[Posted 7:00 AM ET]
Iran, Iraq and Israel
It would appear there will finally be a full and open debate in the
U.S. Senate on non-binding resolutions over the troop surge in
Iraq. It hasn’t exactly been Profiles in Courage Week, while on
the ground it’s been nothing but further carnage, going back to
last weekend and the market bombing that claimed over 130
lives. Americans are being blamed for the violence against Shia
because the failure to ‘surge’ until now created a security
vacuum. Of course the vacuum was the result of Moqtada al-
Sadr telling his Mahdi Army to go to ground.
As for the “revelations” contained in the Pentagon/Douglas Feith
report, I’m sorry if I see nothing new. We all know who is
responsible for taking us to war, whether it was for the right
reasons or not, but my own focus has been, and continues to be,
on the aftermath and the inability of our president to recognize he
was being ill-served by a generals corps that in turn was
intimidated by the “best secretary of defense this country has
ever had.”
So moving on, there was an important item concerning Kirkuk in
the Washington Post. As Glenn Kessler reports, Turkish Foreign
Minister Abdullah Gul warned that a referendum on the status of
the Iraqi city should be canceled as it threatens to widen the
sectarian rift that heretofore has left much of northern Iraq
untouched.
At some point this year, the people are slated to vote on whether
to join the rest of Kurdistan. In Turkey’s view, control of the key
oil-rich city and region would allow it to separate itself from the
rest of Iraq even more than it already is doing, and thus further
fuel separatist fires in Turkey proper.
Separately, Gul told Washington Post editors that “strong U.S.-
Turkish relations would be shattered if Congress passes a
resolution to condemn as genocide the early-20th-century killings
of up to 1.5 million Armenians,” as reported by Kessler.
As for Iran, it appears I will have been right in noting long ago
that Feb. 11 is a key date; one on which President Ahmadinejad
will announce a new stage in Iran’s uranium enrichment effort,
which of course flies in the face of UN Security Council
Resolution 1737 that demands Iran cease with its enrichment
program by Feb. 21.
What is clear is the financial sanctions that have been levied on
Iran are biting and that dissent is growing internally. But the
U.S. is increasingly frustrated that Europe will not take the next
step and tighten restrictions on doing business with Iran.
For its part, the Iranian opposition is speaking out more boldly
against the rantings of Ahmadinejad, as the man I’ve been
writing so much about the past few months, Hashemi Rafsanjani,
leads the criticism of his confrontational approach.
But I could not disagree more with the camp in Washington that
says we can not hold high-level discussions with Iran’s
leadership. You can do both; talk and show the stick. We’ll get
a big clue where the White House is headed this weekend as
Iran’s national security chief, Ali Larijani, attends a conference
in Munich in which Secretary of Defense Robert Gates is also a
participant.
For a different opinion, following are some thoughts by Rami
Khouri of the Daily Star of Lebanon.
“The U.S. should be awarded a Cosmic Prize for Chutzpah and
Chicanery for charging Iran with meddling in Iraq and
threatening American lives. The reason is that the accusation
makes little sense when the U.S. invaded Iraq, removed the
former state structure, killed tens of thousands of people,
unleashed ethnic-religious discord there, and allowed Iran to
emerge as the dominant regional power. What does the Bush
administration take us for, simpletons and idiots? Are the people
of the Middle East supposed to applaud American military
aggression, diplomatic adventurism, and national experiments
with Arab societies? No wonder that huge majorities of Middle
Easterners criticize U.S. policies and feel threatened by them.
“If we were asked to support an assault against Iran mainly in
order to comply with American and Israeli hysteria, the likely
response from most quarters in the Arab world, Iran, Turkey, and
others nearby would be to resist and defy the U.S. and Israel, and
fight them politically or militarily. This is the stage we are at
now, as much of public opinion in the region rejects the
American-Israeli position, while many Arab governments seek
protection under Washington’s wing.
“This is a recipe for continued violence and instability
throughout the region. We should not play stupid and act
surprised by the further collapse of regimes, states and societies
in the years ahead. This will occur if current trends persist, in the
context of an overarching U.S.-Iranian face-off that includes
battles among local proxies, as we are now witnessing in
Lebanon and Palestine.”
Then there is Saudi Arabia, which has been coordinating a flurry
of diplomatic activity, including hosting talks between Fatah and
Hamas, as well as meeting with Iranian leaders on the regional
situation in general. It’s almost amusing how the Bush
administration, which at one point was crying out for democracy
across the Middle East, is simply a bystander as the autocratic
Saudis push their agenda.
But is this good? Saudi Arabia can be a positive force in shaping
events in Lebanon, for example. And one can almost envision a
situation where in two or three years time there is relative
stability across the region, a la the scene post-Gulf War I in the
1990s, at which point we’d all sit back, analyzing the war against
Iraq, and say “what was that all about?” Tragically, there are
some in Washington who would call this scenario victory, even if
it is a return to the status quo.
In fact, at this point it probably would be a victory of sorts; like
in returning to where we were with North Korea five years ago.
But, oh, we have a long ways to go before we can even say this
much.
As for the Saudi role in Mecca, it was more about letting the two
representatives of the Palestinians, Fatah and Hamas, hash it out
themselves. The Saudis just supplied the tea and snacks. In the
end, the two sides signed a deal to form a national unity
government but in the text, once again, there was no formal
recognition of Israel, with Hamas just saying it would “respect”
past peace deals. But will this be enough for the international
community to lift the sanctions that have strangled the
Palestinian government? My guess is it will, but give it another
few weeks at least.
What is clear is that the recent fighting between Fatah and
Hamas didn’t help in shaping world opinion. As columnist
Mahmoud Habbash told the Jerusalem Post:
“The world is watching how the Palestinians are destroying their
institutions and achievements with their own hands. They see
how we are mercilessly slaughtering innocent people. We are
losing the sympathy of the world. I’m afraid the world will now
view us differently.”
And so we did. As to the tension between Israel and Iran, Israeli
Prime Minister Ehud Olmert told a conference of Jews in
America that “If the international community joins forces and
applies the necessary restrictive measures on the economy of
Iran, it will force Iran to reconsider its position.” Olmert added
he did not believe the Iranian threat “is as close as the Iranians
want us to think. They are not as close to the threshold as they
pretend to be. There is still time to fight in a comprehensive
responsible manner.” [Jerusalem Post]
But previously, Olmert was saying “The Jewish people, on
whom the scars of the Holocaust are deeply etched, cannot allow
itself to again face a threat against its very existence. In the past,
the world remained silent and the results are known. Our role is
to prevent the world from repeating this mistake.” [L.A. Times]
One thing is clear. Should Iran acquire the bomb, people will
flee Israel and its economy would tank.
Finally, I have been arguing for formal contact with Iran for the
simple reason that of all those in the region, its people,
particularly its youth, are the most literate in the Middle East and
the nation is ready for a change. The Bush administration can
help foster this, but it still seems to be too late to prevent Iran
from getting the bomb.
Wall Street
Find me an ‘expert’ who says real estate has bottomed and I’ll
show you an idiot. How many times do some of us have to prove
it? This week it was HSBC that admitted its overly aggressive
salesmanship in going after the subprime mortgage market (i.e.,
those who can least afford it) had backfired in a huge way as it is
writing off $10.5 billion in bad debts, or 20% more than the
company itself expected just a short while ago. Delinquencies
are accelerating in this segment and this is occurring in a strong
economy.
How did this happen? One word. Affordability…and
homeowners simply not understanding that they can’t stretch
beyond their means. It’s a painful lesson everyone in life has to
learn at some point, too much debt that is, but the problem in
today’s real estate market is that home values are not simply
going to shoot back up and bail out those who are on the verge of
going under today. Too many used their home as an ATM and
the window has closed.
But it’s not just a class of homeowners that are suffering. The
real estate developers, who should know better, have been
writing off land faster than the French did during World War II.
So, no, we haven’t hit bottom yet.
How did we get here, as if you needed a refresher course? The
median price on a new home rose from $177,000 to $276,000
over the course of five years, from 2001 to 2006. That drew in a
new class of speculators, who then accounted for up to 40% of
new home purchases in the hottest markets, developers kept
buying up land and throwing up homes and condos at an
accelerating rate, the laws of gravity (and supply and demand)
suddenly came into play, as they always do, and then
homebuyers and developers threw up on themselves.
What’s next? Even were real estate values to stabilize, the pain
in the subprime market will continue. But a true crash can be
avoided only if the overall economy stays strong, and don’t you
know the Federal Reserve knows this. There is absolutely no
way they are raising interest rates this year, despite the Fed talk
to the contrary. That would be financial market suicide. The
bigger issue is will the Fed lower rates and it certainly doesn’t
look like that is happening anytime soon, either. Eventually,
though, they’ll be forced to when renewed signs of a slowdown
hit.
Just a word on the federal budget submitted for fiscal 2008
(starting 10/1/07) by the White House. I do not harp on budget
or current account deficits like some do because these aren’t the
kinds of things that suddenly bite you in the butt at 3:30 pm on a
Friday. They aren’t good, but there is no cause for panic…yet.
But what I do note from time to time, and which is flat out
criminal, is the fact the latest budget highlights how our
government is going to shell out about $260 billion in net interest
expense, up from $220 billion just two years ago. That, friends,
is why budget deficits should matter to each and every American.
Why more isn’t made in our national debate about that single
figure is beyond me. $260 billion buys a helluva lot of new
bridges and highways, that we desperately need, or better mass
transit, let alone something like healthcare, even if it all went to
medical research. Or alternative energy initiatives (but not
ethanol…it already has its own tax credit). Or a permanent fix to
the alternative minimum tax, which the White House and
Congress keep “patching” up, thus avoiding the longer-term
solution. You get the picture.
Three final items. Last week I wrote of how I couldn’t get too
excited about bird flu until we saw a major outbreak outside of
Indonesia. No sooner do I write that when hours later we learn
of the outbreak in Britain, a serious development, and the
discovery of H5N1 in Pakistan; not a good thing there given the
level of healthcare and prevention.
Another concern is protectionism. Japan is feeling the heat
because of its weak currency. Europe is getting slaughtered on
the trade front and is tired of currency manipulation, but the U.S.
is defending Japan because it’s not only a key ally, today in
particular we need its support with regards to North Korea. But
Congress, and the EU, won’t be patient for much longer. Of
course when it comes to China you can say “ditto,” only here the
White House is finally getting more aggressive as it filed a
complaint at the World Trade Organization over China’s alleged
subsidies to manufacturers.
The Washington Post editorial board weighed in.
“The strong growth in the U.S. economy reported for the last
quarter of 2006, and the year as a whole, had a lot to do with
burgeoning American exports. In the first 11 months of 2006,
they reached $1.1 trillion, a 13% increase over the same period in
2005. Though the U.S. trade deficit is still huge, recent figures
show exports growing at three times the rate of imports; sales to
China are up by a third. Moreover, U.S. exports to the handful of
countries with which there are free-trade agreements are
booming disproportionately: Though Mexico, Canada, Chile and
other free-trade-pact partners make up only 7% of the non-U.S.
global economy, they are buying 42% of the American goods
and services sold abroad.”
The Post goes on to argue this is the prime reason why Congress
must renew President Bush’s trade promotion authority, which
expires July 1, but Congressional Democrats have other ideas.
Lastly, historian Francis Fukuyama of Johns Hopkins had some
of the following thoughts in an op-ed for the Los Angeles Times.
“It is easy to get very discouraged when surveying the state of
the world. Few Americans need to be reminded about the chaos
in Iraq, Iran’s ambitions as regional and potentially nuclear
power or the possibility of Sunni-Shiite conflict spreading
throughout the Persian Gulf….
“(And) many would say, today’s rosy economic picture masks
huge vulnerabilities, particularly in the form of the twin
American trade and budget deficits and the unsustainable buildup
of U.S. dollars in foreign central banks….
“Economic growth by itself will not guarantee stability, any
more than the period of globalization before 1914 could prevent
the outbreak of World War I. But there is good reason to think
that we have consistently overestimated threats to stability since
9/11 and that it is our reaction to this overestimation that has
created special dangers. At the time of the Sept. 11 attacks, there
were probably no more than a few dozen people in the world
with the motivation and potential means to cause catastrophic
harm to the United States. Once our mighty national security
apparatus was turned to focus on this problem, the likelihood of a
successful attack dropped dramatically. It was in deciding that
we had to ‘make a statement’ by invading Iraq that we created a
brand new problem for ourselves, creating a new terrorist haven
and shifting the power balance in the Persian Gulf in Iran’s
favor.
“But various equilibrating forces are at work. The Sunni world is
not sitting by idly as Iran’s influence grows, but is mobilizing to
contain the threat. At home, there are many more measures we
could take to lower the risk of catastrophic terrorism, such as
better port security and an upgrading of our public health system
to deal with biological threats. Far more likely than a
catastrophic attack on the U.S. using weapons of mass
destruction are bombings, attacks on airplanes, assassinations
and the like – terrible events, but ones we can deal with….
“There are real dangers to being excessively pessimistic at this
juncture. Growing numbers of people in the U.S. and Israel
believe that Iran represents an existential threat, that it will
behave irrationally and therefore cannot be deterred – and that
we consequently have no choice but to preempt. It is this same
logic – that our backs are against the wall – that led us to the Iraq
debacle. But assuming a worst-case outcome is likely to make it
a self-fulfilling prophecy.
“For all of its stumbles in the last few years, the United States
remains a rich and powerful country, with plenty of margin to
absorb setbacks and make up for mistakes. The larger part of the
world that is modernizing successfully is dependent on us for
continued progress, and perhaps for that reason is far less anti-
American than those regions mired in conflict and stagnation.
There are real risks out there today, but it may help to take a deep
breath and assess calmly where we stand. Terrorists use the tools
they do because they are weak and have no others. Americans
need to remember that we are the 800-pound gorilla: We have
choices, but we need to take care when we throw our weight
around.”
Street Bytes
–Yet another sanguine week in the financial markets with the
major averages all losing a little over 0.5%. We have now seen
the longest stretch since 1953-54 without as much as a 2%
decline in the Dow Jones, so anyone under the age of 50, to put it
into its proper perspective, has never witnessed such a
phenomenon. The market has now also gone 987 sessions
without a 10% correction, the longest of this kind since the
period ending August 1997.
–U.S. Treasury Yields
6-mo. 5.15% 2-yr. 4.90% 10-yr. 4.78% 30-yr. 4.86%
Rates were little changed owing in part to a light economic
calendar. The latest data on productivity was strong, but the
overall yearly trend is still down, somewhat worrisome as it can
augur higher wage inflation which might cause the Fed to act.
–U.S. News & World Report’s cover story for the Feb. 12 issue
is titled “Overselling Ethanol: For All The Hype, Is It Really The
Answer?” No. And as the industry itself acknowledges, even
after a large ramp-up in production, it will still fall 20 billion
gallons short of President Bush’s renewable fuels target. And
while some of us are willing to give “cellulosic” ethanol
(utilizing materials such as cornhusks or fast-growing reedy
crops like switchgrass) a shot, commercialization of this
technology appears to be a long ways off. Actually, reader Chris
C. had a good idea. Try to encourage some of the Latin
American nations, like Colombia, to switch over from coca,
though we’d obviously have to guarantee the market. Bottom
line, as I wrote extensively last week, ethanol is simply not a
panacea and as the USN&WR report adds, the debate boils down
to “the nitty-gritty fuel economy and conservation issues
politicians have been mostly avoiding for years. They’d rather
feel good, for the time being, about ethanol.”
–On a related topic, my favorite economist, Robert Samuelson of
the Washington Post, weighed in on the global warming issue.
“The dirty secret about global warming is this: We have no
solution.”
As to limiting CO2, greenhouse gas emissions, Samuelson
concludes:
“Poor countries won’t sacrifice economic growth – lowering
poverty, fostering political stability – to placate the rich world’s
global warming fears. Why should they? On a per-person basis,
their carbon dioxide emissions are only about one-fifth the level
of rich countries. In Africa, less than 40% of the population even
has electricity.
“Nor will existing technologies, aggressively deployed, rescue
us. The IEA studied an ‘alternative scenario’ that simulated the
effect of 1,400 policies to reduce fossil fuel use. Fuel economy
for new U.S. vehicles was assumed to increase 30% by 2030; the
global share of energy from ‘renewables’ (solar, wind,
hydropower, biomass) would quadruple, to 8%. The result: by
2030, annual carbon dioxide emissions would rise 31% instead
of 55%. The concentration levels of emissions in the atmosphere
(which presumably cause warming) would rise….
“What we really need is a more urgent program of research and
development, focusing on nuclear power, electric batteries,
alternative fuels and the capture of carbon dioxide. Naturally,
there’s no guarantee that socially acceptable and cost-
competitive technologies will result. But without them, global
warming is more or less on automatic pilot. Only new
technologies would enable countries – rich and poor – to
reconcile the immediate imperative of economic growth with the
potential hazards of climate change.”
–Personal bankruptcy filings are soaring in Britain, up 59% in
England and Wales in 2006 over 2005. One specialist in such
deals told the London Times’ Steve Hawkes, “People are,
without doubt, behaving irresponsibly with credit, blindly taking
on debt without thinking about how they will repay it.” Sound
familiar?
–Federal Reserve Chairman Ben Bernanke on the growing gap
between the haves and have nots:
“Although average economic well-being has increased
considerably over time, the degree of inequality in economic
outcomes has increased as well…for at least three decades.”
In a rare foray into this kind of topic for a Fed chairman,
Bernanke even talked about inequality related to baseball
contracts.
“Two decades ago, the highest-paid player for the Boston Red
Sox (and the American League), Jim Rice, earned (in inflation-
adjusted terms) just over $3 million. In 2004, the highest-paid
player on the Red Sox was Manny Ramirez, who received $22.5
million for the reason.” [Wall Street Journal]
–The takeover battle for real estate mogul Sam Zell’s Equity
Office Properties, the biggest office landlord in the nation, was
finally won by Blackstone Group in a private equity deal for $39
billion. Residential real estate may be taking it on the chin, but
many continue to see a rosy future for the commercial variety.
You have to love Zell. This was a guy who growing up in
Chicago used to buy issues of Playboy off the newsstand and sell
them at marked-up prices to his friends.
–While the YouTube acquisition by Google continues to have
problems on a variety of fronts, such as in copyright
infringements, it has been officially revealed that the two
founders, Chad Hurley and Steven Chen, were awarded shares in
Google worth $345 million and $326 million, respectively. [A
3rd founder is back in school and received shares worth $64
million.] Not bad for less than 24 months work. And if I’m
these guys, I cash in my shares as quickly as possible because
there are serous issues involved, including the fact Google has
rivals that are circling overhead as well as my much-discussed
musings on the whole online advertising environment.
–Michael Dell wasted no time in putting his imprint on the
company in his return as CEO by eliminating bonuses for 2006.
So those folks putting together your customized PC aren’t happy
campers, though Dell did say the company would budget for
“above-market raises” this year.
–Canadian telecom-equipment giant Nortel said it would slash
another 2,900 jobs. At its peak, the company employed 95,000.
Today it’s at 34,000 and heading lower still.
–Nortel rival Alcatel-Lucent is laying off 12,500…an increase
from the 9,000 the newly-combined operation had said would be
shown the door just a few weeks ago. Workers have called for a
brief strike on Feb. 15, a Thursday, which could conveniently be
stretched into a four-day weekend! [Five days if you’re in the
U.S. and you include Presidents’ Day.]
–And the layoffs continue at Eastman Kodak, an additional
3,000 on top of 25,000 previously announced. But Kodak is
introducing a new line of inkjet printers that promise to use a $10
black-ink cartridge, or about half the cost of rivals’ offerings. As
one who goes through a black-ink cartridge a week, I will be
definitely checking out Kodak’s product and I wish them the
best. The whole cartridge business is the biggest rip-off going
and I would urge Hillary Clinton to go after this cartel instead of
Big Oil, mused the editor, tongue half in cheek.
–I was happy to see Cisco Systems issue another stirring profits
report as revenue rose 27% from year ago levels.
Congratulations to CEO John Chambers for leading one of the
better comebacks in recent memory. I’ll be the first one to admit
I misread him years ago, and I also have to add he is now a
StocksandNews favorite because of his efforts to promote
positive change in Lebanon. But Cisco lost a key executive who
is opting to spend more time with his friends. [I’m just tired of
the “more time with my family” excuse, knowing the family
can’t stand half the guys opting for this.]
–Just last October, Ford Motor Co. ceased production of its once
top-selling Taurus line after 21 years. But now the company is
going to rename its slow-selling Five Hundred model the Taurus.
For 10 years Ford let the Taurus die as it left the design virtually
unchanged, which begs the question, why didn’t they just focus
on redesigning it? Heck, it was the best-selling brand in America
back in 1992.
–Wal-Mart has a huge potential liability on its hands as a Federal
Appeals Court ruled that a class-action consisting of 1.5 million
past and present female Wal-Mart employees can go through
amidst claims of gender discrimination. In a 2-1 ruling, the court
held there is “significant proof of a corporate policy of
discrimination.” Back in 2001, six female employees alleged the
retailer systematically paid women with similar qualifications
less than men and denied them promotions otherwise warranted.
–Hyundai Motor Chairman Chung Mong Koo was sentenced to
three years in prison for embezzlement and fraud, up to $100
million that he used for political payoffs and personal use. This
is highly significant and a real positive for South Korea’s
economy as it shows the government taking a stance against the
old boy, chaebol, network that condoned such behavior in the
past.
–The investigation into Apple CEO Steve Jobs and his past
options activity continues. On Friday, the Wall Street Journal
reported that when Pixar reached a new employment contract
with animated-film director John Lasseter, at a time when Jobs
was chairman and CEO there, the grant was awarded at the
lowest share price of the previous year, on a date that was three
months before the contract was actually signed. It’s not known
exactly what Jobs knew at the time, but what is known is that
Lasseter reported the grant to the SEC, as required by law, 84
days late.
–Meanwhile, Apple is warning iPod and iTune users to be wary
of Microsoft’s new Vista operating software because of
compatibility issues. Vista’s launch, by the way, has been
underwhelming, to say the least, and shares in Microsoft have
declined seven days in a row.
–Strategic Investment’s Dan Amoss on the private-equity craze.
“The great technology bubble…brought financial pain to those
involved with supplying capital (in the form of IPO purchases) or
credit (in the form of corporate bond purchases) during the
bubble’s inflation. But it left an enormous glut of useful
productive assets like IT hardware and fiber-optic lines that
remained after the smoke cleared. In effect, Global Crossing
shareholders’ pain led to telecom users’ gain….
“But the financing of recent private equity transactions cannot be
thought of in the same manner. Most of these transactions would
not be possible in the absence of a global lending apparatus that’s
gone completely haywire. This should not be confused with
‘wealth creation,’ but apparently, many stock market traders are
making this mistake, spurring rallies on the heels of each big
buyout rumor or announcement. These ‘going private’
transactions represent little more than transferring ownership of a
corporation from its previous, public equity holders to a mix of
creditors and new, ‘private’ equity holders….
“Real pessimism hasn’t been experienced since the early 1980s,
a time when all financial assets were in the doghouse. The next
time financial markets fall victim to this type of pessimism, the
asset classes that were pushed up by this wave of Fed-inspired
liquidity will not leave behind a glut of highly useful productive
capacity. Unlike railroads or fiber-optic lines, an investment
bubble focused on M&A activity does not raise living standards
after it deflates.”
–The SEC is investigating insider trading in the hedge fund
world. I’m shocked! As Jenny Anderson of the New York
Times reported, the probe is about Wall Street brokerage firms
leaking information to favored clients, the hedge funds, based on
the former’s knowledge of large block trades put in by mutual
funds. The hedge funds then trade on the information, front-
running, through another firm to hide the paper trail while the
hedge fund is expected to reward the brokerage firm that gave
them the info with future business. Hedge funds comprise up to
50% of Wall Street’s trading revenues most days, but the practice
in question is going to be exceedingly difficult to prove, as are all
insider-trading cases.
–Except, that is, the shenanigans going on at New Jersey-based
Taro Pharmaceuticals, where executives brazenly traded on their
company’s inside information, raking in more than $3.5 million,
including one instance where they scored by buying ‘puts’ ahead
of an earnings disaster. Vice President Zvi Rosenthal, along with
two of his sons and a fourth accomplice pleaded guilty to
conspiracy to commit securities fraud. The sons were both
attorneys and worked the trades through a hedge fund that was
established to conceal the activity. Mr. Rosenthal had previously
been found guilty of defrauding the Pentagon in 1998 by using
defective material in uniforms.
–Russell Read, chief investment officer of the $225 billion
California Public Employees Retirement System, comments on
the standard practice of hedge funds charging a management fee
of 2% while keeping 20% of any investment gains. When the
funds are doing nothing more than achieving market returns, it’s
like a charity “where you give these people lots of money, they
make a really good living out of it, and they provide you with
returns that are substandard.” [Bloomberg News]
–Uh oh…legislation winding its way through the halls of
Congress would put art and collectibles on equal footing with
other investments when it comes to capital gains.
–If you could choose your father, these days you’d go for Rupert
Murdoch over Warren Buffett, at least that’s what the Murdoch
children are saying. Buffett, you’ll recall, said his kids have
done just fine and he’s leaving everything to charity, but Mr.
Murdoch is leaving each of his six children $100 million.
–Jim Samples, president and general manager of Cartoon
Network, was forced to resign following the idiotic ad campaign
that resulted in a near panic in Boston. He was replaced by long-
time number two, Deputy Dawg.
Foreign Affairs
North Korea: As I write, there is optimism a compromise will be
reached on Pyongyang’s nuclear weapons program, with the
North possibly agreeing to freeze activities at its main nuclear-
related facilities within two months in exchange for significant
shipments of fuel and a lifting of financial sanctions. It is then
hoped the process of actual disarmament could begin.
[However, I just saw this comment from Japan’s top envoy.
“There are some parts in which we had progress but on others we
ran into difficulty. We will continue with the talks, but at this
point in time I don’t feel there is a prospect of reaching an
agreement.” U.S. negotiator Christopher Hill added, “I want to
stress in these negotiations, you think you’re down to one thing
and then nail it down and something else comes up, so it’s never
over until it’s over.”]
What is clear is that the Bush administration is now willing to
make concessions it wasn’t five years ago. As Gordon Chang
wrote in an op-ed for the Wall Street Journal, “American policy
makers apparently think that if the U.S. makes the first moves,
China will persuade North Korea in the future to completely give
up its nuclear arsenal.”
But what’s the real bottom line? The U.S. set out to prevent
North Korea from developing nuclear weapons and yet today
Pyongyang has done just that…develop nuclear weapons (up to
12 of them by one expert’s estimate). While we all want some
semblance of peace on the Korean Peninsula (permanent peace is
impossible with an ever-rising China and its historic relations
with the likes of Japan), any agreement you hear about has to be
treated with a grain of salt until such time that Kim Jong-il and
his cronies are no longer pulling the strings.
China: President Hu Jintao completed an eight-nation tour of
Africa in yet another attempt to sign deals for the continent’s
natural resources so desperately needed by China.
But, in his visit with Sudan’s leader, rather than pressuring
Sudan to accept an expanded peacekeeping force in Darfur, Hu
provided them with an interest-free loan to build a presidential
palace. As the Washington Post’s Sebastian Mallaby wrote:
“With that gesture, Hu demonstrated his contempt for the
Western understanding of the world – and for Western policy
toward his own country.”
So forget the genocide in Darfur, instead Hu “used his trip to
cancel $80 million of Sudanese debt, to announce a plan to build
a railway line and to visit an oil refinery that China partly owns,
basking in the fact that 80% of Sudan’s oil goes to his country.”
Mallaby concludes:
“What does China’s policy toward Sudan say about the West’s
policy toward China? The West is engaging with China on the
theory that economic modernization will bring political
modernization as well; otherwise, the West would merely be
assisting the development of a communist adversary. China’s
Sudan policy is an assertion that this link between economic and
political modernization is by no means inevitable, even in the
extreme case. You can construct oil refineries, educate
scientists, build ambitious new railways – and simultaneously
pursue a policy of genocide.”
And these further China tidbits.
China will not radically alter plans to continue its reliance on
coal and other dirty fuels, insisting developed countries are
responsible for global warming. A foreign ministry
spokeswoman took aim at the United States in highlighting the
Kyoto Protocol.
“You need to point out that climate changes are the result of the
long-term emissions of the developed countries and the high per-
capita emissions of the developed countries. Currently the
developed countries should make an example in shouldering the
responsibility in reducing their emissions in accordance with the
Kyoto Protocol.”
Of course China and India are exempt from Kyoto, even though
China is the second-largest emitter of greenhouse gases and will
soon be number one. [Agence-France Presse]
The mangrove forests of Shenzhen are dying because of
industrial pollution, according to the South China Morning Post.
These lands represent one of China’s most important wetland
conservation zones, but with rapid development, half is already
gone. The director of a Shenzhen environmental group said “We
could face an ecosystem collapse at any time.” Hong Kong’s
forests await a similar fate.
And a British environmental expert told the AP that water
shortages in China are reaching “incredible” proportions, with
Shanghai being particularly vulnerable. Shanghai will need to
use desalinated water within ten years and build out an
infrastructure to import water from southwest China.
Justin Mundy, an adviser to the British government on climate
change added, “All the water in the southwest of China is fed by
glacial melt. Glacial melt in about 25 years’ time is not going to
be there in anything like the capacity that is going to be required.
What then?”
But Mundy also said 21 of the world’s 33 largest cities face
similar water crises. [Water is the new oil, sports fans.]
Meanwhile, China launched its first navigation satellite in four
years in a renewed drive to rival Washington’s GPS and
Europe’s Galileo. But on the issue of its recent successful test to
bring down an aging satellite, the New York Times’ William
Broad notes that up to 1,000 pieces of detectable debris may now
be floating around, the worst such episode in space history.
This is just a classic example of China’s reckless behavior,
whether you’re talking about pollution, boom towns such as
Shanghai where the development is often without logic, or
blowing up satellites where debris then risks bringing down
countless others.
But as William Broad notes in his piece, it’s not just a matter of a
satellite fragment taking down one of ours or a Russian craft;
there is the potential for a cascading effect.
“It’s inevitable,” said Nicholas L. Johnson, chief scientist for
orbital debris at NASA. “A significant piece of debris will run
into an old rocket body, and that will create more debris. It’s a
bad situation.”
Taiwan: President Chen Shui-bian wants to print the island’s
stamps with the name “Taiwan” instead of “Republic of China”
in another move to please pro-independence forces, and piss off
the mainland.
But since I have some readers from Taiwan, and as I’ve said that
in all my travels, the Taiwanese are as friendly as any I have
encountered, I thought they’d enjoy this blurb from a Wall Street
Journal travel piece by Stan Sesser on the island.
“If you’re surprised at the friendliness of the people of Taipei,
wait until you see the rest of the island. At a tea shop in Jiufen, a
young employee happily gave me an hour of free tastings to sell
me $15 of tea. Then I asked him how to find the historic Fushan
temple. He picked up an umbrella, led me on a 20-minute walk
to the temple, up staircases and steep streets, then showed me
how to light incense sticks and place them as offerings. He
waved away any attempt to give him a tip for the hour-long
tour.”
Yup, that’s Taiwan.
Japan: Conservative Gov. Shintaro Ishihara, said Japan should
“tear up” its pacifist constitution in order to meet the challenges
of today, namely those posed by China. And he also said that
instead of Japan’s businessmen plowing money into China, they
should turn instead to investing in India. Because it’s time Japan
stood up to China and supported its real friends.
Russia: Where to begin? In no particular order….
The Kremlin is insisting that any cooperation in the investigation
into the murder of Alexander Litvinenko be linked to the
extradition of exiled critics such as Boris Berezovsky. Three
times the Russians have attempted to grab Berezovsky and three
times British courts have ruled in his favor. But it will be
interesting to see what Britain does over the coming months in
this regard.
Meanwhile, Mikhail Khodorkovsky, the former Yukos chairman,
is facing new trumped up charges of money-laundering and
embezzlement in an attempt by Russian prosecutors to keep both
him and business partner Platon Lebedev in jail long after their
originally scheduled release in 2008 or 2009. Media supporters
of the Kremlin claim Khodorkovsky stole $23 billion, which his
lawyers have labeled “absurd, even crazy.” Khodorkovsky, from
prison, said it was a “shameful farce.” Of course the court will
dutifully deliver a guilty verdict.
Editorial / Washington Post
“We won’t accuse Russian President Vladimir Putin of being
subtle this week. On Monday, Russian prosecutors leveled
charges against a pair of Putin’s one-time political enemies that
are beyond implausible. The outcome from Russia’s pliant legal
system is all but inevitable: convictions and more jail time (for
Khodorkovsky and Lebedev)….
“Precisely why Mr. Putin wants to keep these two men in jail for
another 15 years or so is still up for speculation. Observers of
Russian energy politics see it as a way to assist the Kremlin in
grabbing the remaining bits of Yukos’s assets inside and outside
the country….
“Mr. Putin has systematically dismantled the institutions of
democracy inside Russia while bullying his neighbors and jailing
his opponents. After the new charges were announced, a State
Department spokesman said that the proceedings ‘raise questions
about Russia’s commitment to the responsibilities which all
democratic, free market countries embrace,’ and that American
policymakers will discuss the issue with the Kremlin ‘at an
appropriate time and at the appropriate level.’ We doubt that Mr.
Putin will lose much sleep over that prospect.”
Lastly, there is the issue of Kosovo, which I warned could be a
real flashpoint in 2007. On Friday, Russia signaled it would
oppose a proposal by the UN to set the breakaway Serb province
on a path to independence. With its veto power in the Security
Council, Russia can block the plan.
Recall, the ultranationalist Serb Radical Party won 28% of the
vote in recent elections, while remember that Kosovo is majority
Muslim. Serbia’s President, Boris Tadic, said “Serbia will never
accept an independent Kosovo.” The Serbs slaughtered 10,000
ethnic Albanians in the province during the war.
Indonesia: If there wasn’t so much other news, the flooding in
Jakarta would be a far bigger story than it is. In a word it’s a
disaster of immense proportions and the government is in deep
trouble over its handling of the crisis. I must say I didn’t know
40% of Jakarta, a city of 8 million, is below sea level and there is
only one flood canal. Various diseases could take hold in the
squalid conditions many are now faced with (on top of the
previously existing mess there) and with bird flu simmering that
should scare the heck out of many in the entire region.
Zimbabwe: Oh yeah, things are just great here. Two weeks ago
civil servants were awarded 300% pay raises. But inflation is
running around 1,000%. According to Michael Wines of the
New York Times, 8 in 10 are now destitute.
Venezuela: At the rate President Hugo Chavez is going, we could
be staring at the future Zimbabwe of our hemisphere. Mary
Anastasia O’Grady, the Journal’s superb columnist on all things
Latin American, offered:
“At least Mussolini made the trains run on time. Mr. Chavez, on
the other hand, seems to possess a reverse Midas touch. Under
his leadership the country has soaring murder rates, double-digit
inflation, food shortages, oil-field depletion and a massive brain
drain.”
Mexico: New President Felipe Calderon has a real problem on
his hands, soaring inflation; with eggs rising 46% in one year and
tortillas 40%, the latter due to exploding corn prices. Overall,
inflation is now running at an uncomfortable 4%, but it’s
Mexico’s huge lower class that is suffering with the high cost of
food and the potential for civil unrest is increasing. Mexico’s
farmers have been accused of price fixing when it comes to the
corn crop.
Random Musings
–Yet another disturbing report on autism from the Centers for
Disease Control as it’s now estimated one in 150 children have
the disorder. The previous estimate was one in 166. The worst
state in the country is said to be New Jersey. Some experts warn,
however, that it’s impossible to tell whether the incidences are
rising or the diagnoses just better.
–I caught the beginning of Bill O’Reilly on Thursday and he was
going on and on about how many celebrities die from excessive
narcotics use and abusing their bodies. Then he has Greta on and
he’s saying there is no comparison when it comes to drug usage
by Hollywood vs. Wall Street, at which point you could see
Greta wanted to take him on.
Mr. Bill is wrong. For starters, drug use is as bad as it’s ever
been in our society, even if some studies show that our nation’s
youth is using a little less than before. [They have other
problems, the rates of which are soaring as we are all too aware.]
And the percentage of celebrities screwing up can’t be much
more than the general population of high-paid professionals.
–If you have a chance, catch the HBO documentary on South
Central’s gangs, “Bastards of the Party,” written by Cle “Bone”
Sloan, an inactive member of the Bloods in South L.A.
This past week there was a big gathering of politicians and law
enforcement types in Los Angeles to discuss the gang issue
that is spiraling out of control, particularly the Central American
groups like MS-13. I’ve been writing for years this is an issue
deserving of far more attention and it’s about time we began to
focus on it. Here in New Jersey, some of our officials have been
doing spectacular work in breaking up cells, but they need more
help and resources.
But “Bone” had one super suggestion in looking ahead to the
future. Give children of gang members a real name, instead of
“T-Bone” or “Lil’ Joe,” and don’t pass your problems onto the
kids. It’s just not fair. Somehow you have to begin to break the
cycle.
–I can’t say I was happy with how I wrote up the whole debate
about Sen. Biden and his use of “articulate” in describing Barack
Obama. My bottom line is I’ve never heard a leading corporate
executive who doesn’t speak proper English and I’m tired of
hearing some football analysts, for example, hit us with “he
allow.” On many issues, as I’ve aged I’ve mellowed like most
everyone, but on this topic I’m more and more intolerant.
And so last Sunday, Lynette Clemetson had a piece in the New
York Times on “The Racial Politics of Speaking Well” in which
she notes the observation of Tricia Rose, professor of Africana
Studies at Brown University. “Al Sharpton is incredibly
articulate. But because he speaks with a cadence and style that is
firmly rooted in black rhetorical tradition you will rarely hear
white people refer to him as articulate.”
I give up. Except I have to note an editorial in the New York
Post on a different issue.
“Al Sharpton yesterday was threatening legal action against New
York City based on some new NYPD statistics relating to the
department’s so-called stop-and-frisk program – a tactic whereby
officers detain and search suspects for weapons, illegal drugs and
other contraband.
“There has been a five-fold increase in reported stop-and-frisk
activity of late. According to the new numbers, submitted to the
City Council last Friday, there were roughly 500,000 such
incidents in 2006, compared to 90,000 in 2002.”
Now these are not random stops and they come only in
connection with criminal activity, but Sharpton is disturbed 55%
of those stopped last year were black.
“We’re not half the population in the city,” Sharpton said. “How
do we get stopped and frisked half, other than there is a measure
of profiling based on race that permeates the NYPD?”
So the New York Post opines:
“A fair question. Here is the answer, according to the same
numbers that have the reverend so exercised.
“Yes, again, 55% of those stopped were black. But at the same
time, fully 68.5% of the suspects in question were black – again,
according to the crime victims in question, or eyewitnesses to the
crime….
“There is indeed a discussion to be had here – but certainly not of
the sort that Al Sharpton and his ilk seek.
“New York City today is safer than it has been in two
generations – largely in spite of the Rev. Al Sharpton.
“If he wants now to turn the town back over to the armies of the
night, perhaps he should just say so and be done with it.”
–I’m tired of the presidential campaign already. And I’m sorry,
John Edwards supporters; I just don’t like the guy.
–In London, it’s been revealed that the cost of staging the 2012
Summer Olympics will be $10 billion, not the $5 billion initially
put forward. I’m a big sports fan, but is there anyone out there
who in all honesty believes the Olympic Games should be
continued?
Scrap ‘em, and focus on the annual world championships for
each discipline. Particularly where there is a chance of a decent
television audience, stage the World Track and Field
Championships over one week and then televise all the finals
over the last two nights. I bet you’d draw a large audience.
Finals in swimming over a different Friday and Saturday night in
the summer would undoubtedly be a good draw as well if you
publicized it enough. It’s just the whole “Olympic experience”
has run its course. As for soccer/football, hold the World Cup
every two years instead of four. There. Glad we settled this.
–Here’s a dirtball for you. This cab driver in New York City
found a bag of jewels left by a passenger and tracked the woman
down, a jeweler. It turns out the gems were worth over $30,000
and she gave the man a whopping $100. But this was par for the
course, it would seem, because she had initially given him 30
cents for an $11 fare. I kind of wish the cabbie had kept the
jewels.
–Last Sunday was an uplifting day in the sports world, especially
if you are rather religious. While my own faith has been tested
the past few years, I can’t help but admire the sincere beliefs of
the likes of Tony Dungy and PGA Tour golfer Aaron Baddeley
and both were on display in a big way before national television
audiences; much to the chagrin of those interviewing them,
which was kind of comical to observe.
–Ordinarily I wouldn’t comment on Anna Nicole Smith or the
astronaut who snapped, simply because I couldn’t care less about
either; unless the astronaut was zapping Martians with pepper
spray. But I can’t help but note two items from friends of mine.
Jimbo observed that the “AstroNut is fired up Anna Nicole took
a dive when she did,” while Phil W. passed along an AP story
with the headline “What Drew Us to Anna Nicole?” “You did,
media,” said Phil. Bang on, gentlemen.
–Lastly, I have to admit I was close to snapping myself a few
times this past week. Not to bore you with all the details, but I
was scheduled to leave this Sunday on a rather ambitious trip.
My visa application, however, was turned down and then I was
told a certain consulate, representing a nation not friendly to the
U.S., lost my passport.
But now as I write I am told the passport was found and I may
get it back today, Saturday. If so, I’m taking off….just to where
I honestly don’t know but it will be through Paris. If I don’t
receive the passport, I’m obviously going nowhere.
Through this mess I have to admit I’ve learned a lot about a
certain people, and it’s not all bad…….to be continued.
As for Verizon making me wait at home on Thursday from 8 to 7
for a repair job, and then not showing up, I’m reserving a special
place in Street Bytes for this dreadful company.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $671
Oil, $59.81
Returns for the week 2/5-2/9
Dow Jones -0.6% [12580]
S&P 500 -0.7% [1438]
S&P MidCap +0.3%
Russell 2000 -0.3%
Nasdaq -0.7% [2459]
Returns for the period 1/1/07-2/9/07
Dow Jones +0.9%
S&P 500 +1.4%
S&P MidCap +5.1%
Russell 2000 +2.5%
Nasdaq +1.8%
Bulls 52.2
Bears 22.2 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
And Happy Birthday to my brother Harry, who also earned his
black belt this week! So no messin’ with the cartoonist.
Brian Trumbore
