[Posted 7:00 AM ET]
The Middle East…why bother?
Iraq: Here’s where we stand today. Democrats in the Senate
failed miserably on an attempt to cut off funding come March 31,
2008, as they continue to be split between the irrational musings
of Majority Leader Harry Reid, and the rational, don’t hurt the
troops position of Sen. Carl Levin who is against any cut off at
this point.
The Republican position is that the “surge” must be given time to
succeed, certainly at least until Commanding General David
Petraeus’ report to Congress in September.
But there have to be benchmarks of some kind that the U.S.
presses the Iraqi government on, as even President Bush now
concedes, though some prominent neocons continue to have their
heads in the sand. Like one chief architect of the war, Frederick
Kagan, who offered this the other day.
“Sunnis aren’t fighting because of the (lack of a) hydrocarbon
law. They’re fighting because they still think they should be in
control of the country.”
That may be so, Mr. Kagan, but you can not have a viable, secure
Iraq without rules governing the divvying up of what amounts to
over 80% of the nation’s revenues and unless the average Iraqi
has some kind of economic stake, there will never be an Iraq
from which America can then exit with honor. That’s just a fact.
Of course for months now, all sides, including the White House,
have gotten nowhere in getting the parliament to sit down and
hash out a final oil-revenue sharing plan and the more time that
passes, the more each side wonders if it will ever get a fair shake.
What’s more, now the violence has spread to a key area that has
been relatively peaceful, Kirkuk, near the border of Kurdistan.
Lt. Col. Michael Browder, who is stationed there, told USA
Today’s Rick Jervis this week that tensions are so high in
Kirkuk, one bomb with mass casualties might be enough to
unleash another massive bloodletting. “Everybody’s right on the
envelope,” he said. Iraq’s constitution says that Kirkuk’s
residents must vote by end of 2007 on whether to join Kurdistan
or remain under Baghdad’s control, but Prime Minister al-Maliki
has refused to set a date for it, further angering the majority
Kurds there.
But back to the surge, and a potential withdrawal down the road,
Brent Scowcroft, one of the chief critics of the 2003 invasion,
told the Financial Times:
“The costs of staying are visible; the costs of getting out are
almost never discussed. If we get out before Iraq is stable, the
entire Middle East region might start to resemble Iraq today.
Getting out is not a solution.”
According to General Scowcroft, the U.S. should only leave
when the region can deal with the problem. And the key to that
was a solution to the Arab-Israeli conflict. “I don’t think
anything would release the energies of moderates in the region
than to make progress on the Palestinian issue. The general
outlines of a deal are fairly obvious. I think we need to be
relaxed about what comes out for the moment. If we could make
some real progress on the Palestinian problem we can change the
psychology.”
Hold that thought….which has to do with my title for this week’s
review up above.
Historian and neocon Victor Davis Hanson argues that should the
United States just withdraw from Iraq:
“The promotion of Middle East democracy would, of course, be
a dead letter. Instead, we would go back to past policies of
‘realist’ appeasement. Prior to 9/11, we dealt with antagonists
with missile strikes that lost no Americans and had little effect on
terrorists. Did such conduct increase the likelihood of our being
attacked at home in 2001? After pulling out of Iraq, would a
reversion to these policies ensure another 9/11?
“As America withdrew in defeat from Iraq, leaders in Pakistan,
Kuwait, Saudi Arabia, and the other Gulf sheikdoms would face
critical choices. Should they trust an untrustworthy United
States that once promised it would never abandon Iraqis and their
new democracy? Or should these leaders instead ask America to
keep at arm’s length as they make arrangements of convenience
with victorious neighboring terrorists and other enemies of the
U.S.? Our commercial, financial, and military responsibilities
well beyond the Middle East are built on a trust that, likewise,
would be irreparably harmed by our flight from the few thousand
insurgents of Iraq.” [The American, May/June 2007]
Another neocon, Max Boot, wrote a number of pieces following
his latest trip to Iraq. From a Wall Street Journal op-ed:
“If we’re going to be successful in Iraq, we’re going to have to
make a long-term commitment. That doesn’t mean 170,000 U.S.
combat troops stationed there for 10 years, but it does mean a
substantial force – tens of thousands of soldiers – will be needed
for many years to come. If we’re planning to start withdrawing
in September 2007 – or even September 2008 – we might as well
run up the white flag now and let the great Iraqi civil war unfold
in all its horror….
“It’s still possible to stave off catastrophic defeat in Iraq. But the
only way to do it is to give Gen. Petraeus and his troops more
time – at least another year – to try to change the dynamics on
the ground. The surge strategy may be a long shot but every
alternative is even worse.”
But in a column for the May 21, 2007 issue of The Weekly
Standard, Mr. Boot addresses a topic near and dear to my heart.
The generals.
“Accountability should extend far beyond information
operations, of course. There needs to be a much greater effort to
promote good commanders and weed out bad ones. Imagine
how poorly the Union would have fared in the Civil War if
Lincoln had not cashiered McClellan, Pope, Hooker, Burnside,
and numerous other ineffectual generals, while promoting
Sherman, Grant, and Sheridan. President Bush has singularly
failed to hold his commanders accountable. Lieutenant Colonel
Paul Yingling, a veteran of two combat tours in Iraq, rightly
complains in the new issue of Armed Forces Journal that, ‘As
matters stand now, a private who loses a rifle suffers far greater
consequences than a general who loses a war.’ Yingling isn’t the
only one upset by this. I’ve talked to many serving soldiers who
are still fuming over the Medals of Freedom given to General
Tommy Franks, Ambassador L. Paul Bremer III, and CIA
Director George Tenet – well-intentioned men all, but their
medals were seen as a reward for failure….
“Failed commanders ought to be fired or pushed aside, following
the example of Major General Lloyd Fredendall, who was
relieved after the debacle at Kasserine Pass in 1943 and replaced
by George S. Patton Jr. Equally important, those who prove their
mettle on the battlefield should be quickly promoted.”
But now President Bush, who says he reads history but must be
getting it from the back of a cereal box, has appointed a “war
czar,” Gen. Douglas E. Lute.
Retired Lt. Col. Ralph Peters wrote in the New York Post that
Lute was hired “after five retired four-stars turned down the job.”
Peters then writes:
“The fundamental issue is this: How much authority will the war
czar have? If the usual pattern prevails, the feudal domains on
the Potomac will nod politely when he speaks, but ignore him
when their parochial interests are threatened.
“Will he be able to order the State Department to send its
cowering personnel to fill the empty slots they’ve left in Iraq? I
guarantee you that the answer is ‘no.’
“Will he be able to command the intelligence agencies to refocus
their in-house priorities to better support our troops? Nope.
“Will he be able to shift Pentagon resources to support the wars
we face instead of the fantasy wars we’d like to fight someday?
Not a chance. The services know how to defend their toy boxes,
and the Capitol Hill porkmeisters would knock out any teeth his
office might have.
“Will he at least be able to persuade the Department of
Agriculture to send enough experts to Iraq to make a difference?
Not if the Aggies ain’t in the mood to plant date palms.
“And the elephant-with-dysentery on the White House South
Lawn is, of course, the spectacularly corrupt and incompetent
private-sector involvement in Iraq. Will the American people’s
war czar be able to force corporate carpetbaggers to fulfill the
contracts for which they’ve received billions?
“Will he have the authority to regulate and discipline the private
security firms whose thugs have done so much to undermine our
relations with the average Iraqi?
“Unless the administration just had a revelation on the road
between Baghdad and Karbala, Gen. Lute not only won’t have
any sticks to wield, he won’t have any carrots.
“In Washington, if you can’t fire people, prosecute them or take
away their money, you’re a joke.”
Iran: We’ve crossed the point of no return. According to
inspectors with the International Atomic Energy Agency, Iran
has now begun enriching uranium on a far larger scale than
before, and sooner than most experts believed possible. What
this means is that Iran appears to have mastered the technology,
and that to take massive military action, while perhaps setting
back the program, won’t end it.
Within one month, inspectors believe Iran will have 3,000
centrifuges spinning away, producing bomb grade material at a
sufficient level to have a nuclear weapon within two years. What
a great job of leadership on the part of the White House.
I do have to say one thing this week, though, about Iranian
President Mahmoud Ahmadinejad and his threat that the United
States faces “severe” reprisals if we were to attack his country.
The U.S. will be able to protect the tankers in the Gulf, of this
I’m sure. But I also haven’t seen anything the past few days on
the proposed gasoline price hike for Iranian citizens that I said
could be a major flashpoint. As for this column, we’re closer to
the meaning of the title at the very top. But first….
Israel: Arab leaders are besides themselves. ‘How the heck can
we help you, Palestinians, if you insist on killing each other?’
Aside from the fact you basically have civil war in Gaza between
Hamas and Fatah, the situation is so out of control, Hamas
mistakenly ambushed a vehicle carrying its own people, killing
five; this after executing six Fatah guards. Hamas is also hell-
bent on dragging Israel into the conflict as it fires salvo after
salvo of their rockets into Israel, begging the Israelis to retaliate.
So is there any real hope? Is Brent Scowcroft (and the likes of
Tony Blair) correct in thinking the only way to reach any kind of
peace in Iraq is by achieving a breakthrough in the Israeli-
Palestinian conflict?
Or is there another solution…simply ignore the region.
I’m giving you a homework assignment. If you haven’t already
read my “Hott Spotts” column of 5/17/07, please do so.
Dr. Edward Luttwak is senior adviser at the Center for Strategic
and International Studies and he has written what I consider to be
as important a piece on foreign affairs as any I’ve read over the
years…in the same vein as Samuel Huntington’s “The Clash of
Civilizations?” essay that he wrote for Foreign Affairs back in
1993.
When I was at Wake Forest University, Dr. Luttwak delivered a
lecture and the other day I asked him if my memory was
accurate, seeing as this was back in 1978 or 79. He was kind
enough to reply and reminded me that there was someone else
with him that day, Brent Scowcroft; a fact I had totally forgotten.
Following is just the opening and conclusion of Luttwak’s piece.
I’ve read it a few times and haven’t reached any conclusions of
my own, as yet, given the realities on the ground today, but it
certainly gives you all something to think about when you go for
a jog, or whatever you do to clear the head…before filling it back
up.
Titled: “We Devote too much attention to a mostly stagnant
Middle East”
“Why are Middle East experts so unfailingly wrong? The lesson
of history is that men never learn from history, but Middle East
experts, like the rest of us, should at least learn from their past
mistakes. Instead, they just keep repeating them. The first
mistake is ‘five minutes to midnight’ catastrophism. The late
King Hussein of Jordan was the undisputed master of this genre.
Wearing his gravest aspect, he would warn us that with patience
finally exhausted the Arab-Israeli conflict was about to explode,
that all past conflicts would be dwarfed by what was about to
happen unless, unless…And then came the remedy – usually
something rather tame when compared with the immense
catastrophe predicted, such as resuming this or that stalled
negotiation, or getting an American envoy to the scene to make
the usual promises to the Palestinians and apply the usual
preferences on Israel. We read versions of the standard King
Hussein speech in countless newspaper columns, hear identical
invocations in the grindingly repetitive radio and television
appearances of the usual Middle East experts, and are now faced
with Hussein’s son Abdullah periodically repeating his father’s
speech almost verbatim.
“What actually happens at each of these ‘moments of truth’ – and
we may be approaching another one – is nothing much; only the
same old cynical conflict which always restarts when peace is
about to break out, and always dampens down when the violence
becomes intense enough. The ease of filming and reporting out
of safe and comfortable Israeli hotels inflates the media coverage
of every minor affray. But humanitarians should note that the
dead from Jewish-Palestinian fighting since 1921 amount to
fewer than 100,000 – about as many as are killed in a season of
conflict in Darfur….
“The Middle East was once the world’s most advanced region, but
these days its biggest industries are extravagant consumption and
the venting of resentment. According to the United Nations’
2004 Arab Human Development Report, the region boasts the
second lowest adult literacy rate in the world (after sub-Saharan
Africa) at just 63 percent. Its dependence on oil means that
manufactured goods account for just 17 percent of exports,
compared to a global average of 78 percent. Moreover, despite
its oil wealth, the entire Middle East generated under 4 percent of
global GDP in 2006 – less than Germany.
“Unless compelled by immediate danger, we should therefore
focus on the old and new lands of creation in Europe and
America, in India and East Asia – places where hard-working
populations are looking ahead instead of dreaming of the past.”
Ironically, on Thursday, Jordan’s King Abdullah did just what
Luttwak wrote of in the beginning of his essay, issue another
warning that we face catastrophe, in an interview with the
London Times. According to Abdullah, the world is losing its
last hope of making peace in the Middle East.
“We have a finite amount of time. Physically there may not be a
chance for a future Palestinian state,” he said. “This is why the
urgency is now. Is the situation ideal? Far from it. But we have
our backs against the wall and I believe that time is running out.”
Should we really care?
—
Wall Street….did your company get taken out today?
Last week I mused that it would be a bad sign if there were no
announced deals on Monday. I needn’t have worried. While I
don’t consider the DaimlerChrysler – Cerberus Capital
transaction the kind I was referring to…one that excites the
senses, there were countless others, including Friday’s $6 billion
acquisition by Microsoft of online advertising firm aQuantive at
an 80% premium. If that isn’t the sign of a bubble, at least in the
mergers and acquisitions game, I don’t know what is. The online
ad game is so incredibly overrated, but if it keeps people
employed, happy and spending at the malls, that’s a good thing.
Of course I’m really just jealous that none of the companies I’ve
owned over the past ten years, at least, has ever been approached
by a suitor. Served a suit, perhaps…but no suitors.
It’s really fascinating. The U.S. economy is tepid, at best, but
with practically half of most large caps’ revenues generated
overseas, and with the rest of the world, save Zimbabwe,
cookin’, once again Wall Street’s expectations are ratcheting
higher, and all the geopolitical issues I harp on every week don’t
mean a lick.
It also doesn’t seem to matter that oil has stubbornly held the $60
level, threatening to go much higher, despite the fact we receive
a lot of crude from Nigeria and, let’s just say, this nation, loosely
defined, is a true basket case. For starters, it’s Christians vs.
Muslims…like one of those Spy vs. Spy comic strips from MAD
magazine.
But aside from the merger/buyout game, and global growth,
investors were heartened by a tame consumer price index reading
for April, up 0.2% ex-everything you and I use….and only up
2.3% year over year. Now about once a quarter, I feel obligated
to restate my position on this front.
Yes, we all know the government feeds us a bunch of garbage
when it comes to inflation. I, for one, am most upset at how
quickly the price of my beer is rising. Just like with gasoline
prices, or cigarettes, I’ve decided that when Coors Light hits $23
a six-pack, I’m quitting. [$45 for Pilsner Urquell.]
But in dealing with the markets, and the reaction in the stock and
bond pits, the only thing that matters to the Federal Reserve is
their own cooked up numbers and if the core reading for the CPI,
or any of their other favored barometers, is 2.3%, that isn’t
anything to worry about. Thus I’ve consistently maintained there
is no inflation, the Fed is not hiking this year, and that’s all you
need to know. As for your own personal situation, and figuring
out how to eat and fuel up the car, I can’t help you. I’m down to
three meals of gruel a day, myself. [In one of my better moves,
Quaker Instant Oatmeal was on sale a few months ago and I
bought a zillion boxes of the stuff. Granted, I maxed out all my
credit cards to make the purchase, but I’ll just keep rolling them
over until one of my stocks is taken out.]
Believe it or not, each week I try to avoid bringing up real estate,
but for the archives I do have to note that housing starts for April
were up 2.5%, a mild positive, but building permits (future starts)
were down 9%, the worst such figure in 17 years. The median
price across the country was also down, 1.8%, in the Jan.-Mar.
period, the third such quarterly decline in a row. And an index of
homebuilder confidence hit a new low.
But fear not, for Federal Reserve Chairman Ben Bernanke said
“the financial system will absorb the losses from the subprime
mortgage problems without serious problems.”
Of course just a little while ago he was acting as if subprime
would create zero problems, but who am I to argue with a man
whose intelligence dwarfs all mortals’?
On a different topic, junk…junk bonds, that is…I have to note
the comment of one of the great fixed income managers, Loomis
Sayles’ Dan Fuss, who is quoted in Bloomberg News thusly
when analyzing credit spreads.
“I haven’t felt this nervous about a market ever,” in looking at
high-yield, high-risk securities that are exhibiting clear signs of
being in a bubble.
Junk bond expert Martin Fridson adds “The downside is likely to
be very severe.” Thomas Lee, of private-equity fame, notes
“Defaults are almost non-existent today and we know that
doesn’t hold forever. When the economy goes bad, defaults will
spike up from 1 percent into the 9 percent level. If that happens
then the financing part grinds to a halt” for LBOs.
Barclays Capital notes that “more than half of the junk bonds
sold this year were used to pay for leveraged buyouts and
mergers and acquisitions.”
But I do just want to finish this segment on the climate change,
environmental topic. One of my two solar power holdings held a
conference call on Monday and the CEO said there is no doubt,
“Going green has now become a way of life.” From an
economic/market standpoint, it’s irreversible.
Each week you have new players climbing onboard, whether it is
from the corporate standpoint or with the views of world leaders.
The other day, new French President Nicolas Sarkozy reiterated
at his inauguration that dealing with climate change is a top
priority for him, especially in his dealings with the U.S. Michael
Bloomberg hosted a conference of mayors representing some of
the world’s largest cities. Coupled with a new effort by former
President Bill Clinton, this coalition has vowed to modernize,
and boost the energy efficiency of, aging office buildings. I’ve
written recently of how every new office building going up today
is gunning for the green label.
This is mostly all for the good, and it will not adversely impact
the economy. Just make sure, especially in the realm of solar
power, that you aren’t getting swept up in the bubble of every
Tom, Dick and Harry suddenly manufacturing panels, or you
may end up with one that acts more like a magnifying glass.
Street Bytes
–The Dow Jones and S&P 500 registered their 7th consecutive
weekly gains, though Nasdaq’s losing streak is now two. In fact
the divergence between large and small cap stocks is growing;
kind of a reversal of the action we saw in the last throes of the
1999-2000 bubble. The Dow hit its 24th record of the year on
Friday, closing at 13556, while the S&P 500 is within just five
points of its all-time mark of 1527 set back on March 24, 2000.
Mergers, buyouts, massive share buybacks, and continued
confidence in the markets by the likes of Warren Buffett and new
heavyweight Eddie Lampert all added to the frothy heads on the
beer mugs of investors from Main Street to Wall Street.
–U.S. Treasury Yields
6-mo. 4.96% 2-yr. 4.82% 10-yr. 4.80% 30-yr. 4.96%
Finally, we may have something to talk about. Bonds sunk,
yields rose, for two reasons. While the inflation news was tame,
the feeling du jour in the bond pits is that the Fed won’t be
lowering interest rates anytime soon. And there has clearly been
some selling from overseas as central banks diversify their cash
hoards. China, for one, supposedly is handing Blackstone Group
$3 billion to mess around with…but outside the U.S. We’ll see
what happens this coming week, but it’s possible we may break
out of the 4.50%-4.80% trading range we’ve had on the 10-year
since mid-October, forcing yours truly to turn up the sound on
CNBC for the bond report.
–Europe continues to outperform the U.S., with the Eurozone
reporting growth of 3.1% in the first quarter, vs. our 1.3%. How
many of you thought we’d be saying this just about one year
ago? And Japan’s first quarter GDP came in at a solid 2.4%
annualized rate…good for it.
–Repsol YPF, the Spanish-Argentine oil giant, announced it is
having major problems replacing its reserves, a not uncommon
thing for Western energy companies these days. As Keith
Johnson reported in the Journal, “Many of the best untapped oil
reserves are in politically closed or unstable nations [in Repsol’s
case, Bolivia and Venezuela], while the cost of developing new
projects is soaring amid a flurry of oil-field activity.”
–It’s really amazing to think that back in 1998, Daimler-Benz
acquired Chrysler in a “merger of equals” for $35 billion, and
now, nine years later, sold it to private-equity firm Cerberus
Capital Management for $7.4 billion. But, of this amount,
Cerberus is investing $5 billion in the new Chrysler and a little
over $1 billion in Chrysler’s financial arm, meaning
DaimlerChrysler is really only receiving about $1.5 billion, as
well as retaining a 20% stake in what will be called Chrysler
Holding LLC, though, importantly, Cerberus is now responsible
for about $18 billion in pension liabilities.
–Retail sales in China rose a stupendous 15.5% in April,
matching the pace for the first four months of the year. China’s
economic planning agency expected sales growth of 12% for all
of 2007. Meanwhile, every stock strategist on the globe says the
Shanghai market is out of control and it’s just a matter of time
before the bubble bursts.
–Barron’s Jim McTague: “Not only is Russia’s (recent) behavior
making it too risky for most investors, it’s making it undeserving
of investment.” Hear hear.
–I’ve been all over the water crisis in Australia and this week
NBC News finally caught on to it with a report from there.
Madelene Pearson also filed some of the following on Tuesday
for Bloomberg News.
“Dead trees and dry fountains are becoming features of
Australia’s urban landscape as restrictions limit the use of city
water outdoors. Reservoir levels have ebbed to as little as a fifth
of capacity in six of the country’s eight regional capitals amid a
drought that has lasted a decade in some areas….
“Relief may take at least five years, said David Jones, head of
climate analysis at the Bureau of Meteorology’s National
Climate Centre in Melbourne.
“Reservoir levels in Melbourne have fallen to 30 percent of
capacity, government figures show. They are at 19 percent in
Brisbane, less than 23 percent in Perth and 38 percent in
Sydney.”
–Kimberley A. Strassel, editorial board member for the Wall
Street Journal, on ethanol:
“Corn ethanol seemed unstoppable, but a remarkable thing
happened on the road from Des Moines. Just as the smart people
warned, the government’s decision to play energy market God
and forcibly divert huge amounts of corn stocks into ethanol has
played havoc with key sectors of the economy. Corn prices have
nearly doubled, which means livestock owners can’t afford to
feed their animals, and food and drink manufacturers are
struggling to buy corn and corn syrup. Environmentalists are
sour over new stresses on farmland; international aid groups are
moaning that the U.S. is cutting back its charitable food giving,
and many of these folks are taking out their anger on Congress.”
–Tyco International agreed to pay a record $3 billion to settle
various class-action suits related to the accounting fraud
perpetrated by former CEO Dennis Kozlowski and CFO Mark
Swartz, both now sitting in jail and bouncing a tennis ball off the
wall. The settlement proceeds go to those who bought Tyco
securities from Dec. 13, 1999 through June 7, 2002; meaning,
since no one has kept records from that far back, it all goes to the
lawyers!
–Former Fed chairman Alan “Mr. Bubble” Greenspan has signed
on with PIMCO to act as a resident scholar and advisor, even
though PIMCO leader Bill Gross has often disparaged the
“maestro” in the past. My guess is PIMCO is doing this more to
keep Greenspan from attaching his name to one of their
competitors, rather than actually wanting to listen to the guy.
–The Journal reported that at a recent San Diego auction of
foreclosed homes, the houses and condos typically sold for about
30% below the previous sale or appraisal prices. And I can’t
help but add a comment from Michael Farrell, CEO of Annaly
Capital Management, a REIT. “The country is going through a
real estate depression. It just hasn’t played out yet.” [Barron’s]
–One real estate market remains hot, thanks to Wall Street, and
that’s New York City where the median sales price of an
apartment rose 20% in the first quarter to $450,000. The average
price was actually $745,000; $1.1 million in Manhattan alone.
–Former Goldman Sachs CEO John Whitehead, now 85, blasted
his old employer for the exorbitant pay packages being thrown
around, including the $54 million that current CEO Lloyd
Blankfein pocketed for ‘06. Whitehead believes Wall Street is
about to drown in its own excess, pointing his finger particularly
at hedge funds. Of course today’s arrogant Wall Street kingpins
reply, “Oh, shut up, old man.”
–Like Dow Kim. The co-head of global markets and investment
banking at Merrill Lynch wasn’t satisfied with cash and prizes of
$37 million last year and has opted to start his own hedge fund.
–Fair Isaac, a fraud-detection specialist, conducted a study on
click fraud and concluded 10% to 15% of advertising traffic is
suspicious, or “pathological,” as they phrase it. This topic has
died down recently, for some reason, but even the 10% to 15%
estimate is no doubt far too conservative.
–Good ol’ Lucent, or rather Alcatel-Lucent. It was revealed this
week that a compact disc containing Social Security numbers and
other personal data on as many as 200,000 current and former
employees has been missing for at least two weeks. The disc
was in the hands of a third-party vendor, Hewitt Associates, and
not password protected, if you can imagine that. Seeing as I
have to dump some toxic waste there today (as part of a company
sponsored recycling program), I’ll hold off on criticizing them.
But if I were them, I’d look at the geese on their lawn as a prime
suspect….speaking of toxic waste.
–Josh P. passed along an article on the Port of San Diego, which
it turns out specializes in accepting wind turbines; very
expensive equipment requiring careful handling that evidently
San Diego specializes in. But did you know the average
longshoreman here, of which there are about 400, now earns
$100,000, not including health care and other benefits? Boy, if
you felt there was any job security whatsoever, why go to
college? Plus, now you can snap up a distressed condo in the
area for half price.
–My portfolio: This week’s piece is running long so I’m going to
hold off on commentary this time….but I promise some
extensive thoughts involving my China biodiesel position and the
solar energy sector next review. For now, I know some of you
have bought into the biodiesel story (you’re good detectives) and
recognize the earnings were released this week. Just know
nothing has changed in terms of my own holding, even though
the market reacted unenthusiastically.
–Finally, we note the passing of William Becker, co-founder of
Motel 6, who died at the age of 85. Becker and his partner Paul
Greene were Santa Barbara contractors when Becker was
inspired by a month long, cross-country car trip in the summer of
1960. “Staying in motels across the country, you paid a high
price and got poor lodging conditions,” Becker’s son recalled.
“He thought, ‘Why not build a nice motel offering clean rooms at
a budget price?’”
Becker and Greene were initially going to charge $4 a room per
night, but settled on $6, the rate that inspired the name. And
because they already had experience in building low-cost tract
homes, they used their own crews and equipment, thus saving
about 50% in initial construction costs. By 1967, Motel 6 had 31
locations in California and four other western states and boasted
an occupancy rate of 89%.
Foreign Affairs
Russia: There is no doubt relations between Russia and the West
are at their lowest level since the collapse of the Soviet Union
and this week tensions ratcheted up further. For starters, Russia
continues to beat up on little Estonia for the latter’s removal of
the Soviet war memorial. Russia has drastically cut the supply of
oil and gas to Estonia, while the Kremlin is clearly responsible
for a massive, coordinated cyber assault on Estonian government
and business Web sites; raising the question whether such a
move can be construed as an act of war. Russia also continues to
square off against Poland with the ongoing embargo of Polish
farm exports. And for some reason, the Kremlin has decided to
resurrect a dead issue, that being a money-laundering case
involving the Bank of New York. Russia is suing BoNY for
$22.5 billion, alleging collaboration in tax evasion, even though
the case was settled in U.S. courts in 2005 with the bank
agreeing to pay a $14 million fine.
Meanwhile, Secretary of State Condoleezza Rice was in
Moscow, meeting with President Putin and a number of other
officials in an attempt to soften the rhetoric of the past few
months. But on the issue of the missile shield, Rice refused to
back down. “The United States needs to be able to move
forward to use technology to defend itself and we’re going to do
that. I don’t think that anyone expects the United States to
permit somehow a veto on American security interests.”
Foreign Minister Sergei Lavrov, however, said his government
will not back down on its opposition to the shield, and,
furthermore, continues to object to the UN/U.S. proposal for
Kosovo’s independence; with Moscow preferring Kosovo remain
part of Serbia.
But perhaps the most important item on the week, especially
longer term, was the announcement that Russia will build a new
pipeline to import natural gas from Turkmenistan, via
Kazahkstan; a major slap in the face to a U.S.-backed plan that
would have bypassed Russian territory. In other words, as this
gas is largely destined for Europe, Russia has yet another tool in
the energy security battles of the future. The real bastard in this
deal is actually Kazakhstan, in the humble opinion of your
scribe. U.S. and other western companies have spent $billions
on projects here and the Russia-Turkmenistan deal couldn’t work
without Kazakh cooperation.
Kremlinologist Leon Aron had some of the following thoughts
on Russia in general, including the upcoming election process, in
an op-ed for the Wall Street Journal.
“There are no lame ducks in Putin’s Russia – only dead ones.
Thus, the appointment of the successor must be withheld for as
long as possible, to prevent those passed over from coalescing
and perhaps even reaching out to the pro-democracy opposition.
Such an alliance would be the Kremlin’s worst nightmare; a
potentially escalating popular movement for unmanaged, free
and fair elections, akin to the Ukrainian ‘Orange Revolution’ of
2004-05. The succession games may last well into this fall, and
one could do worse, investment-wise, than betting a modest
amount in rubles, steadily appreciating against the dollar, that
neither of the current front-runners, First Deputy Prime Ministers
Dmitry Medvedev and Sergei Ivanov, will get the nod.”
I disagree with Aron’s conclusion and still say it’s Ivanov,
assuming Putin doesn’t declare a “crisis” that only he can deal
with and stay in power himself. But on the energy issue, Aron
observes:
“The hydrocarbon windfall has done nothing to increase life
expectancy, which at 65 years is still below that of China or
India. Russia also is a world leader in industrial, aviation and
traffic accidents. Crime is rising; over the past six years, there
has been a 10% increase in the number of murders and a 73%
rise in drug-related crimes….
“Nor is the Russian state capable of providing broad and
effective protection in a more immediate sense. While Chechnya
is for now ‘pacified’ by the former Islamic guerillas who
switched sides, the multi-ethnic North Caucasus is virtually
ungovernable, especially its largest ‘autonomous republic,’
Dagestan. The conventional armed forces are utterly incapable
of dealing with new threats. A dysfunctional relic of the tsarist
and Soviet past, for today’s conscripts the Russian army is a
combination of a prison and torture chamber….
“The prospect of several unfolding in concert is troubling. In
combination with falling oil prices, they may cause a political
equivalent of a ‘perfect storm.’ Yet with the deliberate
weakening of the mediating institutions of democracy, the center
of political gravity in Putin’s Russia has shifted to the very top,
making the Kremlin responsible for anything that goes wrong
anywhere in the country.
“Everything that the Russian authorities do in the next 12 months
will be informed by this sense of vulnerability, and aimed at
making sure that vagaries of succession are not multiplied or
even made unmanageable by the corrupt state’s obsessive quest
for control in pursuit of an ever greater share of the country’s oil
wealth.”
North Korea: The issue of the $25 million in the Macau bank is
supposedly near a final resolution and the foreign ministry said it
would start shutting down the nuclear facility at Yongbyon per
the Feb. 13 agreement, though Pyongyang is already over a
month late on meeting the April 14 deadline for ceasing all
weapons activity there. As former U.S. ambassador to the UN
John Bolton wrote in the Journal on Friday:
“It is entirely possible…that Yongbyon is now a hulk, well past
its useful life span, and that the North agreed, in effect, to shut
down a wreck. Even if Yongbyon is not in such parlous
condition, it may be that the North has extracted all the
plutonium possible from the fuel rods it has, and that Yongbyon
therefore offers it nothing more. Here, the omissions in the Feb.
13 agreement become significant. The deal says nothing about
the plutonium, perhaps weaponized perhaps not, that North
Korea has already reprocessed.”
Of course who the heck knows? Certainly not the U.S.
intelligence community.
But on a different topic, I noted with interest the two trains that
crossed the DMZ between North and South Korea this week, the
first such effort in 56 years. I was at the border station just a
year ago, where I wrote at the time that Seoul was building a
huge resort on its side of the line. There’s nothing wrong with a
little confidence building measure.
Afghanistan: I have to admit, I’ve totally ignored all the claims
that this or that terror leader has been killed here or in Iraq, with
the exception of Zarqawi. For starters, I bet if you researched all
the initial claims made by various officials, including the U.S.,
NATO and both the Iraqi and Afghan governments, over half
would later prove to be false. It’s one of the reasons why my
motto has always been “wait 24 hours.”
Having said that, there is no doubt that the killing of Taliban
leader Mullah Dadullah is significant. Congratulations to those
responsible for sending this dirtball straight to hell.
Pakistan: It’s more than a bit unsettling what is going on here,
seeing as Pakistan has a significant cache of nukes and Islamic
Fundamentalists people the security services. This week over 40
died in the worst political violence in years as the controversy
over the suspension of Supreme Court Chief Justice Iftikhar
Chaudhry boiled over. President Pervez Musharraf accused
Chaudhry back in March of abuse of power and nepotism, but his
supporters, legions of lawyers, argue otherwise.
Colombia: Since I have long supported President Alvaro Uribe,
it’s only fair I present the other side. Former paramilitary
warlord Salvatore Mancuso accused the defense minister and
vice president of plotting with militants in the 1990s to
destabilize the government of Ernesto Samper at the time. What
makes it worse is that it also came to light that the current
government has been running an illegal wiretap operation and
Uribe forced 12 generals in the national police to resign over the
disclosure. Uribe, though, expressed confidence in the two
officials.
Zimbabwe: This is absurd. By a 26-21 vote, the UN
Commission on Sustainable Development handed the rotating
chairmanship to Zimbabwe. And in case you were thinking of
summering in Harare, inflation is now running at 3,700 percent
and some say it’s headed to 15,000. According to the London
Times, “A single brick now costs what ten years ago would have
bought a mansion in the capital’s upmarket areas. This week the
cost of postage stamps went up 600 percent.” See, Zimbabweans
should have bought that ‘forever’ stamp the U.S. post office is
now offering.
Random Musings
–I have to admit to not understanding all the details of the 380-
page immigration reform legislation that has been approved by a
key group of senators of both parties, but at first blush it appears
to be better than nothing, given the realities we are faced with
today.
The main thing is that none of the more controversial aspects,
such as the “Z-visa,” which would allow illegals to pay a $5,000
fine and place themselves on the fast track to a green card, can
go into effect until border security itself has been enhanced with
the addition of 6,000 new agents and the construction of
hundreds of miles of fence, as well as the adoption of a new
high-tech ID-card system.
But we have a long way to go before Congress agrees on a final
bill and the word you’ll hear over and over again is “amnesty.”
–I have had zero interest in the whole Paul Wolfowitz / World
Bank fiasco. I did read all sides, though, and believe his
departure is appropriate.
–The Defense Department began blocking access on its
computers to 13 social networking sites, including MySpace and
YouTube, because the rapidly increasing use of them threatens to
overwhelm the military’s private Internet network, thanks to the
fact the sites gobble up massive amounts of bandwidth. I know
there are skeptics out there, but this makes perfect sense to me.
Senior officers are also worried about disclosure of combat-
sensitive material.
–In case you’re wondering why Attorney General Alberto
Gonzales continues to remain in office, just remember that the
last thing the White House wants these days is a confirmation
fight over a new nominee with a Democratic Congress. As for
the whole Comey/Card/Gonzales/Ashcroft episode, I now have
more respect for Ashcroft than I did before, and to all the right-
wingers writing op-eds defending Gonzales’ handling of the
issue that came to the fore this week, spare us. You can’t defend
the indefensible.
–Line of the week, from Republican presidential candidate Mike
Huckabee.
“We’ve had a Congress that has spent money like John Edwards
at a beauty shop.”
But according to the latest Zogby poll of Iowa Democrats,
Edwards leads with 26% to Hillary’s 24% and Obama’s 22%.
Edwards, though, has a new issue to deal with; the disclosure he
earned $480,000 last year as a consultant to Fortress Investment
Group, a hedge fund that headquarters most of its assets in the
Cayman Islands, “one of the world’s most notorious tax
shelters,” as the Journal’s editorial board opined. After all,
wasn’t Edwards against the use of such offshore maneuverings
that seek to game the system?
Meanwhile, on the Republican side, I’m shocked that Mitt
Romney is capturing 35% of the party vote in New Hampshire,
compared to 19% for Sen. John McCain and 18% for Rudy
Giuliani, according to Zogby. And in Iowa, the three are in a
virtual dead heat.
As for New York Mayor Michael Bloomberg and his possible
third party run, a New York Daily News survey shows that Big
Apple voters prefer Bloomberg over Giuliani by a 46 to 29
margin when asked which one should occupy the White House.
But Bloomberg is unlikely to take on Rudy or Hillary, which is a
big reason why he’s going to wait until Feb. 5 and the big
primaries to see how it all shakes out.
However, Nebraska Rep. Sen. Chuck Hagel said he’d welcome
being on a ticket with Bloomberg.
“This country is in trouble. The world is in trouble. And we
need some new, fresh, independent ideas to lead this country
forward.”
Actually, Senator, the world may be in trouble, but goshdarnit,
stock prices are up all over the freakin’ place!
And then we have all this talk about Al Gore, which won’t go
away until at least Labor Day, at which point I expect him to
announce, despite all his denials, and end up on a ticket with Sen.
Obama, which I first wrote on 3/3/07 in this space….for the
record.
But I loved the musings of Bob Geldof, organizer of the Live Aid
and Live 8 concerts of 1985 and 2005, who is miffed at Gore for
the Live Earth music event slated for July 7.
“Why is (Gore) actually organizing them?” Geldof asked. “To
make us aware of the greenhouse effect? Everybody’s known
about that problem for years. We are all (expletive) conscious of
global warming. I would only organize (Live Earth) if I could go
on stage and announce concrete environmental measures from
the American presidential candidates, Congress or major
corporations,” he told a Dutch newspaper the other day. “They
haven’t got those guarantees, so it’s just an enormous pop
concert for the umpteenth time that, say, Madonna or Coldplay
get up on stage.”
You tell him, Bob!
–I watched the Republican debate the other night and am still
underwhelmed. I thought McCain, though, was much better and
his performance on “Meet the Press” was pretty good. On issues
such as the war and torture, he is sticking to his principles…
period.
–I feel for Prince Harry and can’t believe he is getting grief in
some circles in Britain for the decision by the defense ministry to
hold him out of combat in Iraq. General Sir Richard Dannett
said “The risk that he brings to his troops and his squadron is
now too great. Although those soldiers in his battle group are
prepared to share those risks, I am not prepared to export them to
their families.”
Look, this is a totally logical move, but to then blast Harry and
claim the Royal Family is receiving special treatment is a bunch
of bull. These are the same jerks who would excoriate Harry and
Co. if a bomb took out five members of his regiment for placing
them at unnecessary risk.
–Jerry Falwell, RIP. It should be noted that some of his worst
enemies have expressed sincere sentiments that despite harsh
differences of opinion, they liked the man.
–I found the report that a number of birds in the United States
are suffering disproportionately from West Nile virus to be
interesting; mainly because the blue jay is one of seven species
most impacted and when I was over at my parents the other day,
I saw more blue jays squawking in one little area than I’ve seen
collectively over the past ten years. I thought they had totally
disappeared.
But some of the percentages from the Nature article are
staggering. Around Baltimore and Washington, for example, 90
percent of the crows are gone, with 68 percent of chickadees
disappearing in Maryland. The suburbs are hit the hardest
because that is the ground preferred by mosquitoes carrying the
virus.
–Here’s a more uplifting story on the nature front. Scientists
exploring the ocean floor in the Antarctic were shocked to find
hundreds of new species in a recent survey, though most of these
are bogus because they are a fraction of an inch long. I’m sorry,
but everything a quarter inch or less should be lumped into the
plankton category. It’s not like whales, sharks and other fish are
discriminating eaters, after all. Anyway, researchers found a red
octopus with wings on its head that help it to steer; a driving aid
that Governor Corzine’s trooper could have used.
–Speaking of New Jersey, only here can a National Guard flare
start the worst forest fire in decades.
–Uh oh. I received a brochure on the upcoming season at
Carnegie Hall and you may want to circle this coming Nov. 7 on
your calendar of potential hot spots and issues. You see, that
evening there is to be a night of “Turkish and Kurdish Folk
Music.” These two hate each other, and undoubtedly blood will
be spilled in the aisles of Zankel Hall. This is not good, sports
fans.
–From BBC News: “A man in northeastern Spain has made an
unexpected discovery after buying a new home without seeing it
first. Inside he found the mummified body of the previous
owner.”
This is what happens when you’re dealing with excessive
inventory and a long selling cycle.
–We congratulate “The Simpsons” on its 400th episode. I’ve
always felt this contained the best writing on television and one
of my all-time favorites was from back in February 2000, the
death of Maude Flanders, who was eulogized as one who “didn’t
grab our attention with catch phrases.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $662
Oil, $64.94
Returns for the week 5/14-5/18
Dow Jones +1.7% [13556]
S&P 500 +1.1% [1522]
S&P MidCap +0.5%
Russell 2000 -0.7%
Nasdaq -0.2% [2558]
Returns for the period 1/1/07-5/18/07
Dow Jones +8.8%
S&P 500 +7.4%
S&P MidCap +11.7%
Russell 2000 +4.6%
Nasdaq +5.9%
Bulls 54.3
Bears 19.6 [Source: Chartcraft / Investors Intelligence]
*If you are a fan of Albert Einstein, check out Dr. Bortrum’s
review of Walter Isaacson’s best-selling book.
Have a great week. I appreciate your support.
Brian Trumbore
