[Posted 7:00 AM ET]
President Bush arrived in Hanoi and commented on the primary
lesson that can be learned from the Vietnam War when looking
at Iraq today. “We’ll succeed unless we quit.” But while Bush
and the top general in the region, General John Abizaid, remain
“optimistic,” as Abizaid himself told a senate committee this
week, when asked if the United States could muster more troops
if needed, Abizaid replied the Army and Marines are stretched
too thin. So it should then be no surprise that when pressed
further, Abizaid said more troops aren’t needed.
Some opinion from early supporters of the war.
Robert Kagan and William Kristol / The Weekly Standard
“In every year (since the invasion), military planners hoped to
undertake a substantial draw-down of forces in response to
hoped-for and much anticipated political developments in Iraq.
And every time, those anticipated political developments
foundered on the inability of combined coalition and Iraqi forces
to provide the basic security necessary to make political progress
possible. So the Pentagon kept enough troops in Iraq to avert
immediate disaster, and also to prolong the conflict, but not
enough to make progress and avert the prospect of eventual
disaster.
“The result has not only been a consistently inadequate level of
forces. The endless cycle of promised draw-downs, followed by
deteriorating security, and then cancellations of the proposed
draw-downs, has been politically corrosive both in Iraq and in
the United States. In Iraq, American policies have steadily
undermined the people’s confidence that the United States has
either the will or capacity to provide them the security they need
and deserve. So they have turned to their own sectarian armed
groups for the protection the Bush administration has failed to
provide. That, and not historical inevitability or the alleged
failings of the Iraqi people, is what has brought Iraq closer to
civil war….
“There is no getting around the fact that under present
conditions, an American military withdrawal, even if undertaken
gradually, will bring about the rapid collapse of Iraq. These days
one gets the impression that many Americans are sanguine about
this possibility. Some seem to believe that things are already as
bad as they can get in Iraq. This is willful self-deception. Were
the United States to withdraw from Iraq prematurely, the
sectarian violence we are seeing today would seem minor
compared with the bloodshed of a genuine civil war. There
would be no decent interval, no moment when the Iraqi people
peacefully separated themselves into their respective sectarian
quarters. They would battle for control of cities and towns and
resources across most of the country. The result would be real,
bloody ethnic cleansing – of the kind that the United States twice
intervened in the Balkans to prevent, of the kind we failed to
prevent in Rwanda, and of the kind we are now shamefully
failing to prevent in Sudan. The difference in Iraq would be that
this time the United States would be more directly responsible
for bringing about this humanitarian nightmare.”
But Kagan and Kristol also call for the generals to come up with
a strategy for success, including increasing forces by 50,000, yet
Abizaid is telling us it isn’t possible.
Ralph Peters / New York Post
“To master Iraq now – if it could be done – we’d have to fight
every faction except the Kurds. Are we willing to do that? Are
we willing to kill mass murderers and cold-blooded executioners
on the spot?
“If not, we can’t win, no matter what else we do.
“Arrest them? We’ve tried that. Iraq’s judges are so partisan or
so terrified (or both) that they release the worst thugs within
weeks – sometimes within days.
“How would you like to be one of Iraq’s handful of relatively
honest cops knowing that any terrorist or sectarian butcher you
bust is going to be back on the block before your next payday?
And yeah, they know where you live.
“Our ‘humanity’ is cowardice masquerading as morality. We’re
protecting self-appointed religious executioners with our
emphasis on a ‘universal code of behavior’ that only exists in our
fantasies. By letting the thugs run the streets, we’ve abandoned
the millions of Iraqis who really would prefer peaceful lives and
a modicum of progress.
“We’re blind to the fundamental moral travesty in Iraq (and
elsewhere). Spare the killers in the name of human rights, and
you deprive the overwhelming majority of the population of their
human rights. Instead of being proud of ourselves for our ‘moral
superiority,’ we should be ashamed to the depths of our souls.
“We’re not really the enemy of the terrorists, militiamen and
insurgents. We’re their enablers. In the end the future of Iraq
will be determined by its people. The question is, which people?
“Our naïve version of wartime morality handed Iraq to the
murderers. Will our excuse for a sectarian bloodbath be that we
‘behaved with restraint?’
“Any code of ethics that squanders the lives of tens of thousands
and the future of millions so we can ‘claim the moral high
ground’ is hypocrisy worthy of the Europeans who made excuses
for the Holocaust.
“If we want to give Iraq’s silent – and terrified – majority a last
chance, we would have to accept the world’s condemnation for
killing the killers. If we are unwilling to do that, Iraq’s finished.”
Senator John McCain / “Meet the Press”
“Prime Minister Maliki is going to go where he thinks his
interests lie. And the best way to reassure him is to tell him
we’re going to do what is necessary. Am I sure we can succeed
that way? Of course I’m not sure we can succeed that way. But
I have said from the beginning, my first trip over there, that we
needed more troops, because we didn’t have it under control –
the looting – all of the things that have transpired….
“So we’re at a decision point. We either set up for a plan for
withdrawal, or (do what is necessary to prevail)….There’s no
Rosetta Stone here, there’s no magic formula for success. We’re
paying a price for the failure of our policy in the past, and the
question, then, before the American people is are we ready to
quit? I believe the consequences of failure are chaos in the
region, which will spread.”
But now we all await the recommendations of the Iraq Study
Group headed by former Secretary of State James Baker. It will
argue for a region-wide conference, including bringing Syria and
Iran to the table, and I can guarantee, whether you agree with the
steps President Bush inevitably will take or not, that we’ll all be
saying in unison “we could have done this three years ago.”
By week’s end the Shiite-led Interior Ministry issued a warrant
for a top Sunni cleric (who is currently in Jordan), which will
only inflame tensions further. Said a spokesman for the Sunnis,
“The decisions of this government are worthless because it only
rules the Green Zone.” Almost four years into this conflict and
that’s the gist of it.
Incoming Secretary of Defense Robert Gates (assuming he
survives his confirmation fight) was described by associates as
being “distraught over the incompetence of the Iraq operation”
when he last traveled to the country as part of the Baker
Commission. Sadly, he’s in the majority of public opinion these
days.
Last week, though, in my mid-term election postmortem, I noted
President Bush showed no signs of understanding the bigger
picture when it came to the Middle East, including Lebanon.
This week British Prime Minister Tony Blair, while largely
discredited himself these days, attempted to spell it out for him,
not that I agree with Blair’s own take either.
Iran and Syria must be involved in the peace process, he said, but
only if they stop their interference in Iraq and Iran stops its
nuclear weapons efforts. But Blair ruled out military action
against Iran, while calling on Bush to lead a new drive towards
peace in the region, including Lebanon.
Bush countered that any negotiations with Iran must be preceded
by Tehran’s abandoning its uranium enrichment program.
Prime Minister Ehud Olmert of Israel met with Bush and said
“We know (Iran) is trying to possess nuclear weapons (and)
Israel will not tolerate” a nuclear-armed Iran. Olmert and his
lackeys then planted stories all around Washington that Bush
wasn’t afraid to confront Iran militarily.
While this was taking place, President Ahmadinejad of Iran
blasted the UN Security Council.
“It is most embarrassing that the Council, which should be the
defender of nations’ security and rights, threatens countries
pursuing nuclear fuel under the law to provide fuel for peaceful
purposes.” The UN is applying a double standard, he said,
noting that “countries armed with nuclear weapons deny the
rights of other countries to produce nuclear fuel and exploit it for
peaceful purposes.” [Los Angeles Times]
Ahmadinejad later threw in a dig at the U.S. election.
The U.S. people should not be held accountable for the behavior
of the administration, he said. “Those who have ascended to
power through marginal votes should not think that they are free
to do whatever they wish.” [Agence France-Presse]
Lastly, the Iranian leader spoke of Iran being close to mastering
the nuclear fuel cycle. “I am very hopeful that we will be able to
hold the big celebration of Iran’s full nuclearization in the
current year,” referring to the Persian calendar which ends in
March. [London Times] Exactly what he meant is unclear, but
use your imagination.
As for Lebanon, it is hurtling towards collapse. Six ministers
resigned; representatives of Hizbullah, Amal (supporters of
Hizbullah) and other pro-Syrian groups. The government of
Prime Minister Siniora is teetering as Sheikh Nasrallah threatens
massive street protests to exact a change in government, a
“clean” cabinet as Hizbullah’s leader says.
Editorial / Washington Post
“Through political bluff and the threat of violence, (Nasrallah) is
attempting to stage a coup against the democratically elected
Lebanese government. The pro-Western administration of Prime
Minister Fouad Siniora, which lacks Hizbullah’s ruthlessness or
military strength, has been resisting. But without help from the
outside world, Lebanon could soon experience the reversal of its
popular Cedar Revolution of 2005 or even a return to civil
war….
“Until Iran and Syria are made to pay a price for their attempts to
radicalize the Middle East, they will have no incentive to rein in
clients such as Hizbullah.”
Israeli intelligence says Hizbullah is rearming in South Lebanon
and may actually have more missiles today than it did this past
summer. Israel is anticipating renewed warfare by the spring.
Setting aside President Bush and his seeming inability to
comprehend the scope of the problems we face today beyond
Iraq; one has to wonder when investors will begin to factor the
above back into their investment models. I suspect soon.
Wall Street
For the investing class it’s been a great run these past three
months with the Dow Jones Industrial Average up about 15%
and Nasdaq soaring 20%. No need to worry about the rapidly
deteriorating Middle East and the implications for oil, and no
need to concern oneself with the housing market, it would
appear. Earnings continue to grow at double-digit rates, while
inflation, as measured by the government, is no problem, and if
you wait long enough the private-equity guys will come along
and buy every company in which you own a share.
No doubt, this week’s inflation data was terrific and almost
caused me to whip out my old “Deflation Now” button.
Producer prices tumbled 1.6% in October, 0.9% when you strip
out food and energy, and consumer prices fell 0.5% with only a
0.1% increase in the core. The minutes for the Federal Reserve’s
October meeting were released and the governors increasingly
believe they have engineered a soft landing, even though there is
still some concern on their part that a “tight” labor market poses
a risk in terms of higher wages, not that you or I would complain
about this personally.
But while some Fed board members do remain concerned about
the housing sector and its impact on economic growth, the
majority continue to espouse Alfred E. Neuman’s “What – Me
worry?”
The week started off with Home Depot CEO Robert Nardelli
telling us that “housing-related issues came faster and deeper
than we thought” as HD reported earnings that fell short of
expectations. Something about fewer folks taking out equity
from their homes to finance projects, you see.
Next the CEO of leading homebuilder DR Horton echoed
statements made by his competitors the previous week in saying
“we are in the early stages of a downturn.” Cancellations at DR
Horton are up 40-50% depending on the market.
Then on Friday we learned that housing starts in October
crashed; down 15% to the lowest level in six years, while
building permits (an indicator of future activity) also declined yet
again.
If there was at least a shred of good news on the real estate front
it came in the form of stabilizing prices in the six-county
Southern California market, but even here sales are down 22%
year-over-year.
So let’s assume for the moment the best. Prices stagnating
across the board as inventories dry up (sellers throwing in the
towel). Let’s say prices were flat for the next six to 12 months.
Is that good? Will consumers be doing cartwheels? I doubt it
and I really don’t think prices have bottomed. I just wanted to
prove I could be somewhat positive for a nanosecond.
I do believe, however, that Christmas could be pretty good,
barring a nasty development on the geopolitical front that has us
running to the television vs. scurrying to the mall. Last year,
sales rose about 6% over the holidays and most are calling for
4%-5% gains this year. 5% is not too shabby, so maybe we skate
by. It doesn’t hurt that the price of oil continues to decline,
though I maintain the price at the pump has seen its lows in this
cycle. Nevertheless, consumers feel much better than they did in
July when oil was well above $70 and a gallon of gas was in the
$3.00 range.
Otherwise, I’d say the watchword these days is complacency.
You know those investor sentiment figures I’ve been posting
down below for almost 8 years? They are flashing a major
warning signal. And I’d also suggest that when a company like
Dell Computer delays releasing its earnings, refusing to tell
investors what’s up when the SEC upgrades an investigation into
its accounting practices, and yet the stock barely moves, that’s
complacency.
Two last notes. I’ve come up with a comparison for housing and
the stock market should real estate indeed stabilize for a spell.
Think back to 2000. The major equity averages hit their all-time
highs between January and March, tumbled, and then rallied
back strongly late summer. By September 1, 2000, the S&P 500
was at 1520, just 7 points from its record of 1527. The Dow was
only 500 points from its peak and Nasdaq had rallied back to
4234. Corporate America wasn’t necessarily saying everything
was hunky dory then, but traders simply didn’t want to believe
the Bubble era was officially over. Stocks then resumed their
slide after Labor Day (the start of a six-week losing streak) and
the S&P bottomed at 776 while Nasdaq crashed to just above
1100. Keep this example in the back of your mind, especially
when you’re tempted to throw caution to the wind.
Street Bytes
–The Dow hit another new record high, finishing the week at
12342, up 1.9%. The S&P 500 gained 1.5% to close above 1400
(1401) while Nasdaq climbed 2.4% to 2445. For the latter two
the figures represented six-year highs. Sliding crude oil was a
factor behind the gains as oil touched its lowest level in 17
months, below $56, though part of this was due to the expiration
of the front month futures contract. Crude will rebound Monday.
Stocks also took heart in the latest on the mergers & acquisition
front, particularly the blockbuster announcement that US
Airways was making a play for bankrupt Delta. And it didn’t
hurt to have some solid IPOs, like in the case of Nymex
Holdings, operator of the world’s largest physical commodities
futures exchange. The stock was priced at $59 and finished its
first day, Friday, at $132. If you were a seatholder your
investment gained a cool $6.5 million.
–U.S. Treasury Yields
6-mo. 5.13% 2-yr. 4.76% 10-yr. 4.60% 30-yr. 4.69%
Despite the great inflation news, Treasuries were unchanged on
the week due to the fact they had already rallied the prior one
when there was absolutely zero reason to. [Just stating the facts.]
This coming week is light on the news front and the Fed meets
again the second week in December.
–With the price of crude tumbling, it’s important to remember
that should the slide continue (I don’t think it will…in this
particular cycle), that could actually lead to more instability.
Iran, for example, is expected to generate $55 billion this year in
oil revenues, which has allowed it to increase defense spending
to over $6 billion and provide Hizbullah with $hundreds of
millions, including for reconstruction following the war with
Israel.
But, at the same time, while you might think falling revenues
could force Tehran to cut back on funding terrorists, Iran is also
heavily subsidizing gasoline for its citizens who pay just 34 cents
a gallon at the pump. This subsidy costs $5 billion a year. Some
experts see a disaster should oil fall below $50. Saeed Leylaz, an
economist in Tehran, notes:
“Immediately after any decrease in the oil price, my prediction is
that inflation will go up very fast, and the social structure of Iran,
which is very fragile and sensitive now, will be in a dangerous
position.” [Kim Murphy / Los Angeles Times]
It would be foolish to think such chaos would result in the fall of
the mullahs.
–An interesting tidbit from Strategic Investment:
“As of October 2006, the Baker Hughes Worldwide Rig Count
stood at 3,130 operating rigs. About 55% of the worldwide total,
or 1,734 rigs, are operating in onshore and offshore U.S. basins.
Yet according to the EIA (Energy Information Agency), the U.S.
produces only about 10% of the total daily world oil supply.”
And the U.S. is producing 30% less oil than it did in 1970.
Daniel Yergin’s group, Cambridge Energy Associates, put out a
piece this week refuting the ‘peak oil’ talk; saying that plenty of
new production will be found to meet demand. I would just
point to facts such as those above, as well as the examples of
Norway and Mexico, two rather large producers that are finding
it increasingly difficult to develop new sources; and I’m not even
addressing the controversy over Saudi Arabia and its oil fields.
–Meanwhile, in the here and now, I’ve been writing about
Russia and its quest to create a second OPEC and this week the
Financial Times indeed ran the headline “NATO fears Russian
plans for ‘gas OPEC’”.
“A confidential study by NATO economics experts, sent to the
ambassadors of its 26 member states last week, warned that
Russia may be seeking to build a gas cartel including Algeria,
Qatar, Libya, the countries of Central Asia and perhaps Iran.”
For example, Russia and Algeria alone account for 34% of the
European Union’s natural gas and about 40% of its crude.
Related to the above, the Republic of Georgia is frantically trying
to line up new sources of natural gas after Gazprom decided to
double the price it charges Georgia, and the Tblisi government is
now negotiating new deals with the likes of Azerbaijan, Iran and
Turkey. Currently, Georgia gets 100% of its gas from Russia
and it’s attempting to cut this to 20% by the end of 2007.
Georgia has every reason to be very concerned. Its rebel region
of South Ossetia voted last weekend to stay independent, an act
orchestrated by Vladimir Putin as yet another way to stick it to
Georgia for backing the West. The U.S. and the European Union
view the ballot as illegal.
–The proposed US Airways / Delta combination faces a long
road before it’s approved by regulators. Creating the country’s
largest carrier raises major antitrust concerns, while Delta itself
has until Feb. 15 to present the bankruptcy court with a plan of
reorganization; Delta having vowed to emerge as an independent
airline.
–Clear Channel Communications was taken out in one of the
biggest leveraged buyouts to date, $18.7 billion plus the
assumption of $8 billion in debt. Thomas H. Lee Partners and
Bain Capital are the acquirers. Clear Channel owns more than
1,150 radio stations and an extensive outdoor advertising
business. So the LBO / private-equity boom continues.
Like in the case of Hertz, which just nine months ago was
purchased by the private-equity types, shredded for special
dividends and such, loaded up with $13 billion in debt, and then
returned to the public marketplace in the form of a new IPO on
Thursday. Reception for it was tepid at best and I wouldn’t
touch this stock with a 10-foot pole. Merrill Lynch, however,
earned $800 million, double its initial investment, through fees
and the dividend.
When does it all end and at what price for the rest of us? Keep
your eye on the junk bond market. The laws of economics have
not been repealed and one day we will have another recession.
All of these LBOs are encumbered by massive amounts of debt
and when sales dive some operations will find it impossible to
service it. But the bankers won’t care. They will have already
made their killing.
–Jane Bryant Quinn / Newsweek, on why most of those who
went to the polls the other week continue to describe the
economy as “not good” or “poor.”
“At the top, the ‘working rich’ are doing stupendously well. In
2004, the wealthiest 1 percent of households (with incomes
higher than $315,000) copped 53 percent of all the year’s income
gains. Americans usually don’t care how much other people get
as long as they’re doing OK themselves. But lately, they haven’t
been. Median incomes for households with people of working
age (65 or less) fell last year for the fifth year in a row. Adjusted
for inflation, these families are bringing in $3,000 less, the
Economic Policy Institute reports. When the president tells them
they’re fine, he sounds out of touch.”
–Interesting quarterly report from Sears Holdings Corp., parent
of Sears and Kmart stores. Despite declining sales, profit tripled
thanks in large part to a $100 million gain earned through an
investment in “total return swaps,” a very complex financial
derivative. Chairman Edward Lampert is an old hedge-fund
operator, but these kinds of bets can go both ways.
[Speaking of derivatives, the Bank for International Settlements
revealed this week that as of June 2006, the total notional value
of all outstanding derivatives contracts in the world is now $370
trillion, a staggering increase of 24% in just six months.
Defenders say “No problem.” I say history shows those on either
side of the trade often aren’t as smart as they think they are.]
–So I mentioned economist Milton Friedman last week and five
days later he dies. The great Nobel Prize winner / free market
capitalist once wrote in 1980:
“Self-interest is not myopic selfishness. It is whatever it is that
interests the participants, whatever they value, whatever goals
they pursue. The scientist seeking to advance the frontiers of his
discipline, the missionary seeking to convert infidels to the true
faith, the philanthropist seeking to bring comfort to the needy –
all are pursuing their interests, as they see them, as they judge
them by their own values.” [Wall Street Journal]
Yeah, but then you have the dirtballs, of which there is no
shortage these days.
And so it’s time for another installment of “CSI: Wall Street”.
Bruce Karatz, longtime chairman and CEO of KB Home, one of
the largest in the homebuilding industry, was forced to resign and
return $13 million in profits from backdated stock options. An
internal investigation uncovered the unadulterated acts of greed
that occurred between 1998 and 2005. Of course KB Home also
has a potentially large tax liability as a result; a reminder to those
who don’t think you can capture back taxes from those gaming
the system.
[According to a study by Harvard and Cornell, about 850 U.S.
CEOs “received backdated or otherwise manipulated stock
option grants that boosted their annual pay, on average, by at
least 10%,” as reported by the Journal’s John Hechinger. The
average take through this illegal behavior was $1.3 million to
$1.7 million. It should make you sick.]
As should this. Former Fannie Mae CEO Franklin Raines will
receive another $2.6 million under a deal disclosed Tuesday that
resolves a pay dispute.
This is incredible. Recall the spanking Fannie took for its $10
billion accounting shell game that occurred under Raines’ watch,
with Fannie forced to pay a fine of $400 million. Yet Raines
earned more than $90 million from 1998 to 2003, including over
$50 million in bonuses tied to the company’s hitting earnings
targets….targets achieved by cooking the books. Raines then left
with a $19 million severance package in December 2004. [AP]
And now he’s being paid $millions more, when he should be in
prison.
“CSI: Wall Street” continues….
Enron’s former chief accounting officer, Richard Causey, was
sentenced to 5 ½ years making license plates and other do-dads,
though he could have received far more had he not been so
cooperative with federal authorities in helping with the
convictions of his fellow fraudsters.
And as noted above, Dell Computer said the SEC upgraded its
investigation into its accounting and delayed release of its third-
quarter earnings report due to the “complexity” surrounding the
inquiry. The computer maker is compounding matters by
refusing to release any information whatsoever as to what the
investigation may entail.
–What an embarrassment for President Bush that he couldn’t
deliver on a Vietnam trade deal before he traveled to the country;
House Republicans having withdrawn the act (while blaming
Democrats), a sign of the many battles to come on this front;
none of it good for us free market types.
–The Semiconductor Industry Association is calling for 9%
growth in chip consumption through 2009, with consumers
accounting for 50% of total sales, whether it’s for high-
performance PCs or PlayStation 3. Traditional electronics –
music players, digital cameras and television sets – account for
20% and cellphones another 20%.
Speaking of PS3 and its launch this week, I have yet to play one
video game in my life, so I have no clue what all the fuss is
about.
–Some real estate markets may be stabilizing a bit, but in once
white-hot Naples, Fla., the bottom is not yet in sight as sales of
single-family homes and condos are off 50% from year ago
levels and inventories are up 300%. The median price fell 8% in
September. Naples was Ground Zero for speculators.
–But in London, the high-end property market is scorching due
to huge Wall Street-type bonuses for its bankers and traders. In
reading a piece in the London Times, however, there is yet
another warning for Wall Street and the New York Stock
Exchange.
“London’s workforce is predicted to swell by 600,000 jobs in the
next decade…
“Employment at Canary Wharf, the office development at
London’s Docklands that is now home to many international
banks and law firms, is currently at 80,000 but is predicted to
reach almost 200,000 within 20 years.”
Do you see these kinds of staggering employment projections for
Wall Street and its surrounding environs? I don’t.
–My group healthcare premium is only going up 4.5% next year!
An encouraging development.
–Citigroup and its partners have been selected to buy an 85%
stake in China’s Guangdong Development Bank, thus giving
Citigroup bigger exposure to both Shanghai and Hong Kong.
Citi becomes the first U.S. lender to gain the ability to control
lending operations and set day-to-day strategy. But when the
China bubble inevitably bursts, Citigroup could be left holding
the bag….mused the editor, who has been waiting for the China
bubble to burst for, oh, about four years.
–Yet another article on click fraud, this one in the Journal titled
“So Many Hits, So Few Sales…Click fraud is fast becoming a
problem for small businesses advertising online.”
But at the same time, the Interactive Advertising Bureau says
Internet ad sales are set for another record year, $16 billion
projected for 2006 vs. $12.5 billion in ‘05.
Proponents of online advertising keep talking about the Net’s
effectiveness in targeting individuals, but I vow in 2007 to
identify the six people, worldwide, that not only click on a
banner ad but also buy a product as a result. [Today, I suspect
those clicking, aside from the scammers, are really chimps taking
a break from their participation in scientific experiments.]
–My family and I are having someone else cook our
Thanksgiving turkey (a restaurant), but for those slaving away at
home the Butterball hotline is 800-Butterball. I didn’t see a
number for Mrs. Paul’s fish sticks.
But I was thinking of the problems Airbus is having with its
A380 jumbo jet and I imagined a call to its customer service
department goes something like this these days.
“Hello? A380 hotline? Say, if I order one of your planes today,
will it be delivered by 2037? It will? Great. I kind of needed to
know since I’m working on a business plan.”
–Researchers say that most patients with implantable heart
defibrillators are buried with the devices still inside them, thus
inhibiting efforts by doctors and companies to retrieve valuable
data on their effectiveness. Huh.
–Finally, Milton Friedman was a Rutgers grad!
Foreign Affairs
North Korea: Being in the region for the Asia Pacific Economic
Cooperation forum, President Bush called on those with
influence to exercise it and send a message to Kim Jong il, but
while North Korea said on Oct. 31 it would return to the six-
party talks on its nuclear weapons program, there are no
indications as of this writing just when they are slated to resume.
In South Korea, President Roh is under increasing pressure from
the people to act tougher towards their neighbor and Seoul is
prepared for the first time to sign onto a UN resolution
condemning the North for its human rights abuses, but at the
same time Roh refuses to allow his military to board North
Korean ships per UN Resolution 1718 because he doesn’t want
to rile Kim up.
France, however, became the first to physically board a North
Korean boat, though upon inspection all they found was cement,
one of the North’s cash crops along with dirt.
India: The U.S. Senate approved by a vote of 85 to 12 the nuclear
cooperation agreement between the two countries; the House
having earlier passed it 359 to 68. [Details to be worked out
between the Senate and House versions.]
This goes down as a major achievement for the Bush
administration and a key figure was Republican Senator Richard
Lugar, of Nunn-Lugar disarmament fame, who claimed passage
was “one more important step toward a vibrant and exciting
relationship between our two great democracies.”
There have long been concerns that the technology transfers and
access to U.S. nuclear fuel would end up aiding India’s own
nuclear weapons program, and/or could help with Iran’s
activities on this front, India and Iran having long cooperated on
some nuclear, chemical and missile-related transfers.
But the fact is India is the world’s largest democracy and a
critically important ally for the United States. India has never
been accused in the past of transferring any of its actual nuclear
weapons know-how (as opposed to Pakistan) and there should be
little cause for concern. After all, I’ve been long touting a new
supra-alliance; the U.S., Britain, Japan, Australia and India.
As for the critical relationship between India and Pakistan, the
two held talks for the first time in about a year but little was
accomplished as the topic of July’s Bombay train bombings did
not come up, even though India has accused Pakistan’s
intelligence apparatus, the ISI, of complicity in it. India is
waiting for all the evidence to be assembled before formally
confronting the Musharraf government. On the issue of Kashmir
there was also zero progress. But at least the two sides got
together.
Finally, some in Washington are concerned the nuclear deal with
India could lead to further cooperation between China and
Pakistan, but to those tempted to say “Ah ha! I told you there
was a downside,” I would simply say, “You think China would
have been stopped regardless?!” We will, however, learn just
how far Beijing wants to go in risking the wrath of many around
the world should it supply Pakistan with the latest in technology,
though as a Pakistani official told the Financial Times:
“If the U.S. can supply nuclear energy reactors to India under
what it says are adequate safeguards, why can’t that logic apply
to Chinese reactors for Pakistan?”
This has also been Ahmadinejad’s clever argument, until he’s
reminded he’s not exactly a civilized type in calling for Israel’s
destruction.
China: Last Saturday I wrote in my introduction, “China is busily
modernizing its military, focusing on sealift and an offensive
capability. Our Pentagon is warning of the threats, but what are
both it and the president going to do to address this over his
remaining two years?”
A rather timely comment, as it turns out, because on Monday the
Washington Times’ Bill Gertz broke the story that a Chinese sub
had been stalking the USS Kitty Hawk, an encounter that
evidently caught the Pentagon off guard. [It later confirmed the
episode.]
Gertz writes:
“The incident is a setback for the aggressive U.S.-China military
exchange program being promoted by Adm. (William) Fallon,
who has made several visits to China in recent months in an
attempt to develop closer ties.
“However, critics of the program in the Pentagon say China has
not reciprocated and continues to deny U.S. military visitors
access to key facilities, including a Beijing command center. In
contrast, Chinese military visitors have been invited to military
exercises and sensitive U.S. facilities.”
On Wednesday the Journal weighed in.
“China’s expanding armed forces have become more assertive in
recent years. Tokyo says it has scrambled fighters more than 100
times this year to intercept suspected Chinese spy planes.
China’s submarine activity also has picked up in the waters near
Taiwan.”
Sounds like Adm. Fallon has some ‘splaining to do. And you
also see just how close we are to an incident, though with China
focused on the 2008 Olympics you’d think that would be the last
thing it wants. 2010? That’s a different story.
Russia: President Vladimir Putin on his nation’s nuclear
capability.
“Maintaining a strategic balance means that our strategic
deterrent forces must be capable of destroying any potential
aggressor, no matter what modern weapons systems it has.”
Putin is calling for “new strategic weapons systems,” adding,
“We’re not going to keep comparing quantities of strategic forces
in nuclear powers as we have been doing for decades, although it
still makes some sense. In the modern world, it’s the quality of
weapons that is more important than the number of nuclear
warheads.”
Russia’s estimated defense budget will be $31 billion next year,
with about 40% of it spent on 17 new intercontinental ballistic
missiles, a big increase over prior years.
Separately, Defense Minister Sergei Ivanov touted the fact there
have been only 20 deaths in the military for the first ten months
of the year as a result of bullying vs. 26 last year for the same
time period. Isn’t that great?! [Moscow Times]
And back to the oil and gas front, following a management
shakeup at Gazprom, approved by Putin himself no doubt,
Gazprom and Lukoil are forming a joint venture aimed at
acquiring assets both at home and abroad.
Many wonder when Lukoil will fall under the sway of the
Kremlin, even though its 20% owned by ConocoPhillips, but for
now Lukoil’s good relations with Gazprom, Putin’s farm team
for future political leaders, have prevented this.
Lastly, Poland is riling up the European Union by blocking
negotiations on a new energy framework with Russia. Warsaw is
insisting Moscow sign a charter that would open its pipelines to
third-party competition. Europe is increasingly split between
those favoring increased ties with the Kremlin and the rest, like
Poland, who distrust Russia. Can’t say I blame the latter.
Turkey: At the funeral of former Prime Minister Bulan Ecevit, a
revered secularist, there were chants for him among the
thousands lining the route as well as cheers for the pro-secularist
generals and the president. But Prime Minister Erdogan was
booed.
Somalia: Islamist forces are extending their grip on the nation as
the U.S. warns of suicide bombers based here planning activities
in Kenya and Ethiopia. Look for al Qaeda to make itself at
home.
Random Musings
–The candidates are lining up for 2008, or, as in the case of Russ
Feingold, making the smart decision to say ‘no.’ [I still don’t
understand, though, how Joe Biden can possibly believe he’d do
well in the early primaries.]
Senator John McCain, in positioning himself as the choice for
conservatives, said this week:
“We lost our principles and our majority. And there is no way to
recover our majority without recovering our principles first.
Americans had elected us to change government, and they
rejected us because they believed government had changed us.
We must spend the next two years reacquainting the public and
ourselves with the reason we came to office in the first place: to
serve a cause greater than our self-interest….
“Do the right thing, and the politics will take care of itself.”
Amen.
–Yes, House Speaker-designate Nancy Pelosi stumbled in
backing John Murtha for majority leader. One look at the 1980
Abscam tape of the congressman should have precluded her from
doing so.
But I think the bigger issue is anyone who thinks there will be
any real bipartisan cooperation these next two years is nuts. The
atmosphere will be as poisonous as ever.
–Senator Trent Lott completed his comeback in attaining the #2
minority whip position behind new Republican Leader Mitch
McConnell of Kentucky. Lott had lost his majority leader
position in 2002 for making remarks perceived to be racist at a
birthday party for Strom Thurmond. Lott will not be a friend of
the White House, who he sees, correctly, as having contributed to
his fall from grace.
–2% of Americans, max, know the names of the two new party
leaders of the U.S. House of Representatives; Dem. Steny Hoyer
and Rep. John Boehner. Perhaps fewer than that.
–Now that the election is over, New Jersey investigators have
resumed their inquiry into the activities of Senator Robert
Menendez and the $300,000 in rent he collected on a deal with a
non-profit organization. There’s a lot to like about my state,
actually, but between our dirty politicians and the highest
property taxes in the country, there are also reasons galore to
move elsewhere.
–You’ve seen these figures in various forms but for the archives,
in 1987, President Reagan vetoed a highway bill because it had
152 earmarks (pork projects). In 2005, President Bush signed
one with 6,371 earmarks.
–Retired Lt.-Col. Ralph Peters on Donald Rumsfeld.
“A talented, experienced man, Rumsfeld should have been a
first-rate secretary of Defense. Instead, he was failing in the job
by the late summer of 2001. 9/11 saved him. Thereafter, our
country and our military paid the price as his arrogance
astonished even longtime Washington residents (and D.C. is not
a city of the meek and humble).
“When the military succeeded, he rushed for the microphones to
preen. When things went awry, he let military officers handle
the questions. He never admitted he was wrong. And he was
wrong with remarkable consistency.
“One man’s vanity undercut Iraq’s chances, squandered
American lives, broke faith with our troops and badly damaged
our military. He was anxious to go to war, but unwilling to fight.
Instead of leading, he interfered with those capable of leading.
He micro-managed our troops, disrupting small-unit deployments
and overruling officers during combat, but couldn’t manage our
enemies. Those in uniform felt that he disdained them.
“Ultimately, Donald Rumsfeld did the impossible: He made
Vietnam-era Defense Secretary Robert McNamara look good.”
–While no one wants to create false hope, new research showed
stem cells easing symptoms of muscular dystrophy in dogs.
Researcher Johnny Huard of the University of Pittsburgh hailed
it as “a great breakthrough.”
[Then again, as Michael J. Fox said, what’s wrong with having
hope?]
–Gerald Ford became the oldest president at 93 years, 121 days,
in surpassing Ronald Reagan. Ford said “The length of one’s
days matter less than the love of one’s family and friends.”
–Then there’s O.J. Enough said.
–Each year the Star-Ledger here in New Jersey publishes a
picture of the All-State orchestra or chorus and in the past I’ve
come up with a race profile.
This year the Ledger had a picture of the 343 members in the
chorus and I counted five African-Americans. In the case of the
orchestra, I read all the names and it didn’t take a rocket scientist
to come up with the fact that at least 69 of the 137 members were
Asian.
So…I imagine Bill Cosby would have a thing or two to say about
all this. One group continues to roar ahead thanks to strong
family units and a focus on education, of which music plays an
important part, and the other falls further behind, awaiting the
latest from Jay-Z.
–First we learned that 300 bottles of red wine a day could slow
the aging process. Now researchers have found that drinking
1000 bottles could improve your endurance during exercise.
I’ve gotta tell you. I’d still probably fall asleep after three.
–Finally, New York Times columnist David Brooks wrote a
piece on our current era of “mass condescension.”
“Thanks to the creativity of our cultural entrepreneurs, we enter a
time when we can gather in large groups and look down at our
mental, social and spiritual inferiors.”
Brooks writes of moments such as on “American Idol” and
Simon Cowell ridiculing someone who doesn’t realize how
talentless they are. Or comments made by Bill Maher, slamming
“Megachurches (that are) presided over by the same skeevy
door-to-door Bible salesmen that we’ve always had.”
Or the “Jackass” movies, “which acclimatized audiences to the
mixture of suffering and laughter.”
I don’t mean to put everyone on a guilt trip because I’ve also
laughed at the stupidity of some, more than I probably care to
admit.
I wouldn’t have commented on this topic, however, had there not
been some news on the filming of “Borat.” I haven’t seen the
picture yet, though I’m sure I’ll buy the video when it becomes
available.
But as Brooks writes, for all his “genius” Sacha Baron Cohen
“also knows how to rig an unfair fight, and to then ring
maximum humiliation and humor out of each situation. The core
of his movie is that he and his audience know he is playing a
role, and this gives him, and them, power over the less
sophisticated stooges who don’t. The world becomes divided
between the club of those who are in on the joke, and the
excluded rubes who aren’t.”
What really irked me about Borat, though, was the story that hit
this week concerning the Romanian village where he filmed the
opening scenes (Romania passing for Kazakhstan) and the fact
the Gypsies that live there, already facing extreme poverty, were
paid all of $3.30 to $5.50 to participate in what they thought was
a documentary.
Having just returned from Romania, and having commented in
this space on what I saw, such as the peasants and their
horse drawn carts loaded with firewood for the winter, I can’t
help but say it’s not fair. There’s nothing crueler than taking
advantage of the poor or less sophisticated. It’s why on a related
topic I rail as I do against the corporate dirtballs of today, who
trample over the rest of us schleps in breaking the rules of
standard behavior as they laugh all the way to the bank.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $622
Oil, $55.81
Returns for the week 11/13-11/17
Dow Jones +1.9% [12342]
S&P 500 +1.5% [1401]
S&P MidCap +1.7%
Russell 2000 +2.5%
Nasdaq +2.4% [2445]
Returns for the period 1/1/06-11/17/06
Dow Jones +15.2%
S&P 500 +12.3%
S&P MidCap +9.2%
Russell 2000 +17.1%
Nasdaq +10.9%
Bulls 56.4
Bears 22.3 [Source: Chartcraft / Investors Intelligence]
Happy Thanksgiving. Travel safe.
Brian Trumbore
