and mistakes of
your own you most regret?
Bush: Sounds like kind of a familiar refrain here. Saying ‘Bring
it on’; kind of tough talk, you know, that sent the wrong signal to
people. I learned some lessons about expressing myself maybe
in a little more sophisticated manner, you know. ‘Wanted, dead
or alive’; that kind of talk. I think in certain parts of the world it
was misinterpreted. And so I learned from that.
And, you know, I think the biggest mistake that’s happened so
far, at least from our country’s involvement in Iraq, is Abu
Ghraib. We’ve been paying for that for a long period of time.”
The press described President Bush’s remarks as “introspective.”
I found them appalling.
So I take you back to “Week in Review,” May 8, 2004. This is
what I wrote at the time.
“I must say, it wasn’t a great week to be traveling around the
world as an American. It didn’t create any particular problems
for me, but as I took a ferry on Tuesday from Singapore to
Batam, Indonesia, and as the only Yank on board, it was a bit
unsettling to see the locals reading newspapers with screaming
headlines and photos of prisoner abuse in Iraq. I didn’t comment
on this topic last week because the story was just breaking and I
wanted to get more facts before doing so.
“Well now I’ve seen all the disgusting details, as we know them
at this point, and I’m ashamed….It is absolutely sickening and as
one who has commented as extensively as anyone the past 5+
years on the global scene and the big picture, I am furious at
some in our chain of command who allowed this to take place.
“I have written…that it is a big mistake to think that the U.S.
military is loaded with brilliant people at the top, and I know I
raised more than a few eyebrows with these comments, but now
any doubters know where I’ve been coming from.
“It was a failure of leadership for not moving on to places like
Fallujah after the fall of Baghdad. It was a failure of leadership
in not recognizing that manpower shortages would severely
impeded the reconstruction effort. And it was obviously a
massive failure of leadership of disastrous proportions in
allowing some Iraqi prisoners to be mistreated the way they
were.
“It’s no secret that the United States will be under the
microscope for years, possibly decades to come. As an
American you can complain about it but the reality is we have to
be virtually perfect in everything we do if we are to sustain the
cooperation of our global partners in the war on terror and to
keep from further inflaming tensions. This prisoner debacle has
set us back in ways we can only just begin to imagine, and I
don’t buy this crap in some circles that it’s only a handful at
fault, which in some way excuses the behavior. Today, one is
too many.”
I then quoted commentator Robert Kagan.
“Bush administration officials have no clue about what to do in
Iraq tomorrow, much less a month from now.”
I then continued.
“As Kagan went on to say, why does President Bush continue to
then tolerate policymakers and military advisers that are making
the achievement of his goals less and less likely?
“John Kerry gets blasted, and rightfully so, for flip-flopping like
a salmon that accidentally jumped onto the river bank, but the
administration has been the king of it, whether it’s the amount
needed to fund the operation (another $25 billion is being called
for today), the size of the force level, or what Iraqi general
should be in charge of Fallujah, to name but a few of the latest
examples.
“And then I read a piece by George Will in the (Washington)
Post on the president’s press conference of 4/30 wherein Bush
stupidly commented on Muslims, skin color and democracy.
Will oberserved, ‘What does such careless talk say about the
mind of this administration?’”
That was over two years ago. President Bush acts like he is just
getting it. It’s a disgrace.
While it’s true I’m amongst a dwindling minority that still
supports the war in Iraq, despite the “missteps,” I think I’ve
proved over the course of the past few years that the conflict
didn’t have to be as disastrous as it’s been.
Our president has received some terrible advice and didn’t have
the smarts to recognize it as such. For this our nation has paid an
awful price.
–The Senate passed an immigration reform bill but it will be a
tough slog getting a compromise with the House. Following are
the thoughts of novelist and scholar Mark Helprin from an op-ed
in the Washington Post.
“Each party to the immigration debate seems to know only a
single truth. One faction says that it is a mistake to conflate
illegal immigration with terrorist infiltration: Of the many
millions of illegal crossings only a handful are made by people of
even suspect origin, and therefore the borders should remain
porous. Apart from the non-sequitur, this takes no account of the
fact that terrorists by the handful are effective; that if one border
is open, traffic blocked at the others will flow to it; and that if a
nation hasn’t the will to control its frontiers, and thereby
disestablishes them, its sovereignty will deflate.
“Not a single illegal immigrant should or need enter the United
States, not one. Contrary to the common wisdom, the borders
are easy to seal, and controlling entry is hardly totalitarian. This
is not the same as the question of how much immigration to
allow, an important matter rightly the political decision of the
whole people rather than of a febrile militia of Willie Nelson
look-alikes or the purposeful inefficiency of a fence. And lest
the government nurture a parallel and unrepresentative authority,
it would best attend to its responsibilities and displace the armed
geezers who have stepped in where it has failed, though to do so
with the military is wrong on half a dozen counts….
“By allowing the bloc that benefits from illegal immigration to
extend its invitation and welcome, the whole nation is complicit
in luring these people here. After doing so and benefiting
immensely from their labor, to make their children truants, turn
them away from emergency rooms or expel them would be
beneath contempt. And yet it is not surprising in light of the
trajectory of our politics and morals that this is something some
of us urge and the rest are forced to contemplate….
“To assert as some have that illegal immigrants do not depress
wages because they do the jobs Americans refuse is the kind of
nonsense economists speak when they strain to be
counterintuitive. It is similar to saying that cheap imports do not
hold down prices. If employers paid higher than substandard
wages, Americans (who famously do almost anything for money,
including eating worms, shooting themselves from cannons and
listening to Barbra Streisand sing) would take these jobs.
“Because of their humanity, culture and language, the workers
and their families who cross the borders are far more influential
than even the destabilizing flow of goods from China. Thus, the
question of how much to relieve wage pressure by the
importation of labor should be put to the country unadorned and
in its simplest form: To what extent is economic advantage
sufficient to justify the consequences of the evolving common-
law marriage with the countries and cultures of Latin America?
If this is decided merely parochially as a test of strength among
business, labor and ethnic lobbies, there will be no policy, no
borders, no justice and no relief. For it is a great question, to
which the answer must be given by the whole people.”
–George J. Opfer, inspector general of the Veterans Affairs
Department, told lawmakers the employee responsible for the
loss of the records of over 26 million veterans “routinely took
such data home to work on it, and had been doing so since
2003.” [David Stout / New York Times]
This is beyond belief. And incredibly, Secretary Jim Nicholson
wasn’t apprised of the potential identity theft for 13 days.
–As for those currently serving in our military, Faye Fiora had
an interesting piece in the Los Angeles Times.
Army recruitment targets may be off, but reenlistments are 20%
above goal as soldiers balance the risks against the benefits; the
latter including a key one, a generous health care plan at a time
when Corporate America is cutting back.
–And then there is the case of Democratic Congressman William
Jefferson, who was videotaped accepting $100,000; after which
he put it in a freezer. Jefferson has a rap sheet (of potential
charges) a mile long as he has been accepting bribes and
scheming with mostly African companies and governments. As
for the bipartisan outrage over his House office being raided,
supposedly the first such time the FBI ever did that in the history
of our nation, spare me.
–With the elevation of Charlie Gibson to the anchor chair of
ABC’s “World News Tonight,” I can’t help but repeat an item
from a while back. I used to jog at a track at the same time
of day he did and every evening we had this conversation.
“How you doin’, Mr. Gibson?”
“[Grunt]”
Charlie’s not a real conversationalist in person, believe it or not.
–The state song of New Jersey goes…
“I’m from New Jersey and I’m proud about it, I love the Garden
State.
“I’m from New Jersey and I want to shout it, I think it’s simply
great.”
Oh brother. Last week I told you of another example of our
state’s legendary corruption, that being former Senator Robert
Torricelli’s involvement in the oil-for-food scandal. Then the
past few days the papers have been full of former Governor Jim
McGreevey’s confessions (soon to be in book form).
You remember him, the self-professed “Gay American.”
“Whatever,” most of us said upon hearing this as he resigned in
disgrace over having hired a lover, with zero experience, to be
the state’s top official in the homeland security department.
More importantly, McGreevey presided over the most corrupt
administration (even by New Jersey’s low standards) in our
state’s history.
But now McGreevey, instead of leaving us alone, has decided to
detail his trolling for action along our highways and rest stops.
This is the same McGreevey who forced his totally embarrassed
parents to stand behind him when he announced he was leaving
office.
–It’s official…New Orleans voters are idiots; witness the
reelection of Ray Nagin.
–According to the Virginia Institute of Marine Science, lobsters
can smell if a mate is infected with a lethal disease and they then
avoid them. Which means that lobsters are smarter than the
cluster in Indonesia that believes friends and family members
died from “Black Magic” and evil spirits rather than a virus such
as bird flu.
–There is increasing evidence chimpanzees are far more
intelligent than we’ve made them out to be. A new study of
chimps in Uganda’s Kibale National Park shows that they are
able to point, “referential gestures,” to signal directions, such as
in grooming or before hitting a home run, a la Babe Ruth calling
his legendary shot. [Smithsonian] I’m thinking chimps are
going to re-pass us far quicker than you might think…like 3-5
years.
–From the London Times:
“Tourists will be able to visit the Gocta Waterfall in Peru for the
first time in 2007 after roads and accommodation open up the
area. The falls, the third-highest in the world…are 435 miles
north-east of Lima. The beauty spot remained a secret until
2002, known only to nearby villagers, who feared the curse of a
beautiful blonde mermaid who lived in its waters if they made it
public.”
ROAD TRIP!
–Finally, and in a more serious vein, following is an example of
what makes our nation great, despite all those constantly trying
to screw it up.
From the High Plains Journal:
“Some southwest Nebraska farmers and ranchers want to pay
back a good deed by Texas farmers years ago when the
Nebraskans struggled with drought…
“The Nebraskans remember the generosity of farmers and
ranchers from across the country who sent bales of hay to feed
Nebraska livestock.
“Now that some Texans need help, some Nebraskans and ag
producers from other states are stepping up…
“ ‘Guys in Texas were already out of feed because of the
ongoing drought,’ said John O’Dea, a McCook-area cattleman.
‘Then the fires hit and compounded all of their problems.’”
Farmers held a special auction and five loads of hay have already
been sent to Texas.
“ ‘We need to give back for what we received,’ said O’Dea.”
—
Pray for the men and women of our armed forces. And this
Memorial Day weekend we remember all who gave their lives in
service to our country.
God bless America.
—
Gold closed at $659
Oil, $71.38
Returns for the week 5/22-5/26
Dow Jones +1.2% [11278]
S&P 500 +1.0% [1280]
S&P MidCap +0.4%
Russell 2000 +1.0%
Nasdaq +0.8% [2210]
Returns for the period 1/1/06-5/26/06
Dow Jones +5.2%
S&P 500 +2.6%
S&P MidCap +3.9%
Russell 2000 +8.4%
Nasdaq +0.2%
Bulls 43.8
Bears 27.6 [Source: Chartcraft / Investors Intelligence]
Have a good holiday. I appreciate your support.
Brian Trumbore
