[Posted 7:00 AM ET]
The Deepening Crisis
I commented to a friend of mine the other day, when is the stock
market going to wake up to the distressing situation in the Middle
East? As I write this hundreds of thousands of supporters of
Hizbullah and its pro-Syria allies have been marching in Beirut
in what leaders are promising is the beginning of the end of the
democratically elected government of Fouad Siniora.
The situation in Lebanon is as tense as it’s ever been and you
have to picture that the various factions have been furiously
arming themselves the past few months, especially following the
war with Israel. At the same time, many of the cabinet ministers
are fearful of becoming the next assassination target and can’t
leave their compounds.
So as you watch events unfold over the coming days and weeks,
understand it’s the anti-Syria Siniora / March 14 forces
(including Walid Jumblatt’s Druze) vs. the pro-Syria Free
Patriotic Movement (led by Michel Aoun), parliament speaker
Nabi Berri’s Amal Movement and Sheikh Nasrallah’s Hizbullah.
And it’s not just about the standing of the existing government,
one assassination away from being dissolved under the
constitution for lack of a quorum, but also whether or not the
government of Syria and its agents is called before a UN-
sponsored tribunal for the killing of former prime minister Rafik
Hariri and others, including Pierre Gemayel.
The tragedy is the increasingly irrelevant United States seems
powerless to do anything, thanks to a White House that
abandoned the Siniora government over a year ago and now
wonders how things could have deteriorated so quickly.
And Iraq? It’s been too late for the better part of a year, certainly
since the whirlwind was unleashed with the Zarqawi-inspired
attack on the Golden Mosque at Samarra last February; an act
that I wrote back on 2/25/06 “would reverberate for years.”
Yet it was only because of a Republican drubbing at the polls in
November that President Bush suddenly developed a sense of
urgency; and then this week we learned what it will lead to…
hurry up and wait. As in stay the course; as in forget any new
ideas.
President Bush’s meeting with Iraqi Prime Minister Maliki was a
disaster, though the administration helped bring this on itself
thanks to a purposefully leaked memo from National Security
Advisor Stephen Hadley.
“(Maliki’s) intentions seem good when he talks with Americans,
and sensitive reporting suggests he is trying to stand up to the
Shia hierarchy and force positive change. But the reality on the
streets of Baghdad suggests Maliki is either ignorant of what is
going on, misrepresenting his intentions, or that his capabilities
are not yet sufficient to turn his good intentions into action.”
[Michael Gordon / New York Times]
In other words, Mr. President, Maliki is a loser. But let’s let him
see this profile I put together for you before your visit. Maybe it
will light a fire under his butt. Instead Maliki saw it for what it
is, deeply insulting.
I’m no supporter of Maliki; he’s not to be trusted, for starters.
But this is how the United States now conducts foreign policy?
Of course our president then had coffee with Maliki for a few
hours, after being blown off the evening before, and emerged in
the end to say “(Maliki’s) a strong leader…We’ll be in Iraq until
the job is complete….as long as the government wants us there.”
Gotta go. Zooooooommm! Off Bush went on Air Force One,
leaving the rest of us wondering ‘just what the heck was that all
about?!’
Former Bush foreign policy advisor Richard Haass summed it
up.
“U.S. influence in the Middle East is ebbing, largely as a result
of the consequences of our decision to invade Iraq. The U.S. will
still have influence but will have to share it as never before with
a motley crew of local forces ranging from Iran to Hamas and
Hizbullah.” [USA Today]
Other opinions:
Senator Chuck Hagel (R-NE) / op-ed Washington Post
“There will be no victory or defeat for the United States in Iraq.
These terms do not reflect the reality of what is going to happen
there. The future of Iraq was always going to be determined by
the Iraqis – not the Americans.
“Iraq is not a prize to be won or lost. It is part of the ongoing
global struggle against instability, brutality, intolerance,
extremism and terrorism….
“We have misunderstood, misread, misplanned and mismanaged
our honorable intentions in Iraq with an arrogant self-delusion
reminiscent of Vietnam. Honorable intentions are not policies
and plans. Iraq belongs to the 25 million Iraqis who live there.
They will decide their fate and form of government….
“The United States must begin planning for a phased troop
withdrawal from Iraq. The cost of combat in Iraq in terms of
American lives, dollars and world standing has been devastating.
We’ve already spent more than $300 billion there to prosecute an
almost four-year-old war and are still spending $8 billion per
month. The United States has spent more than $500 billion on
our wars in Iraq and Afghanistan. And our effort in Afghanistan
continues to deteriorate, partly because we took our focus off the
real terrorist threat, which was there, and not in Iraq.
“We are destroying our force structure, which took 30 years to
build. We’ve been funding this war dishonestly, mainly through
supplemental appropriations, which minimizes responsible
congressional oversight and allows the administration to duck
tough questions in defending its policies. Congress has
abdicated its oversight responsibility in the past four years.
“It is not too late. The United States can still extricate itself
honorably from an impending disaster in Iraq. The Baker-
Hamilton commission gives the president a new opportunity to
form a bipartisan consensus to get out of Iraq. If the president
fails to build a bipartisan foundation for an exit strategy, America
will pay a high price for this blunder – one that we will have
difficulty recovering from in the years ahead.
“To squander this moment would be to squander future
possibilities for the Middle East and the world. That is what is at
stake over the next few months.”
Neocons Robert Kagan and William Kristol / The Weekly
Standard
“So let’s add up the ‘realist’ proposals: We must retreat from
Iraq, and thus abandon all those Iraqis – Shiite, Sunni, Kurd, and
others – who have depended on the United States for safety and
the promise of a better future. We must abandon our allies in
Lebanon and the very idea of an independent Lebanon in order to
win Syria’s support for our retreat from Iraq. We must abandon
our opposition to Iran’s nuclear program in order to convince
Iran to help us abandon Iraq. And we must pressure our ally,
Israel, to accommodate a violent Hamas in order to gain radical
Arab support for our retreat from Iraq.
“This is what passes for realism these days. But of course this is
not realism. It is capitulation. Were the United States to adopt
this approach every time we faced a difficult set of problems,
were we to attempt to satisfy our adversaries’ every whim in
order to win their acquiescence, we would rapidly cease to play
any significant role in the world. We would be neither feared nor
respected – nor, of course, would we be any better liked. Our
retreat would win us no friends and lose us no adversaries.
“What our adversaries in the Middle East want from us is very
simple: They want us out. Unless we are prepared to withdraw,
not just from Iraq but from the entire region, and from elsewhere
as well, we had better start figuring out how to pursue effectively
– realistically – our interests and goals. This is true American
realism. All the rest is a fancy way of justifying surrender.”
But as if all the above isn’t bad enough, throw in the revolt in
Iraq by the parliamentary forces under cleric Moqtada al-Sadr
(the Sadrists) who suspended participation in the government
over Maliki’s meeting with Bush. They will come back, but
Maliki is more beholden to them than ever.
And then there is Iraqi President Talibani, a Kurd, who met with
Iranian President Ahmadinejad. Talibani said “Our top priority
is expansion of comprehensive ties. We will also talk in detail
about Iraq’s security because Iraq is in dire need of Iran’s
comprehensive assistance for pursuing its campaign against
terrorism and for the establishment of peace and security.”
You read that right. Ahmadinejad said:
“A secure, advanced and powerful Iraq can secure the interests of
the Iraqi nation, be beneficial for Iran and the entire region. We
have to remain by the side of one another and to share the
sorrows and happy moments.”
Talibani then said:
“To save a little face, (the United States) should leave Iraq…
according to a timetable, handing over responsibilities as asked
by the Iraqi government.” [Financial Times / Bloomberg News]
Of course Iran’s Supreme Leader, Ayatollah Khamanei, weighed
in.
“The Islamic Republic of Iran is considering help to Iraq to
establish security in the country as a religious and humane task.”
[Tehran Times]
Super. More humanitarian bombs and Revolutionary Guards.
Is it any wonder that Jordan’s King Abdullah was all over the
airwaves warning of three civil wars; in Palestine, Iraq and
Lebanon?
Editorial / Washington Post
“One way to understand the deteriorating situation in the Middle
East is to contrast last week’s assassination of Lebanese
Christian leader Pierre Gemayel with the response to it. The
assassination was a shockingly audacious attack on Lebanon’s
democratic forces and their U.S. and European allies. But those
Western governments remain in a profound muddle about how to
address Iran and Syria, which have been fomenting the
destabilization of Lebanon, Iraq and the Palestinian territories.
“The killers of Mr. Gemayel have not been identified and may
never be. But the attack fits snugly into a pattern of provocations
across the region by Iran and Syria, which appear to believe that
American reversals in Iraq have given them the opportunity to
create what Syrian dictator Bashar al-Assad calls a ‘new Middle
East’ – one in which their influence and radical ideology will
predominate. They would make their client Hizbullah the power
broker in Lebanon, restoring Syrian suzerainty. They would use
Hamas to block any progress toward an Israeli-Palestinian
settlement and perpetuate a continuing, if low-grade, war on
Israel. And they would continue to bleed the United States by
supplying insurgents in Iraq with arms and sanctuary. Iran
meanwhile presses ahead with its barely disguised nuclear
weapons program….
“In response to this bold bid for regional hegemony, the United
States has apparently resolved to intensively negotiate with itself
and its chief European allies about how it might ‘engage’ Mr.
Ahmadinejad and Mr. Assad. Should a U.S. ambassador return
to Damascus, once the uproar over Mr. Gemayel dies down?
Should the administration drop its demand that Iran obey a UN
resolution ordering it to suspend enrichment before talks can
begin? While the debate goes on, the Western effort to sanction
Iran for its nuclear program is stalled and all but forgotten. No
punitive action against Syria is even being discussed….
“What’s more, no attempt to reason with Mr. Assad and the
Iranian mullahs will succeed unless they perceive that the United
States and its allies wield sticks as well as carrots. As long as the
Bush administration is unable to win UN Security Council
approval for sanctions against Iran – or impose them through an
ad hoc coalition – Tehran will have no incentive to make
concessions. Mr. Assad will demand that the West concede him
Lebanon and call off the murder investigations that would likely
implicate him – unless he worries that his failure to cooperate
will result in fresh international sanctions against Syria.
“Iran and Syria are ruthlessly waging war against Western
interests in the Middle East. Offering to talk is only a small part
of what it will take to stop them.”
As for the Palestinian issue, Secretary of State Rice was in the
region, chatting up Palestinian President Mahmoud Abbas, who
is at least trying to rein in the terrorist elements in his society, but
Rice was her usual ineffective self and Abbas’s unity talks with
Hamas have basically collapsed.
Meanwhile, Israeli Prime Minister Ehud Olmert offered to
release Palestinian prisoners, withdraw from West Bank
settlements, and ease checkpoints if Hamas and its ilk abandoned
violence. But the Palestinians have to first replace Hamas with a
new government that recognized Israel’s right to exist. Many
experts agreed that Olmert came up with the goody bag simply to
appease Bush as the latter was in the region.
Which brings me to former President Jimmy Carter. I caught his
interview on MSNBC and for perhaps the first time in my life I
found myself agreeing with everything he said on the Israeli-
Palestinian issue.
“The persecution of the Palestinians is one of the worst examples
of human rights abuses…what’s being done to the Palestinians is
horrendous.”
Harsh, but I’ve been writing that the White House, in giving
Israel free rein to do absolutely anything it wanted, including in
Lebanon, was only making the situation far worse. As Carter
said, it’s amazing how “there is no criticism of Israel in this
country” whatsoever.
I just have to add that for those who are new to the site and
wondering how I can be so hard on the Israeli state at times,
understand Ariel Sharon was my 2005 “Man of the Year.” It’s
been nothing but downhill ever since his stroke.
Wall Street
Well whaddya know…the Dow Jones has its first two-week
losing streak since July, after which back then the market took
off. It’s really no surprise, either, after some dismal news on the
economic front, namely in manufacturing. Both the Chicago
Purchasing Managers Index and the national ISM index of
manufacturing came in below 50 for the month of November,
meaning manufacturing is contracting for the first since time
April 2003. Normally, an ISM reading below 50 signals
recession, sports fans. Earlier in the week I was reading in New
Jersey’s Star-Ledger that a survey of my state’s business leaders
revealed 51% expect New Jersey’s economy to worsen in the 1st
half of 2007, the least optimistic outlook in 16 years.
Other indicators were weak, such as October’s figure on durable
goods, down 8%, though this is always way too volatile to be of
much use. However, the capital spending component, non-
defense, was off 5% and that deserves to get thrown in the mix.
We also had the monthly data on existing and new home sales.
The former was up 0.5%, with the median price down 3.5% year
over year, while new home sales were down 3% with the median
price up a little.
So whither housing in general? Thanks to the fact mortgage
rates are falling anew, under 6.15% for a 30-year fixed, that’s
supplying some support for the sector. No doubt Ben Bernanke
is focusing on this. He doesn’t dare raise interest rates again
until he’s certain housing is stabilizing. I just see another leg
down coming.
Speaking of the Fed chairman, he offered in a speech this week
that the Fed would still raise rates before cutting, because he
remains concerned about labor costs. Well this is a crock; all
he’s doing is jawboning. You can be sure corporations, with
slowing in evidence now for some time, aren’t about to be
handing out big raises in 2007. Enjoy what increase you
received this year, folks.
Anyway, with a sliding economy Wall Street is getting religion,
as in maybe corporate earnings won’t be exceeding expectations
like they have been, quarter after quarter. It’s really not any
more difficult than that; except I would add wait ‘til the Street
really wakes up to the fact the crisis in the Middle East is going
to deepen throughout next year.
As for the plight of the U.S. dollar, I try not to fall into the trap of
making too much of the action in the currency pits. I learned
long ago that in this arena the only thing you need to be
concerned with is “speed,” as in speed kills. No doubt, the
decline has been swift of late, and so you watch it, but I’m not
saying we’re witnessing the long-feared crash.
I’ll tell you what I have written of in the past as being a primary
concern and that is China (with its humongous holdings of U.S.
securities) using the dollar as a weapon of mass destruction. But
that will only occur if China finds the need to play the
nationalism card, which in turn would come about if there is
major unrest in the cities, for whatever reason, and China finds
the need to get the people’s minds off their own plight and
instead thinking about America bashing. That day will come, but
at this point, less than two years from the 2008 Olympic Games
in Beijing, I don’t see it.
In the meantime, a weak dollar helps our export sector (and the
earnings of large multi-nationals) and thus the trade balance, in
theory, though that hasn’t really been the case the past few years.
The recent decline, however, is about a lack of confidence in the
U.S. economy, certainly warranted, while at the same time as
U.S. interest rates decline other opportunities beckon, be they in
Europe or Asia. The risk is that the decline becomes so severe
the Federal Reserve is forced to raise interest rates to defend the
dollar at the very worst possible time, as the U.S. economy is
already softening and on the verge of recession.
Street Bytes
–The Dow Jones declined 0.7% to 12194, though it recovered
100 points late Friday. The Nasdaq fell 1.9% to 2413 and the
S&P 500 registered another fractional loss. Crude oil surged
$3.50 and is now up almost $8 in just the past two weeks, sitting
at $63.43. Cold weather, falling inventories, and a renewed
sense OPEC’s production cuts may in large part stick have
resulted in the spike. So I hope you gassed up; the price at the
pump is heading much higher.
–U.S. Treasury Yields
6-mo. 5.04% 2-yr. 4.53% 10-yr. 4.43% 30-yr. 4.55%
The yield on the key 10-year is at its lowest level in almost a
year. Aside from the discussion above, Chicago Fed President
Michael Moskow on Friday said the Federal Reserve may yet
have to raise interest rates to head off inflation, another
misguided thought.
–It’s way too soon to know how strong or weak the Christmas
shopping season is going to be. While it won’t be a happy one at
Wal-Mart, it would appear, other retailers remain optimistic.
–China is anticipating full year growth of 10.7% in 2006 with
more of the same in ‘07 as rising consumer spending will
underpin growth. India’s economy grew at a 9.2% rate in the
third quarter as consumer activity here is also picking up.
–The Organization for Economic Co-operation and
Development blasted the Russian government and state-run
natural gas behemoth Gazprom for what it called a “disturbing
trend,” tightening the Kremlin’s control of important sectors,
namely energy, as opposed to actually investing in production.
Gazprom’s “seemingly insatiable appetite for asset acquisition,”
concluded the OECD, “is at the expense of a focus on its core
business.” Gazprom’s investment in new fields, for example, has
been minimal and with much of Europe relying on Russia’s
natural gas this is a huge problem.
Gazprom, as has been well-documented, also continues to seek a
monopoly of the transportation infrastructure. It is near an
agreement with Belarus, for instance, to acquire partial control of
that nation’s pipeline in exchange for lower gas prices. Of
course Belarus is an ally, while at the same time Gazprom is
charging democratic Georgia about three times Belarus’ rate.
[In response to the warning from the OECD, Gazprom said it
would be increasing gas exports to Western Europe by 20%
within a decade, but few believe it can deliver.]
Speaking at a conference this week, U.S. Senator Richard Lugar
said NATO should interpret Article 5 of its defense doctrine to
mean that the alliance will come to the aid of any member whose
energy supply is threatened.
“Article 5 of the NATO charter identified an attack on one
member as an attack on all. It was also designed to prevent
coercion of a NATO member by a non-member state. We should
recognize that there is little ultimate difference between a
member being forced to submit to coercion because of an energy
cutoff and a member facing a military blockade or other military
demonstration on its border.” [Judy Dempsey / International
Herald Tribune]
But there were two positive potential developments on the
energy front in terms of production. EOG Resources announced
the discovery of a major expansion to its prolific Barnett Shale
gas field and identified four new or emerging shale fields in
Texas, North Dakota and western Canada.
[Basically, we should give North America a makeover. Just peel
off the entire top layer. This would take care of all the problems
in our society that lie just below the surface.]
Kazakhstan announced its giant Kashagan oil field is capable of
producing 25% more oil than expected. But before you go “Aha!
I told you there was more oil and gas than ‘peak oil’ proponents
have argued,” these new discoveries only help to make up for
declining production elsewhere, let alone the political problems
that are abundant in accessing oil-rich countries such as those in
the Middle East and Venezuela.
Lastly, Angola said it was contemplating joining OPEC. Now
why the heck would they want to do this? What Western energy
companies would then invest here when the interests could be
turned over to the state? Angola accounts for about 2% of world
oil production, though it is capable of far more.
–Protectionism is at the top of the agenda of many in Congress
and as U.S. Treasury Secretary Henry Paulson noted it’s more
than worrisome.
While Paulson, in a speech in Britain, admitted “the benefits of
trade are not spread evenly in any part of the world,” it would be
“morally wrong” to give in to “protectionist elements.” Doing so
“would be telling developing nations that while we have
benefited from increased trade, we aren’t going to allow them the
same opportunity to develop.” [Deborah Solomon / Wall Street
Journal]
Economist Robert Samuelson weighed in on the topic in an op-
ed for the Washington Post.
“We may be about to shoot ourselves in the foot – or maybe the
chest – on trade. In the name of ‘fair trade,’ we may punish our
own exporters. In 2005 worldwide exports exceeded $10 trillion.
Since 1980 they’ve more than tripled while the overall global
economy doubled. Like it or not, massive international flows of
goods and services (aka ‘globalization’) underpin all modern
economies. Supply chains have dispersed. We can accept this
reality and try to benefit from it. Or we can rail against it. We
seem to be edging toward railing.”
Samuelson writes of the effort on the part of many Democratic
congressional leaders to derail new trade agreements reached
with Colombia and Peru. In the case of the former “darkened
prospects have already led to layoffs in Colombia.”
“We are dealing with something new here. It transcends
protectionism, which tries to shield specific industries and
workers from imports. It’s trade obstructionism: a reflexive
reaction against almost any trade agreement. The idea is that
much trade is inherently ‘unfair’….
“Much of this indictment is wrong or wildly exaggerated. For
example, American trade deficits haven’t destroyed U.S. job
creation by sending work abroad. Consider: From 1980 to 2006,
the trade deficit jumped from $19 billion to an estimated $786
billion, or from less than 1 percent of GDP to about 6 percent.
Still, employment in the same period rose from 99 million to 145
million. Job creation defies the trade deficits, whose causes lie
largely beyond our control and have little to do with ‘unfair’
trade practices.
“Faster economic growth in the United States than in many of
our major trading partners has stunted our exports and increased
our imports. Likewise, the dollar’s role as the main global
currency – used for trade and international investment – has kept
its exchange rate high. Companies, individuals and governments
hold on to dollars rather than selling. This makes U.S. exports
more expensive and imports cheaper.”
As for China, its “surging exports have (so far) come mostly at
the expense of other Asian countries.” But while some argue
U.S. jobs are being destroyed, this is only partially true. 7 to 8
million jobs disappear every three months, but an equal or
greater number are created. Trade, though, has little to do with
this; it’s more about new domestic competition and new
technologies.
As Samuelson opines, trade is an easy scapegoat. The timing of
the new obstructionism, however, couldn’t be worse.
“The U.S. economy is moving away from growth led by housing
and consumer spending. American consumers have borrowed
heavily, if not overborrowed….As Americans curb their
borrowing, consumer and home purchases are slowing.
Something will have to replace that spending if the economy is to
continue to expand. The obvious candidates are exports and
investment related to exports (in factories, machinery)….
“The next Congress must decide whether it embraces the
symbolism or the reality of trade. If it chooses symbolism, it will
perversely harm many of the workers it’s trying to help.”
–Some stats on the private-equity / LBO boom. In 2006 there
have been more than 2,280 private-equity buyouts worldwide
with a combined value of $601.3 billion, up from only 885 deals
valued at $71.4 billion in 2001, according to researchers at
Dealogic.
We have various audiences here at StocksandNews so for those
who want a little primer on this topic, Kit R. Roane of U.S. News
& World Report had a simple explanation in a recent article.
“The private-equity buyouts are fueled by several factors. The
shares of many public companies, after wringing out the excesses
of the late 1990s, are now trading at cheap prices compared with
their underlying assets and revenue streams. The Sarbanes-
Oxley Act, passed in 2002 as the antidote to a wave of corporate
accounting scandals, makes it more difficult and expensive for
smaller firms to go public and for already public firms to stay
listed. And private-equity firms have found plentiful and cheap
debt to leverage their own considerable treasuries, money hoards
that continue to attract almost unprecedented amounts of capital
from pension funds, university endowments, and wealthy
investors seeking greater returns than found in the global stock
markets.”
Of course it’s the debt levels that give some a queasy feeling, and
the fact many of the companies are pillaged for excessive
dividends. But incoming New York governor-elect Eliot Spitzer,
in an interview with CNBC on Friday, gave the whole private-
equity concept a ringing endorsement. It’s good to purge
worthless management in order to shake things up, he said. I
would just add, does that still mean the same management being
shown the door deserves to keep $30 million to $50 million in
parting gifts?
–Microsoft finally launched Windows Vista, its largest operating
system upgrade in five years, with the company anticipating 200
million will be using it by the end of 2007. As for Microsoft’s
efforts to go after Apple Computer in the digital media player
market, the Zune is off to a shaky start when measured against
iPod sales; not that anyone believed it would compete in the
short run.
–Jacqueline Doherty of Barron’s slammed Google for its
seemingly excessive valuation, but what I found interesting in
her report, in light of my own comments in the past year or so, is
the fact the “average price paid to buy a search word across the
Web in the second quarter has declined 11% from the start of the
year and 34% from the peak in April 2005. So far, companies
have made up the difference on volume, but it’s a trend worth
watching.” Yup.
–Eliot Spitzer earlier in the week said efforts to dilute corporate
accountability reforms, i.e., Sarbanes-Oxley, are
“counterproductive.” In an interview with the Financial Times
he added “The argument that we are failing in competitiveness
because of regulations is incomplete. We’re failing in
competitiveness because of failed business models and the lack
of smart investment in technology. General Motors is not failing
because of regulations but because it hasn’t produced good
products. It’s failing because it hasn’t controlled costs and those
costs are from private contracts that GM entered into.”
[GM’s sales were up 6% in November, while Ford’s declined
10%. Toyota, now No. 2 in the U.S., saw its U.S. sales rise
another 16%. DaimlerChrysler ticked up 3%.]
–GM investor Kirk Kerkorian sold off the rest of his stake this
week, 42 million shares, so with this irritant now out of the
picture, it’s put up or shut up time for CEO Rick Wagoner.
–Speaking of failing automakers, Ford announced some 38,000
had taken the company up on its buyout offer, ranging from
$35,000 to $140,000 lump sums plus tuition assistance. At the
same time Ford is attempting to secure an $18 billion loan
package to shore up its rapidly dwindling cash reserves. In other
words, Ford is on the “critical list.”
–The Pentagon is considering a request of $127 billion to $150
billion in new emergency war funding, the largest yet since the
war on terror commenced post-9/11. $70 billion has already
been allocated for next year. Additionally, as reported by USA
Today’s Matt Kelley, “About $2 billion worth of Army and
Marine Corps equipment – from rifles to tanks – is wearing out
or being destroyed every month in Iraq and Afghanistan.” It’s
tough to keep spending under control under these circumstances.
Leon Panetta, a member of the bipartisan Iraq Study Group, says
the Pentagon will require $50 billion to $60 billion to re-equip
and restore units returning from Iraq. Good for defense
contractors.
–U.S.-based mutual fund assets hit the $10 trillion mark for the
first time, according to the Investment Company Institute.
–Pfizer is slashing its sales force by 20% (2,200 positions).
Others will follow.
–I imagine like myself you’re amazed at just how many
catalogues clutter your mailbox year round, not just during the
Christmas season. In 2005 the number mailed grew by 5.5%,
after a gain of 5.3% the prior year. As an article in
BusinessWeek pointed out, “Even as they try to drive people to
the Web, companies are also working harder to tap into a desire
of consumers to have something to touch and hold.”
–The “father of the Toyota Prius” hybrid vehicle, David
Hermance, died last Saturday after crashing in his experimental
plane off the California coast. The Russian-built Interavia E-3
was one of those aircraft assembled from a kit, so I read. I
wouldn’t touch anything Russian these days.
–I’ve talked about my habit of Salmon Sunday (baked during the
second half of the NFL game and devoured during “60 Minutes”
with fine beer and Chex Mix). But I’m always confused as to
what I’m really eating; like these days the package says the fish
is from Chile or China.
Andrew Martin had a story in The New York Times on the
difficult question of what is “natural” or “free range” when it
comes to fish and fish farming. Wild salmon, for example, don’t
meet the Agriculture Department’s definition of “organic” fish,
even though wild salmon are bagged in generally pristine waters,
vs. the farmed variety that is living in cramped quarters in its
own waste, to put it indelicately. Actually, I just grossed myself
out. I’m buying ‘wild’ from here on whenever possible.
–I was exchanging notes with my friend from the Great White
North, Harry K., concerning Leonardo DiCaprio’s new movie,
“Blood Diamond,” about the illicit diamond trade in Africa. I
have no idea exactly how close to the truth the picture is going to
be but I’m thinking there are some folks in the business, i.e.
DeBeers, who may be a little queasy if a lot of folks see it. So
Harry tells me there are some new diamond mines in Canada,
branding themselves as “conflict free,” where in one instance
(Shore Gold) they’re mining on a scale as grand as the oil sands.
As he put it, “Wonder what that will do to the cartel?”
–CBS has sold the first few Super Bowl 30-second spots for
“north of $2.6 million.” I would think the network is salivating
over the possibility of the Cowboys being in the picture; Tony
Romo mania, matched up against Tom Brady or Peyton
Manning. You think that would generate some ratings?
–My portfolio: So on Wednesday my carbon fiber holding rises
about $1.50 on heavy volume. It’s about time, I mused. Now
where is that third quarter earnings report? Then after the market
closed came word a federal jury had awarded a company I was
faintly familiar with $36 million for my company’s failure to
meet production requirements. Down goes Frazier! [Or so it
seemed.] At week’s end the stock wasn’t much changed from
where it was the previous one but the silence from HQ is
deafening. You know, I’m still way up on this play but I feel
like I’m losing my shirt. I just know there is strong demand for
the product so I hang in there.
Foreign Affairs
Russia: Vladimir Ryzhkov, an independent deputy in the lower
house of Russia’s Parliament and frequent critic of the Kremlin,
told the Journal “The risks are growing. For the first time in my
political career I’m beginning to feel scared.”
The poisoning of former KGB spy Alexander Litvinenko and the
apparent poisoning of a former prime minister, Yegor Gaidar, on
the heels of the assassination of a leading journalist, Anna
Politkovskaya, has many on edge these days.
David Satter / op-ed for The Wall Street Journal
“In the last six years, the makeup of the ruling elite in Russia has
undergone a dramatic change. Once in power, Mr. Putin filled
the majority of important posts with veterans of the security
services, many with ties to him dating back to his work in St.
Petersburg. By 2003, the top ministers, half of the members of
the Russian security council and 70% of all senior regional
officials in Russia were former members of the security services.
At the same time, many of these persons gained access to great
wealth. Russia was already highly corrupt under Boris Yeltsin
but, according to IDEM, an independent Russian think tank, with
the rise in oil prices the level of corruption in Russia between
2002 and 2005 increased 900%.
“The result of these developments was that Mr. Putin created an
FSB [Russian Federal Security Service] ruling class. As this
class became rooted, the victims of contract killers in Russia
began to include some of the most prominent political figures in
the country.
“The most sensitive question in Russia is the provenance of the
1999 apartment bombings in Moscow, Volgodonsk and
Buinaksk in which 300 persons died. As a result of the
bombings, the second Chechen war was launched and, in his role
as wartime leader, Mr. Putin, then the prime minister, achieved
enough popularity to be elected president. There is widespread
belief that the real authors of the bombings were the FSB. Two
of the political figures murdered in Russia in recent years were
trying to investigate the bombings….
“In the wake of Litvinenko’s death, the West must insist on
cooperation from the FSB in finding his killers. If that is not
forthcoming, it should be assumed that the murder of Litvinenko
was ordered by the Russian regime.
“Under those circumstances, not only should Russia be expelled
from the G-8 but the whole structure of mutual consultation and
cooperation would need to be re-evaluated. This is not just a
matter of refusing to trivialize a murder. It is also a vital political
obligation. Russians of all types are watching to see whether the
West will simply swallow this crime or finally react to the
rampant criminalization of Russian society. There are forces in
Russia that want the country to be part of the West. But to back
them, we need to demonstrate that we have moral values that we
defend. To do less would be to abandon Russia to the forces of
nihilism and obscurantism.”
Bret Stephens / Wall Street Journal
“It’s time we start thinking of Vladimir Putin’s Russia as an
enemy of the United States.
“This isn’t simply because a former KGB agent turned Putin
critic died last week in London after ingesting a dose of
polonium-210, an element that usually functions as a neutron
trigger in atomic bombs. Nor is it that Alexander Litvinenko’s
death is the latest in a series of killings, attempted murders,
imprisonments and forced exiles whose victims just happened to
be prominent opponents of Mr. Putin. It is because the foreign
policy of Russia has become openly, and often gratuitously,
hostile to the U.S.
“Some examples: Last summer, Russia signed a billion-dollar
arms deal with Venezuela; Hugo Chavez wasted no time
fantasizing aloud about using the weapons to sink an American
aircraft carrier. Last week, Russia began deliveries to Iran of
highly sophisticated SA-15 anti-aircraft missiles, at a value of
$700 million. Russian Defense Minister Igor Ivanov claims the
missiles will ‘have no influence on the balance of power in the
region.’ But the purpose of the missiles is to defend Iran’s
nuclear sites, which do threaten the balance of power. Mr.
Ivanov also says he is ‘absolutely sure’ the billion-dollar Bushehr
reactor that Russia is building for Iran could not be used to build
nuclear weapons. This is false, and Mr. Ivanov must know it:
The spent plutonium from the reactor can easily be diverted and
reprocessed to produce as many as 60 bombs.
“At the United Nations, Russia has consistently opposed U.S.
efforts to sanction Iran and North Korea for their nuclear
programs and diluted the effects of the resolutions that were
passed….
“It was George W. Bush who first saw gold in Mr. Putin’s soul,
sometime after the Russian had decimated the city of Grozny. It
was Condoleezza Rice who came up with the formulation after
the Iraq war that the U.S. should ‘punish France, ignore Germany
and forgive Russia.’ And it was this administration that agreed
last week to Russian membership in the World Trade
Organization, with Mr. Bush thanking Mr. Putin for ‘your time
and friendship.’
“A case can be made for bringing Russia into the WTO, but
caveat emptor: A government that trashes the rule of law
domestically isn’t likely to long sit still in any rules-based
organization. There is no case for Russia’s continued
participation as the eighth member of the Group of Seven, once a
club for mature democracies only. Putting Mr. Putin on notice
that only gentlemen belong in gentlemen’s clubs would be the
right first step. Treating him for what he is – ‘unworthy of the
trust of civilized men and women,’ as Litvinenko wrote from his
deathbed – would be the next.”
Moscow talk show host Yulia Latynina / Moscow Times
“On a number of occasions in the last few years, we went to bed
in one country and woke up in another. The first was the arrest
of Mikhail Khodorkovsky in 2003. Then came the Beslan school
siege in 2004 and the subsequent elimination of direct
gubernatorial elections.
“After Ukraine’s Orange Revolution in late 2004 and early 2005,
we went to sleep in a country that was not terribly intelligent, and
whose president personally bullied its neighbors and worked as a
tub-thumper for Viktor Yanukovych. We awoke in a country
surrounded by malicious imperialist enemies.
“But in the last two months, we have awoken in a different
country three times: following the government’s anti-Georgian
campaign, the murder of investigative journalist Anna
Politkovskaya and the death of Litvinenko.
“These events are just signs along the road to a place filled with
prison camps….
“Litvinenko’s death (could) turn Russia into a rogue state. In the
final analysis regimes are not divided into parliamentary and
presidential. They are divided into regimes that are capable of
poisoning the opposition with polonium-210 and those that are
not. I doubt that President Vladimir Putin will find it easy to
explain to his buddy, U.S. President George W. Bush, that
Politkovskaya was whacked by renegade thugs. Were the people
who slipped Litvinenko the polonium-210 no more than thugs,
too?….
“Putin has surrounded himself with friends who were not trained
to run businesses or to run the country. They were trained to
carry out special operations. They were trained to eliminate
enemies of the regime. And when there aren’t any real enemies,
they have to be created.
“For some reason, as more enemies of the regime are eliminated,
their number continues to grow. And Putin is left alone,
surrounded by enemies from whom only his friends can save
him.”
Afghanistan / NATO: 90% of NATO’s casualties are being
borne by the U.S., Britain and Canada. The mission is going
nowhere and nations such as Germany and France are loath to
not only contribute more troops, but also to let their existing
forces actually fight.
But NATO is also ignoring another threat, this one on its
borders; Russia.
Turkey: Pope Benedict XVI pulled it off, a highly successful trip
to Turkey with dangers lurking around every corner. Benedict
tweaked his language of two months ago and spoke of the “great
benevolence” of Islam after having previously quoted a 14th
century Byzantine emperor who linked Islam to violence.
“We believe and confess in one God, even if in different ways,”
he said this time. To prove it, Benedict prayed in the Blue
Mosque of Istanbul, marking only the second papal visit in
history to a Muslim place of worship.
Benedict also weighed in on the issue of Turkey and EU
membership, reversing earlier comments on the topic before he
became pope last spring. In other words, he was looking to
mend fences and build bridges; but remember…Pope Benedict,
first and foremost, is seeking to save Christianity in an era where
Muslim nations are doing all they can to crush it.
As for Turkey’s EU application, I stand by my belief the
candidacy is dead, despite any moves to the contrary. 8 of 34
‘chapters’ will be frozen under the European Commission’s plan
until Turkey opens its ports to Cyprus, an EU member Ankara
doesn’t recognize. Britain, Sweden and Spain criticized the
commission’s action, France and Germany cheered it.
But despite Islamist Prime Minister Erdogan’s protestations, he
is bent on moving Turkey East, which means one thing. We’re
nearing the day when the generals pull off a coup. This is where
the Kurds come in…but more on this in coming weeks.
North Korea: Kim Jong-il is insisting the United States drop
sanctions to free its overseas bank accounts as a precondition for
dismantling its nuclear program, which it wouldn’t do anyway.
The U.S. reaction has been to deny Kim some of the luxury
goods he craves, like Crystal and Iranian caviar; all while Kim’s
orcs continue to slave away in his bomb factories.
As for South Korean President Roh, he has an approval rating of
11% and as he’s limited to just one term, with a presidential
election slated for December 2007, he is merely a lame Peking
duck; doing Beijing’s bidding rather than Washington’s or
Tokyo’s.
Venezuela: President Hugo Chavez will win his 3rd term in
Sunday’s vote. But, separately, I’ve been meaning to comment
on some television commercials running in the New York area
and the Journal beat me to the punch.
Former Democratic Congressman Joseph Kennedy is all over the
airwaves promoting a program whereby heating oil, donated by
Chavez’s Citgo oil company, is donated to low-income
consumers. Kennedy tells those who may qualify for the free
stuff to dial 1-877-Joe-4-Oil.
The Journal thus dialed up Kennedy, asking him about a recent
comment where he defended his Chavez subsidy deal as
“morally righteous.”
“Was it also ‘righteous’ to assist an anti-American tyrant at the
expense of the Venezuelan people? In between berating our
reporter for daring to ask such a thing, Mr. Kennedy said that Mr.
Chavez has done ‘so much more’ for the poor than any previous
government. As for democracy, he said there was ‘ample room
for improvement in the ways that people get elected in
Venezuela as well as in Florida.’ Mr. Chavez chose his partner
well.”
Colombia: The burgeoning scandal here may soon claim another
victim, Colombia’s foreign minister, Maria Consuelo Araujo.
The minister’s brother, Sen. Alvaro Araujo, is a key figure in an
ongoing investigation linking lawmakers to paramilitary groups.
Mexico: Felipe Calderon was sworn in as Mexico’s new
president, but Andres Manuel Lopez Obrador continues to run a
shadow government nearby and Calderon’s inauguration was
interrupted by scuffling lawmakers.
Democratic Senator Joe Biden, the incoming chairman of the
Foreign Relations Committee and a man with presidential
ambitions, told a South Carolina audience this week (South
Carolina being a key early primary) that Mexico was nothing
more than an “erstwhile democracy” with a “corrupt system”
responsible for illegal immigration and drug problems in the U.S.
He should have just said Mexico is basically a banana republic.
Random Musings
–As of this writing I’m supporting Senator John McCain for the
Republican nomination for president and I for one chalk up some
of his flip-flops in an effort to woo the conservative wing as
nothing more than politics. [I did not criticize Joe Lieberman
either for some of his reversals once he became Al Gore’s
running mate.]
More importantly to me is McCain’s steadfast foreign policy and
I would urge his critics to consider the following.
McCain was the first congressional leader to call for more troops
in Iraq, summer of 2003. He was right. [Good people can argue
whether that still stands today.]
McCain was the first major Republican figure to call for the
dismissal of Donald Rumsfeld years ago. He was right.
McCain urged that Moqtada al-Sadr be “taken out” in 2004. He
was right, and we’d all be better off had this been done.
McCain blasted the White House for kowtowing to Vladimir
Putin and urged that Russia be booted out of the G-8. On this he
is also right.
John McCain is a leader. I’m willing to ignore some of the other
‘noise’ because we so desperately need someone who truly
understands the world, as opposed to the current occupier of the
White House who at times seems more interested in baseball’s
free agent market than world affairs or learning about another
nation’s culture.
–I can’t believe there are actually some folks sorry to see Bill
Frist drop out of the Republican race.
–And how does Condoleezza Rice poll in the double digits for
’08 in some surveys? I was a big time Rice supporter before I
woke up years ago and realized she is in way over her head.
Separately, Rice’s senior advisor on Iraq, Philip Zelikow, is
leaving to return to a teaching post at the University of Virginia.
Expect President Bush to give him the Medal of Freedom for his
terrific efforts.
–Boy those Bush girls are a real laugh-riot, aren’t they? Lay
low, kids, until Daddy gets out of the White House, OK?
–I do not apologize for highlighting senator-elect Jim Webb’s
op-ed in the Wall Street Journal the other day addressing the
class divide in America, but Webb is yet another example of my
adage “wait 24 hours.”
From George Will / Washington Post
“That was certainly swift. Washington has a way of quickly
acculturating people, especially those who are most susceptible
to derangement by the derivative dignity of office. But Jim
Webb, Democratic senator-elect from Virginia, has become a
pompous poseur and an abuser of the English language before
actually becoming a senator.
“Wednesday’s Post reported that at a White House reception for
newly elected members of Congress, Webb ‘tried to avoid
President Bush,’ refusing to pass through the reception line or
have his picture taken with the president. When Bush asked
Webb, whose son is a Marine in Iraq, ‘How’s your boy?’ Webb
replied, ‘I’d like to get them [sic] out of Iraq.’ When the
president again asked ‘How’s your boy?’ Webb replied, ‘That’s
between me and my boy.’ Webb told The Post:
“ ‘I’m not particularly interested in having a picture of me and
George W. Bush on my wall. No offense to the institution of the
presidency, and I’m certainly looking forward to working with
him and his administration. [But] leaders do some symbolic
things to try to convey who they are and what the message is.’
“Webb certainly has conveyed what he is: a boor. Never mind
the patent disrespect for the presidency. Webb’s more gross
offense was calculated rudeness toward another human being –
one who, disregarding many hard things Webb had said about
him during the campaign, asked a civil and caring question, as
one parent to another. When – if ever – Webb grows weary of
admiring his new grandeur as a ‘leader’ who carefully calibrates
the ‘symbolic things’ he does to convey messages, he might
consider this: In a republic, people decline to be led by leaders
who are insufferably full of themselves.”
–The Post’s Jackson Diehl had a column discussing an
alternative foreign policy, a report compiled by Anne-Marie
Slaughter, dean of Princeton’s Woodrow Wilson School of
Public and International Affairs. Slaughter, along with Professor
G. John Ikenberry, convened hundreds of experts in a series of
conferences, including Henry Kissinger, Madeleine Albright,
George Shultz and Zbigniew Brzezinski.
“They then wrote a report that, refreshingly, would confound
both Bush and many of their fellow Democrats – but contains
ideas that ought to have broad appeal across both parties.
“So: Bush’s ‘defining’ war against Islamic extremism?
‘Absolutely wrong,’ says Slaughter, a rising star in the foreign
policy world who would be a likely candidate for a top position
in a future Democratic administration. ‘It’s an attempt to
simplify a world that won’t be so simplified.’ The Princeton
Project argues that the coming century will offer not one
overriding threat but a ‘Rubik’s cube’ of diverse yet sometimes
interlocking challenges, such as the spread of nuclear weapons,
global warming, and the rise of India and China as great powers.
Also, pandemics: Slaughter says she’s more worried about the
risk that a strain of avian flu will kill millions of Americans than
about another terrorist attack.
“As for the problem of terrorism, Slaughter says ‘it shouldn’t be
called Islamo-anything,’ because that merely invites a
civilizational conflict and gives al-Qaeda and other criminal
networks more credit than they deserve. They should be hunted
down through an aggressive global counterterrorism campaign,
she says, but not placed at the center of global politics.
“What about democracy? Here Slaughter and Ikenberry refuse to
buckle under the anti-Bush backlash. At the center of their
strategy is the goal of ‘a world of liberty under law’ – a phrase
that first appeared in Ronald Reagan’s platform. They argue that
the United States should ‘develop a much more sophisticated
strategy of creating the deeper preconditions for successful
liberal democracy’ extending ‘far beyond the simple holding of
elections.’”
–The Associated Press and various TV networks have compiled
their exit poll data from last month’s election. The increase in
support for Democratic House candidates was 9% among
Independents over 2002. [91% of Republicans voted for
Republican House candidates; 93% of Democrats voted for
Democratic candidates.]
–I knew this would happen. My Uncle Conrad, former professor
at the University of Delaware, commented on current president
David Roselle and his rather high salary. [See last week’s
review.] Roselle retires next year and “he was the best president
in my 37-year tenure at UD. He was responsible for pushing the
UD endowment over 1 billion, establishing highly competitive
faculty salaries, keeping in harmony with our American
Association of University Professors union, and promoting many
worthwhile academic projects. The support that I received from
the university was timely and relatively generous.”
I have to add Uncle Conrad had a reputation as a great professor,
a fact I learned from someone who once worked with me at
PIMCO that had him at UD. And my uncle vehemently
defended the Delaware sports program. No need to do so. I
remember many a sterling football squad under Tubby Raymond.
Goodness gracious. I just looked up Coach Raymond’s record at
Delaware, Raymond having retired in 2002. In 36 years he
compiled a 300-118-3 mark!
–I love these stories. The Norman Rockwell painting discovered
behind a false wall in a Vermont home last spring sold at
Sotheby’s for $15.4 million, a record price for the artist.
“Breaking Home Ties” was once voted the second-most popular
cover in the history of The Saturday Evening Post. [No. 1 was
“Saying Grace,” the Nov. 24, 1951 cover, also by Rockwell.]
But holy cow, an Edward Hopper, owned by comedian/actor
Steve Martin, sold for $26.8 million when Hopper’s previous
best was $2.4 million.
–Once the weather clears in Kansas City, like in the spring, I’m
going to have to head back there; having last been about three
years ago to check out Harry Truman’s Presidential Library. The
Wall Street Journal had a story on the new/updated World War I
Museum in K.C. and it sounds spectacular, as does the new
Marine one at Quantico, for that matter. [Back in K.C., I also
have to get to the Negro Leagues Museum.]
So why bring this up? Because I see where the government is
about to release a new citizenship test and I still believe I have a
better idea. Put a computer chip in all candidates and tell them to
go to three museums or national parks over the coming year.
The chip would then record the visits………………..really.
–I’ve talked about the Animal Kingdom from time to time and I
got a kick out of everyone from Bill O’Reilly to Larry King
rushing to discuss the Sea World story and the encounter a
trainer had with a killer whale this week.
That was a story? Heck no. You want a real story? Try the seal
that was found five miles inland in Britain, near the western
coast. I’m thinking it could be a feint. They’re really launching
an invasion at Normandy.
–Sorry, but I have to end on a down note, in keeping with the
above discussion on our national heritage.
I’ve mentioned how I give a donation from time to time to the
Civil War Preservation Trust and I received my copy of their
magazine, “Hallowed Ground,” the other day. Following is a
distressing tale.
“Early on the morning of August 19, 2006, a group of developers
moved heavy machinery and work crews onto U.S. government
property at Harpers Ferry National Historical Park. They
proceeded to clear a 45-foot-wide swath of battlefield along
School House Ridge to dig two 1,900-foot-long trenches and lay
water and sewer pipes on this historic land where Stonewall
Jackson launched one of the most brilliant tactical triumphs of
the Civil War.
“Their work was unauthorized. They had not secured the
federally required permits necessary to perform construction or
excavation projects on government land. National parks and
other federal property are protected by guidelines set forth to
ensure that these national treasures are preserved for the use and
enjoyment of all Americans. Alterations to such lands must be
thoroughly vetted through an extensive permit process.”
It turns out the developer, Jefferson Utilities, Inc., had “entered
into this review process, but refused to see it through to its
conclusion.”
I hope you’re as livid as I was in reading this. Toss these guys in
prison and throw away the keys.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $650
Oil, $63.43
Returns for the week 11/27-12/1
Dow Jones -0.7% [12194]
S&P 500 -0.3% [1396]
S&P MidCap -0.3%
Russell 2000 -1.4%
Nasdaq -1.9% [2413]
Returns for the period 1/1/06-12/1/06
Dow Jones +13.8%
S&P 500 +11.9%
S&P MidCap +9.7%
Russell 2000 +16.0%
Nasdaq +9.4%
Bulls 57.5
Bears 22.3 [unchanged 3rd straight week…Source: Chartcraft /
Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
