[Posted 7:00 AM ET]
Overture to Iran
Just last week I wrote “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 so this week the White House finally bit in announcing it
was prepared to work with the EU-3 (Germany, France and
Britain), along with the other two permanent members of the
Security Council, Russia and China, towards some kind of
agreement on Iran’s nuclear weapons program.
One could build the case the U.S. should have tried this tact over
a year ago, pre-Ahmadinejad, when it was clear the initial EU-3
effort had bogged down, but due to the deteriorating situation in
Iraq and its lack of credibility in the world community, the White
House felt it wasn’t in a position to do so. Now it’s desperate…
and Iran knows this.
But you deal with the facts of the day as best you can and if there
is anything positive to take away from the recent maneuverings
on the diplomatic front it is that Russia and China agreed with
the EU-3 and the U.S. to put an offer on the table, details to
follow, that will promise Iran certain economic incentives (such
as desperately needed new commercial aircraft, one can assume,
plus a rumored light-water reactor, a safe nuclear option) if it
will just give up that darn uranium enrichment program.
Well you know the response to this. President Mahmoud
Ahmadinejad, who buried his father this week (a factor in
attempting to measure his psyche), said Iran would not give up
its rights to a nuclear program in exchange for talks.
But once a package is presented to Iran, Secretary of State
Condoleezza Rice said it had just weeks in which to respond or
the EU-3 and the U.S. would bring the issue back before the
Security Council for stern action.
Of course there’s the rub. Moscow and Beijing may have agreed
with the others in coming up with an offer for Tehran, but when
push comes to shove neither will approve sanctions being levied
against it, which would then leave the other four to act alone.
Following are some outside opinions.
Editorial / London Times:
“For months, Iran’s excuse for pulling back from on-off talks,
with Russia as well as the EU-3, has been that American
‘hostility’ rendered negotiation pointless. That convenient alibi
is no longer available. Washington has not only agreed to talk,
and explicitly acknowledged Iran’s ‘right’ to civil nuclear
energy. It has dangled plums, promising that if Iran proves that
it has no intention of acquiring nuclear weapons, the U.S. will
‘actively support’ not only civilian nuclear cooperation, but
‘progressively greater economic cooperation.’ While noting that
Iran must abandon support for international terrorism before a
wider dialogue could develop, Condoleezza Rice has emphasized
President Bush’s desire for a ‘beneficial relationship’ with the
Iranian people.
“The juiciest plum of all for Tehran is that, after a silence lasting
27 years, even limited direct talks would be a huge domestic
boost for Ahmadinejad. He has been clumsily angling for this
outcome, most recently in the rambling, ranting missive that he
sent to the White House last month. America will be seen to
have responded to this repressive rabble-rouser with concessions
that it was unwilling to offer his mildly reformist predecessor,
President Khatami….
“(Regardless) there is still no guarantee against Iranian cheating,
pretending to negotiate while covertly building more centrifuges,
fending off for as long as it can the threat of UN sanctions that
could, however restricted, hurt a regime strapped for cash despite
vast oil wealth….The U.S. has found the right initial pressure
point – the Iranian people’s dislike of isolation that most of them
associate with an anti-Americanism they do not share, and with
years of repression and deepening poverty. The U.S. has inched
open an escape hatch; that act puts the regime under pressure to
let Iranians emerge.”
Editorial / Washington Post:
“The Bush administration’s offer yesterday to join negotiations
with Iran was well tailored….
“The packaging means that Iran won’t achieve the symbolic
breakthrough of talks with the United States – something its
regime and public deeply desire – unless it suspends its nuclear
work….
“(It) doesn’t mean the Bush administration is anywhere near
ending the threat from Iran. Most likely, the regime will try to
dodge the choice it will be presented or reject it altogether. It
will look for support to actors such as Mohamed ElBaradei, the
director of the International Atomic Energy Agency, who has
publicly undercut the decisions of his own board and the Security
Council by proposing that Iran be allowed to continue uranium
reprocessing.”
Ah yes, Mohamed ElBaradei, the great grandson of Neville
Chamberlain. The other day he told a forum in San Francisco
that Iran does not pose an immediate nuclear threat and,
basically, what’s the rush?
“We still have lots of time to investigate. You look around in the
Middle East right now and it’s a total mess. You can not add oil
to that fire.” [Source: Reuters / Tehran Times]
Time to investigate? Just a little while ago ElBaradei admitted
his own men at the IAEA have no clue what’s going on with
Iran’s nuclear program because they can’t get access to the most
sensitive, or suspect, sites.
But back to the beginning, yes, Iran has now garnered some of
the respect it has long sought. The world’s key players are all
now focused on it though Tehran probably feels it can string
things along for another year or so…bobbing and weaving while
the nuke program continues.
One regional force, however, was largely silent this week, that
being Israel. It can’t afford to wait much longer before it feels
the need to act unilaterally.
Iraq
I supported the war here for pretty simple reasons. I believed
Saddam Hussein was building weapons of mass destruction, that
he was a threat to a vital region, and that the United States had to
take the lead in changing a dynamic throughout the Middle East
that would eventually threaten the entire free world unless it was
stopped.
Instead, if the history was written today, based on current facts,
the war would be deemed a colossal failure with blowback. The
sectarian violence in Iraq has never been worse and the battle for
the hearts and minds has been lost, as best exemplified by the
following sensitive topic.
Last week, in writing this column, I was well aware of the
unfolding investigation into the possible atrocities committed by
U.S. Marines in the city of Haditha. But aside from the fact no
charges have actually been filed, it was Memorial Day weekend
and as a staunch supporter of the U.S. military I’ll be damned if I
was going to choose that time to pile on.
I was also deeply disturbed by the behavior of Congressman Jack
Murtha (D-Pa.), but in response I want to start with a letter by
Ilario Pantano to the Washington Post. Pantano served as a
Marine in the Persian Gulf War and most recently as a platoon
commander in Iraq.
Sunday, May 28, 2006
“A year ago I was charged with two counts of premeditated
murder and with other war crimes related to my service in Iraq.
My wife and mother sat in a Camp Lejeune courtroom for five
days while prosecutors painted me as a monster; then autopsy
evidence blew their case out of the water, and the Marine Corps
dropped all charges against me.
“So I know something about rushing to judgment, which is why I
am so disturbed by the remarks of Rep. John P. Murtha regarding
the Haditha incident. Mr. Murtha said, ‘Our troops overreacted
because of the pressure on them, and they killed innocent
civilians in cold blood.’
“In the United States, we have a civil and military court system
that relies on an investigatory and judicial process to make
determinations based on evidence. The system is not served by
such grand pronouncements of horror and guilt without the
accuser even having read the investigative report.
“Mr. Murtha’s position is particularly suspect when he is quoted
by news services as saying that the strain of deployment ‘has
caused them [the Marines] to crack in situations like this.’ Not
only is he certain of the Marines’ guilt but he claims to know the
cause, which he conveniently attributes to a policy he opposes.
“Members of the U.S. military serving in Iraq need more than
Mr. Murtha’s pseudo-sympathy. They need leaders to stand with
them even in the hardest of times. Let the courts decide if these
Marines are guilty. They haven’t even been charged with a
crime yet, so it is premature to presume their guilt – unless that
presumption is tied to a political motive.”
Ilario Pantano
Jacksonville, N.C.
I agree with Mr. Pantano, except he is ignoring an important
point; that being it appears there has been a massive cover-up in
the Marine Corps and if it wasn’t for our free press (warts and
all), this story may not have seen the light of day in the first
place.
Daniel Henninger / Wall Street Journal:
“You knew it had to happen. Haditha, an ‘incident’ involving
American troops in Iraq, is now part of the erosion of support for
the war in Iraq. The Iraq Syndrome has finally arrived….
“Some elements of the newly ascendant Democratic left may
welcome it, but no serious person in American politics should.
“The Vietnam Syndrome, a loss of confidence in the efficacy of
American military engagement, was mainly a failure of U.S.
elites. But it’s different this time. This presidency has been
steadfast in war. No matter. In a piece this week on the White
House’s efforts to rally the nation to the idea of defeating
terrorism abroad to thwart another attack on the U.S., the AP’s
Nedra Pickler wrote: ‘But that hasn’t kept the violence and
unrest out of the headlines every day.’ This time the
despondency looks to be penetrating the general population.
And the issue isn’t just body counts; it’s more than that.
“The missions in Iraq and Afghanistan grew from the moral
outrage of September 11. U.S. troops, the best this country has
yet produced, went overseas to defend us against repeating that
day. Now it isn’t just that the war on terror has proven hard; the
men and women fighting for us, the magnificent 99%, are being
soiled in a repetitive, public way that is unbearable.
“The greatest danger at this moment is that the American public
will decide it wants to pull back because it has concluded that
when the U.S. goes in, it always gets hung out to dry.
“Two major military reports will come out soon on the Haditha
incident, and no one will gainsay justice if that is required. But
the atmosphere around this event is going to get uncontrollably
manic, and that will feed the dark, inward-turning sentiments
already poisoning the country’s mood over issues like the
immigration debate.
“Good for Democrats? Don’t count on it. After this, the public
appetite for a Democratic president’s ‘humanitarian’ military
intervention in a Darfur or East Timor will be close to zero.
“One suspects that U.S. troops were party to some awful events
in the Pacific and European theaters of World War II, all gone in
the mists of history and the enemy’s defeat. Not now. Gen.
Chiarelli’s magnificent ’99.9%’ notwithstanding, it’s the
phenomenon of the so-very-public 0.1% – at Abu Ghraib, on an
Afghan street, at Haditha – that is breaking America’s will this
time.”
On Memorial Day I had my parents over for a little cookout and
expressed my dismay at the whole Haditha episode in also
explaining why I chose not to comment on it that weekend. My
heart goes out to the families of those serving our country,
especially those over in Iraq and Afghanistan. As I said to my
folks, it’s going to be like Vietnam all over again; troops coming
home, no one caring. President Bush never asked us to sacrifice
so the vast majority of Americans haven’t had any skin in the
effort. We just go on with our lives, most pretty good right now,
often with little care about the fate of our nation let alone the
world.
The other day Iraqi Prime Minister al-Maliki made a statement
that should have been a dagger into the heart of every American.
Violence against Iraqi civilians, by American and other coalition
forces, had become a “daily phenomenon,” he said, and the
military does “not respect the Iraqi people. They crush them
with their vehicles and kill them just on suspicion. This is
completely unacceptable.” This is also incredibly ungrateful.
[Richard Oppel Jr. / New York Times]
Just last week, in criticizing President Bush’s belated admission
of mistakes, I pointed out a piece I wrote back on May 8, 2004;
one in which I said “It’s no secret that the United States will be
under the microscope for years…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….[In relation to Abu
Ghraib at the time] 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.”
Not a week goes by, friends, when I don’t think about shelving
the ending for this column… “Pray for the men and women…”
and “God bless America.”
I started this practice in the immediate aftermath of 9/11 and I
often wonder how many readers have found it offensive, for one
reason or another, once the initial pain and sorrow of the attacks
on America wore off for most of us.
In all sincerity, you need to understand why I continue to do so.
“Pray for the men and women of our armed forces” is a heartfelt
wish that they not only be protected, but that they find the
courage and strength to make the right decisions under
unbelievable pressure.
“God bless America” is meant to be secular, believe it or not, in
the sense it’s intended to be an appeal to whomever and whatever
you believe in to protect us as a nation and to grant our leaders
the strength to do the right thing.
I’ve traveled the world and I’ve observed a lot. My experiences
often cloud my judgment, but if I take a rather pessimistic view
of the geopolitical scene most of the time it isn’t without deep
thought and personal knowledge.
On Memorial Day I watched CBS News’s Bob Schieffer because
I wanted to see how they handled the tragedy of the CBS crew
and the critically injured reporter Kimberly Dozier. That same
newscast, reporter Richard Roth had a story from Flanders Field,
Belgium, where about 350 Americans from World War I are
buried.
Each Memorial Day, local schoolchildren there are taught the
National Anthem and honor America by singing it, a touching
gesture on the part of Europeans at a cemetery for our dead. As
Roth said, it further epitomizes “America’s willingness to
sacrifice.”
And if you saw Ms. Dozier landing in Germany, with more
machines strapped to her than I’ve ever seen on a single patient,
you couldn’t help but think of Bob Schieffer’s comment from a
few days earlier, marveling at the care she received on the
battlefield.
“America’s medical personnel are simply the best,” he said.
We do so much that is good, which is what makes Abu Ghraib
and Haditha all the more painful. Sadly, don’t expect large
segments of the world, or even our own people, to recognize this.
We’re expected to be perfect, and we aren’t.
—
Wall Street
It’s four long weeks until the Federal Reserve gathers to decide
whether or not to hike interest rates a 17th consecutive time and
until then it’s like investors, represented in the following
conversation by Tony Soprano, are all in the chair across from
Dr. Melfi. [She’s the shrink in the program, in case you don’t
watch it.]
“Do you think economic growth is decelerating at such a rate that
the Fed can pause?”
“Ah, I don’t know….”
“What about housing? It’s clearly slowing down. Won’t
homeowners begin to pull in their horns on the spending front?
Won’t the Fed take this into consideration?”
“Ah, I don’t know….”
“You’re not very talkative today.”
“Well, yeah, it’s like…geez….don’t you understand?! Readings
on consumer confidence are falling and if I tried to sell my place
in West Caldwell I’d be lining up with 70 other [expletive
deleted.] That ain’t good. And you got this, what do you call it,
employment report for May where the government, those little
[expletive deleted], says we added only 75,000 jobs in the month
yet the unemployment rate actually went down to something like
4.6%! So you tell me, Ms. Know It All. What do you think the
Fed is going to do end of the month?”
“Anthony, you impress me with your economic literacy. You’ve
been reading the Wall Street Journal, haven’t you?”
“Well, yeah….I got a free trial subscription.”
“Then you must have seen the report on the Federal Reserve’s
minutes from its May 10 meeting. Some of the FOMC members
certainly seemed a bit hawkish to me. Looks like one or two
even mentioned a 50-basis point (0.50%) hike in rates after the
16 moves of just a quarter point. To tell you the truth, Anthony,
on this one I’m as confused as you are.”
“Well that’s just [expletive deleted] great.”
Tony did have a point on real estate, that’s for sure. And if you
own a second (or third) home you probably weren’t thrilled with
the May 29 cover of Barron’s… “Trouble in Paradise: The Big
Glut.” But thanks to the bubble mentality, 65% of 2nd home
buyers still consider it a better investment than stocks, according
to a survey by the National Association of Realtors.
And despite my own ongoing doom and gloom talk, in Southern
California, for example, the fact is the median home price has
risen in just five years from $244,000 to a staggering $542,000.
[Los Angeles Times] So what’s a 10% correction in values
among friends? At $486,000 that’s still a helluva profit.
True, but you have to keep going back to the fact so many
homeowners (and speculators) were recent buyers and with little,
if any, money down. A 10% drop in price for them spells
‘negative equity’ and at that the banks can come a callin’.
Nonetheless, in another survey, this one from ING Direct, three
quarters of homeowners say they don’t expect to be hit by a
downturn in the housing market over the next year. In fact, 80%
believe the value of their homes will rise a further 4% over the
next year, which is at least a more modest outlook. [New York
Post]
Now to be fair, as an old family friend Steve G. reminded me the
other day, all real estate is local and Steve has been investing
successfully in properties in seemingly more stable Tennessee
and Utah. But from a big picture standpoint, the larger
population bases have generally been the hottest markets and a
decent percentage of these folks, which then translates into a still
respectable percentage of our overall base, is going to get edgy
and spend less on consumer items.
And just to pile on, Scott P. in Melbourne, Fla., tells me
insurance companies in his state are hiking homeowner rates
anywhere from 25-75% (not that this should surprise anyone),
and this hurts.
[Scott, an accountant, also brings up a great point. Property tax
increases in Florida are capped at 3% annually, until the property
turns over. “My guess is property taxes will only hasten the
market collapse. No, I don’t see a soft landing.”]
And it’s not like being a renter these days is much better, as the
NAR forecasts increases of 5.3%, nationwide, in ’06, easily
outpacing average wage gains.
Lastly, home builders such as Pulte continue to warn on
earnings. And always remember, these guys are land banks at
the same time some real banks could be irresponsibly lending
massive sums to the builders, just as the banks are irresponsibly
allowing some individuals to add one layer of debt on top of
another, thus killing their ability to service it come any kind of
downturn. If home values fall, the land the builders have
designated for residential development (and pay debt on)
certainly isn’t going to increase in value.
Street Bytes
–The market finished mixed, with the Dow Jones off just 0.3%
to 11247, while the S&P 500 gained 0.6% to 1288 and Nasdaq
picked up 0.4% to 2219. Sales at many of the retailers were
strong in May, with the notable exception of Wal-Mart, up only
2.3% and at the lower end of previous estimates. Importantly,
Wal-Mart didn’t sound too optimistic about June either. The
typical WMT shopper is getting hit hard by $3 a gallon gasoline.
[Overall, May was a tough month for stocks. The S&P 500
dropped 3.1%, the worst month since 2004, and Nasdaq
plummeted 6.2%.]
–U.S. Treasury Yields
6-mo. 5.00% 2-yr. 4.91% 10-yr. 5.00% 30-yr. 5.10%
It was another rather volatile week, day-to-day, but in the end
rates have been stuck in a narrow range; with the 10-year trading
between 5.00 and 5.20 percent for weeks now. The 10-year did
trade below 5.00 percent briefly on Friday on the heels of the
poor employment report and the renewed feeling this would
allow the Federal Reserve to ‘pause’ come end of the month.
To which I’d say, it’s way too early for that kind of call. I wrote
following the May 10 Fed meeting that they were making the
right call in being rather obtuse on the future direction of rates,
because they needed to weigh all the data and they are
undoubtedly doing that. We have a ton of important inflation
indicators before the governors’ next confab, though I still say
they will hike another 25 basis points; which in turn will
officially tank the economy…that is if the last few didn’t already.
On the personnel front, President Bush nominated Goldman
Sachs CEO Henry (Hank) Paulson to fill John Snow(shoes).
Paulson has extensive experience in China where his ability to
cut deals with both sides of the table, a la Goldman’s often
conflicted style, could come in handy. Lloyd
(Fillinthe)Blankfein replaced Paulson and will assume both the
chairman and CEO positions because he is scared to death of all
the vultures crouched on his credenza.
–Overseas…the economic picture is still quite rosy. The level of
German consumer confidence rose to new heights as it prepares
for an onslaught of soccer fans and the World Cup. Lots of beer
to be drunk, for starters. And Euro-Zone manufacturing
increased at a solid clip in the latest report. Meanwhile, India
registered a sterling 9.3% annualized rise in first quarter GDP,
while Canada’s was up 3.8% and Brazil’s 3.4%
–Emerging markets have witnessed three straight years of record
inflows but that looks to be changing as investors reassess their
risk tolerance. Unfortunately, these same developing nations
need ongoing capital for important projects and if that’s not
forthcoming, the debt obligations on those already started may be
tough to service. Speaking of risk, though, I was shocked to read
in a Journal piece that the bonds of Hungary, Bulgaria and
Morocco were recently trading at just a percentage point above
U.S. Treasuries. Nothing against those nations, mind you, but
they would appear to warrant a little more return. Then again,
the way Washington is racking up debt, maybe Budapest is a
better bet after all.
–OPEC gathered in Caracas, Venezuela, giving President Hugo
Chavez a very public forum. In a typically rambling two-hour
diatribe, Chavez said among other things:
“There is enough oil on the market. We even believe there is an
excess of oil on the market. $50 is a fair price, but as a
minimum. That’s how we see it…Let’s give it a $50 floor and
search for equilibrium.” The “ceiling would be infinity.”
[So I’m thinking $27,950 a barrel could represent the tipping
point.]
Chavez also called President Bush a “threat to the world” and
said OPEC’s role was to fight “imperialism” and “colonialism.”
“We gave away oil for a century to quench the thirst of
developed countries. There was never a drop of oil for the
people.”
Now you have to picture that except for fellow cartel member
Iran, the other nine OPEC nations were cringing as Chavez
spoke, especially when he declared “political solidarity” with
Ilich Ramirez Sanchez.
And who is Ilich Ramirez Sanchez? Why he’s the terrorist that
goes by the name of “Carlos the Jackal,” and all the Jackal did
back in 1975 was kill three people at OPEC headquarters in
Vienna.
On a more rational note, Chavez called for ‘observer’ status for
Bolivia, while urging that Ecuador rejoin OPEC; it having once
been a member from 1973-1992. [Nigeria is pushing for Angola
and Sudan. Helluva lineup, isn’t it?]
Finally, OPEC opted to hold the line on current production; $70
oil being quite healthy for their coffers as long as the global
economy doesn’t tank….and with it prices. [Sources: AP /
Financial Times]
–More talk of energy security in Europe ahead of the G-8
summit in St. Petersburg (July 15-17). Gazprom’s deputy chief
executive rejected the European Union’s latest call for Russia’s
state-controlled gas monopoly to open up its pipeline network to
access by independent producers.
–Japan’s automakers continue to score big in the U.S. as both
Toyota and Honda recorded sales gains of 15% in May, while
General Motors’ were off 12% (car sales down a whopping
16%), DaimlerChrysler’s off 11% and Ford down about 2%. Of
course Toyota and Honda have been taking advantage of high
gas prices as Detroit tries to catch up with the times.
–The Journal’s Edward Chancellor commented on the potential
for scandals on Wall Street post-Enron and Fannie Mae. One
example:
“Start with the proprietary trading activities of investment banks.
This business has been immensely lucrative of late, but the
source of profits is murky. There is even the suspicion some
traders may have benefited by piggy-backing client orders,
what’s known on Wall Street as ‘sniffing the tape.’ The close
relationship between prime brokers and favored hedge funds is
another possible source of future scandal. Are some hedge funds
receiving unduly preferential treatment at the expense of other
clients?”
–Speaking of hedge funds, the European Central Bank warned
they have created a “major risk” to global financial stability.
“The ECB ranked an ‘idiosyncratic collapse of a key hedge fund
or a cluster of smaller funds’ in the same category as a possible
bird flu pandemic.” [Ralph Atkins / Financial Times]
–Back to Fannie Mae, the following is from USA Today.
“In early 2004, Fannie Mae’s then-CEO Franklin Raines came to
USA Today to talk to editors and reporters. He was furious over
an editorial that had run a few days earlier criticizing his
company for, among other things, its ‘questionable accounting
practices.’
“With barely a ‘good morning,’ Raines launched into a criticism
of the editorial and a defense of his company. He began his
remarks by declaring that facts are important.
“We could not agree more. And two and a half years later, the
facts don’t look very good for Raines and Fannie Mae….
“(As we’ve since learned) the company overstated its earnings by
$10.6 billion over six years, according to last week’s report.
When people questioned the company’s extraordinarily complex
accounting, they were treated to angry rejoinders reminiscent of
those delivered by Enron executives at their arrogant heights.
When lawmakers or government officials argued that the
company needed tighter oversight or fewer privileges, they were
outgunned by Fannie’s lobbying machine.”
If Jeffrey Skilling and Kenneth Lay are headed to prison, the
evidence is overwhelming that Raines and some of his own
cohorts should be joining them in scrubbing toilets.
–The June 12 issue of Business Week says the SEC is “looking
into deals in which Goldman Sachs, among others, allegedly
helped Fannie rearrange earnings to maintain the appearance of
steady profit growth, according to people familiar with the
inquiries.” Perhaps Mr. Paulson could face a question or two on
such an issue in his confirmation hearings.
–Despite all the hand-wringing with issues like Dubai Ports
World and CNOOC, the Commerce Department reported foreign
direct investment in the U.S. totaled $86.82 billion in 2005 vs.
$86.21 billion in 2004. Britain remains the largest source at
$30.3 billion, up from $23.3 billion. Direct investment from
China was just $73 million, though, down from $93 million in
’04. [Wall Street Journal]
–In the biggest example of just how powerful and influential
private-equity firms have become, management at Kinder
Morgan, a large oil-and-gas pipeline operator, is leading a buyout
in the neighborhood of $13.5 billion. The private investor club
includes players such as AIG and Goldman Sachs, the latter
acting as both principal and adviser…which Goldman is prone to
do.
–Barron’s Michael Santoli on the still growing scandal involving
the backdating of stock options.
“As with so many of these corporate morality plays, the focus is
on the alleged explicit violation of law or ethics. But it says a
great deal more about the attitude of so many options-addicted
executives who feel there are no kinds of lottery tickets except
the winning ones, to which they feel entitled just as they deserve
a company computer and a restroom key – for simply showing
up to work.”
–Former CSFB investment banker Frank Quattrone scored
another victory as the National Association of Securities Dealers
withdrew all charges against him relating to the hot IPOs scandal
of the Bubble Era. In March, the SEC overturned the NASD’s
lifetime ban on Quattrone, while that same month an Appeals
Court threw out his conviction on obstruction-of-justice and
witness-tampering, citing erroneous jury instructions.
Prosecutors will probably opt out of retrying Quattrone in
exchange for some minor deal…like a private lesson on how to
scam hot IPO shares for their own accounts.
–Or…how to avoid dogs like Vonage, which less than two
weeks ago was priced at $17 and finished Friday around $12.
Vonage compounded problems by first stating it may allow
customers of the Internet-telephony service to back out of their
trades, the company having taken the unique step of allowing
them to participate directly. Some customers threatened to
withhold payment because of the abysmal after-market
performance.
Hey, guys…you played the game and should have known the
risks, so pay up.
For its part, though, Vonage realized its initial offer to let a select
few back out was not only stupid, it was illegal (to treat some
shareholders differently than others)…so as of this writing the
official response is “never mind.”
–One IPO that did work was the Bank of China offering which
raised as much as $11 billion (depending on the whims of the
underwriters). Shares rose about 15% the first day of trading on
the Hong Kong Stock Exchange, which in and of itself was
another coup, such deals normally being done on the more major
world exchanges like New York or London.
–The Wall Street Journal is reporting that money manager Mario
Gabelli is in talks to settle his civil-fraud suit with the Justice
Department. You’ll recall Gabelli is accused of manipulating
the government’s auction system for cellphone spectrum.
Gabelli had steadfastly denied any wrongdoing, but he could be
settling for $100 million or more. Ergo, he was nailed and you
won’t see anyone rushing to defend his character. He has a well-
deserved reputation of being a primo dirtball.
–And then there is the case of Home Depot CEO Bob Nardelli
and his humongous pay package estimated to be over $240
million in the five years he has been at the helm. Talk about
arrogance, details emerged of HD’s annual shareholder meeting
after I went to post last week and they are quite startling.
Normally, all the directors attend the annual gathering but in
Home Depot’s case, some of them were absent. And despite
protests on the compensation issue, Nardelli himself refused to
address it as the entire session lasted but 30 minutes. The
company then issued a statement.
“While we understand that the approach we took to the annual
meeting was a departure from past practice, it should in no way
be construed as either a lack of respect for our shareholders or a
lessening of our commitment to high standards of corporate
governance and transparency. If the board of directors’ absence
or the structure of our annual meeting offended any shareholder,
that was certainly not out intent.” [Wall Street Journal]
Nardelli and Co. obviously think the little people are a bunch of
morons.
Joe Nocera of the New York Times, in attendance, filed this.
“In all my years as a business reporter, I have never seen (a
meeting where the board members didn’t show)….
“The first item on the agenda, Nardelli says, is the election of
directors. He invites comments from shareholders. ‘Questions
are limited to one minute and one person,’ he adds. Sure enough,
when the first person gets up to speak, the timer starts counting
down.
“ ‘I have a question about board independence and conflicts,’
says the first questioner – and then proceeds to rattle off a few of
the conflicts that afflict the Home Depot board. ‘What steps will
the board take to address these conflicts?’ he asks.
“ ‘This is not the forum in which to address these comments,’
Nardelli replies.”
The rest of the brief session isn’t any better. And Nardelli,
despite telling the shareholders in attendance that the directors
had been selected for a one-year term, never divulges the vote.
Home Depot finally did report it this past Thursday. [Ken S.,
thanks for your note on this topic.]
–Edward Jones’ chief strategist Alan Skrainka on the notion that
shore communities in Florida and California will be protected,
price wise, because of limited supply along the coasts. “Japanese
real estate and land prices went down for 15 years and Japan is
an island.” [Barron’s]
–I forgot to note the 380th anniversary last month of a historic
real estate purchase; that of the island of Manhattan by Peter
Minuit, director of the colony New Netherland, from the Indians
for 60 Dutch guilders – about $24 – worth of trinkets; including
an Empire State Building snow-globe and a Derek Jeter
bobblehead doll. Last year the average price per square foot of
Manhattan real estate was over $1,000. [Smithsonian]
–The Wall Street Journal had an interesting story on airlines and
the fees paid to the Federal Aviation Administration, some $10
billion a year. Commercial airlines, 2/3s of all flights, pay 90%
of the fees while business jets, 18% of flights, pay just 5%. It
would seem the commercial airlines have a justifiable complaint
since the needs of the business jets are basically the same as
commercial. But the biz jet crowd would tell you they fly mostly
off-peak and at smaller airports.
Jim May, a top lobbyist for the main airline trade group, says
“We’ve in effect been subsidizing Lee Raymond of Exxon Mobil
and all these corporate guys flying around. I have a hard time
thinking of Lee Raymond as a ‘little guy’ who needs and
deserves subsidies from the airlines.”
More specifically, as the Journal’s Laura Meckler writes, here’s
how the charges break down.
“Today, airlines pay into the FAA trust fund a 7.5% ticket tax, a
fee of $3.20 per passenger for each flight segment flown, a fee of
$14.10 per passenger for each international departure or arrival,
and a fuel tax of 4.3 cents per gallon. All those taxes and fees
are passed on to passengers or absorbed by the airlines. Business
jets pay only a 21.8 cent fuel tax.
“This means, for example, that a typical roundtrip commercial
flight between Philadelphia and Buffalo would contribute about
$900 altogether in FAA taxes and fees, according to an ATA
calculation the business-jet group doesn’t dispute. A typical
business craft flying the same route would pay just $22.”
–Treasury Secretary nominee Hank Paulson was directly
responsible for forcing out then-Goldman Sachs managing
partner, and now New Jersey governor, Jon Corzine.
“According to one report, Paulson’s coup – which was aided
mightily by John Thain, now CEO of the NYSE but then
Goldman’s chief financial officer – devastated Corzine to the
point that he couldn’t even bear to enter Goldman’s 85 Broad St.
headquarters.
“Instead, he parked his limo outside and conducted his last few
weeks of Goldman business from the car.”
[Roddy Boyd / New York Post]
I’m assuming Corzine ventured inside to use the facilities.
–Uh oh…if you’re a customer of Hotels.com, you could be the
latest victim of identity theft. A laptop was stolen containing
names and credit card numbers of over 240,000 users. An Ernst
& Young employee (E&Y being Hotels.com’s auditor) had the
computer stolen from the trunk of his car.
What is it with all these operations, including the government’s,
loading up this stuff on laptops in the first place? Hey, Scott P.
You’re right. The Ugandan chimps really are smarter.
–Finally, we note the retirement of Juan Valdez, since 1969 the
spokesman for Colombian coffee, at the age of 71. I always
thought beneath that calm exterior there was a serious partier.
Foreign Affairs
Israel: Islamic Jihad announced they would accept Palestinian
President Mahmoud Abbas’s offer of a referendum on a proposal
for a two-state solution, while Prime Minister Haniyeh changed
his mind and said he would study the plan. But the foreign
minister called it “impractical,” adding the Palestinian Authority
doesn’t have the money for a referendum. To be continued.
Afghanistan: The situation here continues to deteriorate as this
week a truck in an American convoy evidently lost its brakes,
plowed into Afghan vehicles, and set off the worst rioting in
Kabul in years. There are conflicting reports on the cause of
several Afghan deaths, but what was most chilling were
hundreds chanting “Death to America” and “Death to Karzai.”
Russia: President Vladimir Putin fired the country’s hard-line
chief prosecutor, Vladimir Ustinov, a fellow who had been
investigating government corruption but more importantly
became swept up in the battle to succeed Putin in 2008. It seems
Ustinov favored Igor Sechin, chairman of state-owned Rosneft
oil company, who is matched in a power struggle against Sergei
Ivanov, Russia’s defense minister / deputy prime minister and a
favorite of Putin’s.
Taiwan: Say it ain’t so, Chen! Here I spend all these years
defending President Chen Shui-bian and now it appears his days
are numbered as a series of scandals is on the verge of taking him
down. First there are the insider trading allegations involving his
son-in-law, then the First Lady was accused of accepting rather
large department store credits, then his finance minister is said to
be corrupt…and on and on…
So this week Chen sought to buy time in turning over some of his
powers to the premier, as the opposition Nationalist Party sits
back, licking its chops. No real need for it to do anything as it
watches Chen’s administration implode on its own.
And what does this mean in terms of relations with the
mainland? China may not have to fire a single missile or launch
a commando attack. In time they could just cut a deal with a
compliant Nationalist Party and poof! Taiwan becomes another
Hong Kong in political terms. Taiwan’s business leaders would
of course play a key role in such a silent coup, accepting a few
billion yuan for their troubles.
China: And in line with the above, the U.S. may not have to
worry about a scenario spelled out in its latest war game exercise
held in Hawaii. From Vago Muradian of Defense News:
“The Pentagon war game – among a growing number involving
China and complex scenarios – was played as a theoretical
planning exercise to test a vast array of military capabilities and
operational concepts, participants said. But its global scope
reflects growing U.S. concerns about its web of geopolitical
relations.
“In the game, sources said, Iranian strikes on Gulf tankers drew
all available U.S. forces to the fight – until China attacked
Taiwan, forcing the Pentagon to split its strength. Then
Venezuela dispatched submarines into the lightly guarded Gulf
of Mexico and Caribbean Sea, where they joined a Chinese sub
in terrorizing U.S. and Mexican oil platforms and international
shipping. Washington asked Britain for help and London
dispatched nuclear attack submarines that sank all of the
Venezuelan and Chinese subs.
“Russia remained on the sidelines as the United States struggled
with its first high-intensity, two-theater war in a half century.
India became involved only after the tide turned in the U.S.
favor.”
Better late than never, I always say.
And a note on China’s pollution problem. From Jane MaCartney
of the London Times:
“The fabled Yangtze River, the third-longest in the world, is
already dying from pollution and could be dead within five
years….
“China’s 1.3 billion people are short of supplies because of
prolonged drought in many regions – and much of what remains
has been contaminated by industrialization.
“About 40 percent of all wastewater produced in China – some
25 billion tons per annum – flows into the river, but more than 80
percent of it is untreated beforehand.”
And for those of you traveling to China and absentmindedly
drinking the tap water in your luxury hotel, consider this.
“The (Yangtze), the longest in the world after the Nile and the
Amazon, runs from Qinghai and Tibet in the remote far west,
through 186 booming cities, before emptying into the sea at
Shanghai. For the futuristic city’s 20 million residents, the death
of the river could be critical. Lu Jianjian, a professor at
Shanghai’s East China Normal University, said: ‘As the river is
the only source of drinking water in Shanghai, it has been a great
challenge for Shanghai to get clean water.’”
[I’d hate to see the students at East China Abnormal U.]
North Korea: Former South Korean President Kim Dae-Jung
wants to take the train to Pyongyang for his second meeting with
counterpart Kim Jong-il, but Lil’ Kim wants KDJ to fly instead.
Now I’ve seen this rail line and the South is building a big resort
at a new station on their side of the DMZ (I took pictures even
though I was told not to…heh heh) in an attempt to foster
tourism, part of South Korea’s naïve approach to their commie
cousins. But Kim Jong-il obviously doesn’t want Kim Dae-Jung
to see something. [Or perhaps he is concerned with securing the
rail line from an act by one of his own generals, eh?]
Colombia…update: President Alvaro Uribe, one of America’s
true allies, handily won reelection with 62% of the vote. But last
week I wrote of a ‘friendly fire’ tragedy whereby Colombian
soldiers accidentally killed ten undercover police officers
involved in a drug sting.
Then on Thursday, eight soldiers were arrested in connection
with the case. It was no accident. Instead, the soldiers were tied
to drug gangs operating in the area under surveillance and
murdered the undercover officers in cold blood.
I was watching the local news following the arrests and those
killed had been working closely with the DEA in New York.
U.S. officials were heartbroken, having become friends with their
brave Colombian colleagues.
The only saving grace in this matter is that Uribe remains in
control, but you can’t help but wonder sometimes for how long.
Random Musings
–There is no doubt that the doling out of federal dollars for
fighting terrorism at the state level often involves classic pork-
barrel projects. But once again the Bush administration proved
it’s tone deaf in slashing homeland security dollars to New York
City by 40%, compared with an overall budget cut of 20%.
Most of us can’t begin to know what dollar level is appropriate,
but to once again not think through the political implications, a la
Dubai Ports World, is staggering.
Republican Mayor Michael Bloomberg said, “When you stop a
terrorist, they have a map of New York City in their pocket.
They don’t have a map of the other 46 places (that got funding).”
Democratic Senator Charles Schumer said President Bush
shouldn’t “come back and express solidarity with New York
until there is more funding.”
In this instance, I couldn’t agree more with both.
And in watching Larry Kudlow’s program the other day, I also
agree with Newsweek’s Jonathan Alter (backed up by Pat
Buchanan on the same show) who was incredulous that Bush
didn’t just pick up a paper and say, ‘What the heck is going on
here? Get me Chertoff!’
So many times when it comes to this White House it’s simply
about common sense; and so often it’s lacking.
[New York City will end up making up any difference to satisfy
security requirements, but it’s the principle of the percentage cut
vs. overall budget that is stupefying.]
–Senate Democratic Leader Harry Reid (Nev.) accepted free
ringside seats to three boxing matches, even as Nevada’s Athletic
Commission was trying to influence him on pending federal
legislation. To which Reid said, “Anyone from Nevada would
say I’m glad he is there taking care of the state’s number one
businesses.” Oh brother.
Sen. John McCain, who has been out front in attempting to
regulate boxing, also attended the bouts but he insisted on paying
$1,400 for the tickets.
–I was watching the Indy 500 (what a finish…a new star is born
in 19-year-old Marco Andretti) and I’m looking at Roger Penske,
the car owner who picked up his 14th Indy win with driver Sam
Hornish. What a success Penske’s been, I mused. He’d make a
helluva defense secretary. Yes, the Pentagon.
–Bill Cosby was at it again. In a recent commencement address
at Spelman College, a black school for women, he said graduates
“have to know that it is time for you all to take charge. You have
to seriously see yourselves not as the old women where the men
stood in front and you all stood behind, because the men, most of
them are in prison.”
“It is time for you to pick up the pace and lead because the men
are not there. They’re not there and every one of you young
women know it.”
Cosby said when a Spelman graduate in the 500-member class of
2006 accepted her diploma “there’s no time for you to fool
around anymore….our race depends upon you and your sisters
graduating all across the United States to realize that what’s left
is you.”
Cosby added that black males dropping out of high school “have
memorized the lyrics of very difficult rap songs. And they know
how to send their sperm cells out and then walk away from the
responsibility of something called fatherhood.”
An estimated 70 percent of black graduates this year will be
female. [Atlanta-Journal Constitution; Charles Odum / AP]
–As part of the incentive package being assembled for Iran, the
State Department is trying to slip in ownership of both the
Kansas City Royals and New York Knicks.
–The Fed’s picked the wrong farm in Michigan to look for
Jimmy Hoffa. It’s the one two down.
–I watch the first half hour of “Today” each morning but I was
never a big fan of Katie Couric. Come to think of it, I’m not a
big fan of anyone on the program but from time to time you’d get
some hard news that was useful. I have to admit, though, that in
watching Katie’s long good-bye the other day I was reminded of
her terrific interview following the Columbine disaster. I’ll tune
in a few times once she heads to CBS News. Whoever focuses
more on international stories usually wins my attention.
–Brad Pitt and Angelina Jolie named their baby girl Shiloh after
the bloody Civil War battle, and we learned that Brad cut the
umbilical cord! Well good for him.
[Actually, I have no idea how they came up with the name, but
I’ll admit it’s better than “Antietam” or “Manassas.”]
–I’m getting fired up for the World Cup. I know zippo about the
U.S. team so I’m going to root for Paraguay since I picked up
two team jerseys when I was down there in December 2004. I
also have a little appreciation for how big the sport is there and
you’d get a kick out of the fact the football headquarters
building, next to the airport in Asuncion, is easily the nicest
structure in the entire country. The bottom line is…these people
desperately need a shot in the arm.
–Barry Bonds is in New York this weekend. Booooooooooo…
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $642
Oil, $72.33…Iran and more unrest in Nigeria keep propping it
up.
Returns for the week 5/29-6/2
Dow Jones -0.3% [11247]
S&P 500 +0.6% [1288]
S&P MidCap +1.8%
Russell 2000 +1.1%
Nasdaq +0.4% [2219]
Returns for the period 1/1/06-6/2/06
Dow Jones +5.0%
S&P 500 +3.2%
S&P MidCap +5.7%
Russell 2000 +9.5%
Nasdaq +0.6%
Bulls 42.6
Bears 29.8 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
