[Posted 7:00 AM ET]
Wall Street
Stocks fell back to earth, after the Dow Jones and S&P 500
both hit all-time highs last Friday, while bond yields threatened
to shoot into the stratosphere.
It was all about the 10-year Treasury as it rocketed through 5%
and finished the week at 5.11%, the highest level in about a year.
In a speech, Federal Reserve Chairman Ben Bernanke reiterated
comments from the Fed’s minutes of its May 9 meeting,
admitting that housing will be a “drag on economic growth for
somewhat longer than previously expected,” while inflation was
“somewhat elevated.” Overall, though, Bernanke is optimistic
the economy will pick itself up off the floor after a lousy first
quarter and those looking for a rate cut will be deeply
disappointed.
Last week we talked about how the second quarter could be solid
for the simple reason that store shelves needed to be replenished
after inventories were run down in the first. Certainly we’ve
seen a rebound in recent manufacturing data. The consensus
among economists is that growth in the second quarter will be
2.6% after just a 0.6% rise in the Jan.-Mar. period. On Friday,
Morgan Stanley took it a step further and said growth would
accelerate to 4.1%. In either case, if this kind of growth were to
carry through into the second half of the year, there is obviously
no way the Fed is lowering rates. But, again, if they were to
raise instead, as I have consistently said all year, it would be the
death-knell for the U.S. economy. As it is, the bond market is
already doing the Fed’s work in taking rates higher without
Bernanke’s crew having to worry about acting itself and this
alone can help dampen inflation.
Globally, rates continue higher across the board with the
European Central Bank hiking its key lending rate to 4% this
week, the highest since Aug. 2001, while New Zealand captured
some attention when its banking officials raised their benchmark
rate to 8%, second highest in the developed world next to
Iceland. Where this comes into play is in perpetuating the yen
carry trade; borrowing yen at 0.5% and buying 8% Kiwi paper,
for example.
But what do I think is really going to happen? With the action in
the bond pits this week, we are one step closer to flipping…
rolling over. Maybe the inventory rebound leads to a solid
current quarter, but the developing headwinds are too strong to
ignore.
For starters, real estate. I love the comment of Richmond Fed
President Jeffrey Lacker, who reiterated his view that the
economy will rebound as housing recovers.
“The housing market is likely to find a bottom some time this
year and no longer be a drag on top-line growth.”
Were this true, though, it doesn’t mean we’re back off to the
races, as I’ve pounded home all year. Some analysts
conveniently ignore the fact that when the average American’s
#1 asset is no longer rising, an asset that was the source of cash
in the form of home equity loans and cash-outs, it doesn’t make
you want to go out and buy a new car.
And, anyway, I don’t know how Mr. Lacker et al can claim
we’re going to find a bottom just yet when housing inventories
continue to rise, long after they were to have leveled off. In most
parts of the country inventories are up 30% year over year. Even
the National Association of Realtors, the industry’s mouthpiece,
has lowered its forecast on home sales and prices for the balance
of 2007.
So housing is still a major negative. And what of the leveraged
buyout/private-equity craze? These deals are built on a
foundation of debt and with interest rates now rising rapidly,
some of the riskier deals are in danger of falling through the
floor, let alone those LBOs where financing hasn’t been wrapped
up as yet.
Street Bytes
–Stocks suffered their worst decline in over three months as the
Dow Jones lost 1.8% to 13424, the S&P 500 declined 1.9%, and
Nasdaq, 1.5%. Tuesday thru Thursday, the Dow fell 400 points
before recovering 150 of them on Friday. The economic news
on the week was light, but this coming one is loaded…
highlighted by figures on retail sales and inflation.
–U.S. Treasury Yields
6-mo. 4.92% 2-yr. 5.00% 10-yr. 5.11% 30-yr. 5.22%
The yield on the 10-year rose 15 basis points over the week,
though it was another 12 bps higher early Friday before bonds
rallied. PIMCO’s Bill Gross garnered some press for essentially
saying the 25-year bull run in bonds was over. But in talking of
a 6.50% peak yield on the 10-year over the next 3-5 years, that’s
hardly a vicious bear market.
One thing is for sure…unless you were dabbling in high yield
bonds or emerging market paper, and knew what you were
doing, my advice of the past few years to stay in risk-free cash
was solid. Some of my friends from the business have been
recommending floating rate instruments to their clients and those
have worked out well, too. I’ve just seen no reason not to stay
short these days, particularly with the shape of the yield curve. I
can tell you one other thing. Bill Gross wishes his portfolio was
all cash as well.
–Ford Motor received some great news this week in the form of
the latest quality ratings from J.D. Power & Associates’ annual
survey. Four Ford vehicles were “best in show,” tied with
Toyota. In the 19 total categories, 12 Ford vehicles ranked in the
top three vs. 13 for Toyota. You can be certain of one thing.
Ford’s ad agencies are working overtime with management to
figure out how best to capitalize on this.
Meanwhile, Toyota passed the one million mark in sales of its
hybrids cars, worldwide, but Honda discontinued sales of its
Accord hybrid sedan due to poor sales.
–Two well-known diabetes treatments, GlaxoSmithKline’s
Avandia, and Actos, a drug from Takeda Pharmaceuticals and Eli
Lilly, received the FDA’s harshest safety warning, the ‘black
box,’ because of their heart risks. But the FDA itself is coming
under blistering fire from Congress because it came to light the
FDA knew of the risks long ago and a supervisor, Dr. Rosemary
Johann-Liang, said she had recommended the black box warning
in March 2006, only to have superiors block it; some say because
of the cozy ties between a few FDA officials and
GlaxoSmithKline. Another doctor, John Buse of the University
of North Carolina and the incoming president of the American
Diabetes Association, said he spoke publicly back in 1999 of his
fears that Avandia might increase heart risks. “I was
characterized as a liar,” he told a congressional committee. “I
was characterized as being for sale.”
–In a bunch of self-serving garbage, OPEC’s secretary-general
said the cartel would think twice about investing more in new oil
production if western countries insisted on developing biofuels
as an alternative to the delicious and nourishing product that
OPEC has to offer. Be forewarned, OPEC says; if this attempt to
diversify continues, the price of oil will go “through the roof.”
But the fact is world production of biofuels isn’t even 2% of all
road transport fuels at this point and will take ages to get to 10%.
I also have to digress a bit and talk about the threat to tanker
traffic in the Persian Gulf should the Iranian nuclear crisis result
in military action. Just glance at my “Hott Spotts” columns of
4/19/07 and 6/7/07. This threat is way overblown. True, any
initial action could result in a large price spike, but as far as
protecting the flow of oil through the Strait of Hormuz, the
United States and its allies will do the job.
That said, the price of crude will remain high for two other
reasons; supply barely keeping up with global demand in a still
hot economic environment, and, two, the hurricane threat.
–Palm Inc. sold a 25% stake to Elevation Partners, a private
equity firm that lists Bono as a partner. One of the prime drivers
at Elevation is Roger McNamee, the only $billionaire I can
honestly say I ever drank adult beverages with. [This was 4+
years ago.] He’s a good guy and certainly one of the top thinkers
and investors out in Silicon Valley. As McNamee put it,
regarding the Palm investment, “We just think the future is
incredibly bright (for all of the players in the handheld computer
sector). Today, you can’t get your highest valued content to your
phone, other than e-mail, and we think that’s going to change.”
–Two other private-equity outfits, Silver Lake and TPG Capital,
purchased telecom-equipment maker Avaya for $8 billion.
–Yet another story on Spain’s crumbling housing sector, this one
from Bloomberg News. “The real killer of the housing market is
the immense oversupply,” said a professor at the University of
Barcelona. The same fellow says prices will drop by 20%
through 2009. Spain has been building more homes on an annual
basis than France and the U.K. combined.
–The Journal reported that IBM took advantage of a loophole in
the tax code to save an estimated $1.6 billion in taxes less than
two weeks ago. It had to do with treatment of overseas funds
and circumventing an IRS statute covering U.S. taxes on
repatriated earnings. Two days later, the IRS announced plans to
repeal it, though it appears IBM is scot-free.
–My portfolio: Back on 4/14/07, while I was in China, I wrote
the following:
“(I) saw this pond with some ducks and thought, that’s pastoral;
until I looked up on the bank and saw thousands of them. And
then another duck farm, and then another, and then another.
‘You don’t have bird flu here, do you Dora?’ ‘No, no bird flu.’
‘Pray it stays that way.’”
Alas, in that very province of Fujian, I saw that a Chinese soldier
died of bird flu; which in and of itself was a major admission on
the part of the Chinese.
Needless to say I wasn’t pleased to read this, but I’m betting it’s
an isolated case and I have no details on where the man picked it
up.
As for the biodiesel play in Fujian, I purchased a little more this
week. For those of you wondering about the decline in the share
price, I’m not concerned. I do know that in about 4-6 weeks time
they should be making an announcement on funding for the plant
expansion that is the key to the whole story. [I’m just
extrapolating from SEC filings.]
Otherwise, I’m sleeping soundly at 80% cash, 20% stocks.
Foreign Affairs
Iraq: The big news was the possible incursion by Turkish forces
into northern Iraq to root out the PKK terrorists that have been
using Kurdistan as a safe haven. But for now it hasn’t escalated.
I certainly have written my fair share on this issue over the years
and the Turkish military has lost its patience with the attacks on
its forces. It would obviously be a disaster if Turkey launched a
full-scale assault into Iraq.
Separately, British commanders will evidently hand incoming
prime minister Gordon Brown plans to withdraw the remaining
5,500 troops from Iraq by year end.
Here in the U.S., 53% don’t believe the war has contributed to
the long-term security of America, according to the latest
Washington Post / ABC News survey, with 61% saying the war
wasn’t worth fighting. But, as has been the case in all of the
polls, we’re conflicted because only 15% advocate immediate
withdrawal of U.S. forces.
Robert Kagan, a long-time supporter of the war, offered the
following in his Washington Post column.
“We didn’t intervene in Iraq primarily to save the Iraqi people.
We went in mostly for reasons of our own, to protect our
interests and our allies from the menace of a serial aggressor
whose domestic repression was of a piece with his desire for
regional domination. And now that we are in Iraq, the United
States, not just the Iraqi people, will suffer the consequences of
our failure. If Iraq implodes, if the region explodes, if al-Qaeda
gains a victory and a foothold in the Middle East and the Persian
Gulf, it will be our interests that have suffered.
“Republican leaders think they’re being clever in saying that if
there is no progress by September, or by the end of 2008, we will
have to wash our hands of the whole mess. That’s nonsense.
Defeat will be no more tolerable in January 2009 than it is now.
And it won’t matter whom we try to blame.”
Peter Rodman, former assistant secretary of defense and senior
fellow at the Brookings Institution, in an op-ed for the New York
Times.
“The new strategy of the coalition and the Iraqis, ably directed
by Gen. David Petraeus, offers the best prospect of reversing the
direction of events – provided that we show staying power.
Osama bin Laden said, a few months after 9/11, that ‘when
people see a strong horse and a weak horse, by nature they will
like the strong horse.’ The United States, in his mind, is the
weak horse. American defeat in Iraq would embolden the
extremists in the Muslim world, demoralize and perhaps
destabilize many moderate friendly governments, and accelerate
the radicalization of every conflict in the Middle East.
“Our conduct in Iraq is a crucial test of our credibility, especially
with regard to the looming threat from revolutionary Iran. Our
Arab and Israeli friends view Iraq in that wider context. They
worry about our domestic debate, which had such a devastating
impact on the outcome of the Vietnam War, and they want
reassurance.
“When government officials argued that American credibility
was at stake in Indochina, critics ridiculed the notion. But when
Saddam Hussein invaded Kuwait in 1990, he and his colleagues
invoked Vietnam as a reason not to take American warnings
seriously. The United States cannot be strong against Iran – or
anywhere – if we accept defeat in Iraq.”
Finally, Gen. Peter Pace was forced out as Chairman of the Joint
Chiefs of Staff by Defense Secretary Robert Gates, who feared a
nasty reconfirmation hearing as Pace went before Congress for a
second term. The move speaks volumes about the
administration’s conduct of the war.
Iran: The other day, Ken P. observed that his daughter’s global
test in school showed Iran already with the bomb. “It’s that kind
of resignation that leads to proliferation,” my friend offered. But
at this point, with the global community seemingly incapable of
stopping Iran’s nuclear weapons program, proliferation is where
we’re headed. And in the case of the mullahs in Tehran, the
concern has to do with the man in charge, President Mahmoud
Ahmadinejad, who this week once again spoke of Israel’s
destruction.
“With God’s help, the countdown button for the destruction of
the Zionist regime has been pushed by the hands of the children
of Lebanon and Palestine. By God’s will, we will witness the
destruction of this regime in the near future.” [Reuters]
Riad Kahwaji of Defense News.
“If U.S. forces strike Iranian nuclear facilities, Iranian officials
say Tehran will respond by triggering all-out regional war.
“ ‘Ballistic missiles would be fired in masses against targets in
Arab gulf states and Israel,’ one Foreign Ministry official said.
‘The objective would be to overwhelm U.S. missile defense
systems with dozens and maybe hundreds of missiles fired
simultaneously at specific targets.’
“Tehran’s primary targets would be U.S. military installations
and strategic targets in U.S.-allied Arabian Gulf states, including
oil depots, refineries, power plants and desalination facilities.
U.S. warships would also face waves of surface-to-surface cruise
missiles sent to overwhelm their countermeasures, said several
senior Iranian officials whose comments reflect the official line
but who could not obtain permission to speak on the record…
“ ‘The name of the game is simply to saturate strategic targets
with missile firepower in order to render the Patriots and other
defenses useless,’ said Hassan Fahs, a journalist and political
analyst based here.”
Iran expects the U.S. to strike with no warning against the
military’s command-and-control network, “and have ordered
ballistic- and cruise-missile battery crews to launch the
retaliation plan within an hour after a U.S. attack begins.”
[But we’ve heard this kind of talk before.]
Russia / G-8: As the summit for the G-8 leaders approached, the
war of words between the U.S. and Russia was heating up.
Russian President Vladimir Putin warned that he could retarget
Europe with Russia’s nukes if Washington proceeded with its
missile shield, which would, in Putin’s words, “increase the
possibility of unleashing a nuclear conflict.” Plus, Putin said he
might stop complying with past agreements to reduce
conventional forces in the European theatre.
For his part, President George W. Bush told an audience in the
Czech Republic that political reforms in Russia had been
“derailed, with troubling implications for democratic
development.”
So the two then gathered at the summit and, in an absolutely
brilliant move, Putin offered a compromise. The U.S. and Russia
could jointly operate a missile shield in the former Soviet
republic of Azerbaijan, an idea that totally blindsided Bush and
his team. I have to admit I admire the pure politics of the move,
though on Friday, Putin watered it down by carelessly offering
other locations as well.
Azerbaijan, on the Caspian Sea and next to Iran, with whom it
shares a 268-mile long border, is the perfect spot (at least for the
radar component of the missile defense system), especially if you
are targeting the threat from Iran and the Middle East. But as
Putin knows, if Bush eventually turned it down that would mean
the originally intended system for Poland and the Czech
Republic was as much to do about Russia as Iran. At least that is
what he could tell his people. Again, this is great gamesmanship.
Vladimir Putin’s pedigree as a former high-level KGB operative
came shining through this week.
So we’ll see what the White House’s response is over the coming
days and weeks. Russian opposition figure Gary Kasparov, after
meeting with Bush in Prague, said “Bush was in a state of denial,
and he repeated the same stories about [Russia’s] growing
middle class and prosperity and elections.” Kasparov called on
Bush and the G-8 leaders to confront Putin.
“We want these leaders to state the obvious: Russia and Putin
don’t belong in the G-8 because it’s not a democracy and it’s not
an industrial power.”
Well you now know the result. Kasparov himself has two
planned protests in St. Petersburg and Moscow over the coming
days as part of his The Other Russia movement ahead of the
parliamentary elections this coming December. And I just saw a
story on the wires that Putin isn’t ruling out a return to the
presidency in 2012, which is allowed under the constitution.
Back to the summit, German Chancellor Angela Merkel, as host,
was able to crow about a deal on climate change. Merkel and
British Prime Minister Tony Blair called the agreement to
“substantially” reduce greenhouse gas emissions a “huge
success,” emphasizing that President Bush and the United States
were now at the forefront of change and attempts to rework the
Kyoto Protocol in 2012.
Well, frankly, touting the goal of halving emissions by 2050 is
absurd and not worth the paper it was written on.
But, that doesn’t mean it’s not important. I would just add that
as I wrote last week in my criticism of Bush and his
environmental policy, the agreement reached this week could
have been written on a beer coaster back in 2001! The U.S.
obviously gives up nothing, thus far, but the White House proved
it can be amenable to discussions. In other words, we just
wasted six freakin’ years to gain nothing, except the enmity of
our allies. In fact, this is exactly what I wrote of in this space in
’01; we should have just played the diplomacy card back then
and moved on.
The real bottom line, though, is that the climate change / global
warming debate is no longer in the hands of governments, at
least with regards to the G-8. The free market has picked up the
ball and run with it; witness the extensive initiatives by the likes
of General Electric. Where government does play a role is in
selecting which industries get the subsidies until the particular
technology gets up to speed or reaches critical mass.
Russia, part II: A few other tidbits. I doubt the topic of Putin’s
handpicked leader for Chechnya, 30-year-old Ramzan Kadyrov,
came up at the G-8, but all manner of videos are coming out
detailing torture on the part of Kadyrov’s security forces. As I
wrote on 2/24/07 in this space, Kadyrov “is an absolutely
horrible, vile, disgusting thug that’s a walking human rights
nightmare…This, comrades, is the face of today’s Russia.”
As to the issue of the extradition of Andrei Lugovoi to stand trial
in Britain for the murder of Alexander Litvinenko, Putin said
“it’s all stupid, stupid nonsense.”
China: Defense Secretary Robert Gates struck a conciliatory tone
this week, saying the United States and China had the
opportunity to “build trust over time.” Gates has been trying to
present himself as more of a peacemaker compared to his
predecessor, Donald Rumsfeld.
Axel Berkofsky of the European Policy Centre opined in the
South China Morning Post.
“ ‘China has not started any wars lately,’ wrote Financial Times
columnist Gideon Rachman in February, pointing to Beijing’s
competitive advantage over the U.S., whose Iraq misadventure is
making sure that Washington’s international image deteriorates
on a daily basis. Not having invaded other countries is
admittedly not a bad point of departure for a nation that has made
a ‘peaceful rise,’ the ‘democratization of international relations’
and the establishment of a ‘harmonious international society,’ the
mantra of its regional, global and foreign-policy strategies.
“Back in the real world, we might not have seen all the small
print and details on China’s foreign, economic and energy-
security policy agenda, argues Hugo Restall, editor of the Far
Eastern Economic Review in the magazine’s latest edition. ‘The
West now needs to face the possibility that it has welcomed a
Trojan horse into the international community,’ he writes,
suspecting that we know relatively little about Beijing’s ‘real’
foreign-policy goals, except the obvious: ‘China is ready to re-
establish primacy in Asia.’
“Whereas the U.S. and the European Union mainly react to
international developments and a crisis these days, China’s
political leaders are planning on shaping world events in as many
areas and continents as possible. Indeed, there is a deadline for
almost everything on Beijing’s policy agenda, and the list of
long-term plans outlining policies and strategies is growing.”
One item I’m becoming obsessed with the past few weeks is
China’s maneuvering in the South Pacific and its attempts to gain
influence in that theatre, as in the story of the island of Yap that I
wrote about the other day. Any student of history understands
the dangers to U.S. interests. Japan spelled it out during World
War II.
On the environmental front, the Chinese government released its
first national strategy on climate change, but it rejects mandatory
caps on emissions, even as China in the next year or so is slated
to become the biggest emitter of greenhouse gases on the planet.
Beijing did spell out that renewable energy is to comprise 10% of
the power supply (now almost all coal) by 2010.
China is attempting to balance the reality of its huge
environmental problems with continued growth to keep the
people happy. The problem is, these two items are already
colliding and the regime has to be scared to death. This past
week there were massive protests over a proposed chemical plant
in Xiamen (in my province of Fujian) because the natives believe
it will be toxic and potentially explosive. [They are right on both
counts.] We’ve already seen other large-scale protests over
water pollution. These demonstrations are only going to increase
significantly over the coming 12-24 months and the immediate
issue is, can the government tamp them down enough at least
through the staging of the 2008 Olympics.
Taiwan: Former President Lee Teng-hui stirred up the region
when he appeared at Tokyo’s Yasukuni war shrine, Lee’s brother
having died fighting for the Japanese during World War II when
Taiwan was a Japanese colony. The controversial shrine honors
soldiers from both Korea and Taiwan that fought with Japan,
though Lee said his visit was totally personal and not meant to be
political. Beijing, however, didn’t see it that way.
More importantly for Taipei, Costa Rica broke off ties with
Taiwan and established relations with China, a big blow as
Taiwan seeks to maintain international legitimacy. It’s feared
(and expected) that Nicaragua, Panama and El Salvador could
follow, these being among the last to recognize Taipei. [China
won’t have diplomatic relations with any country that already
accepts Taiwan.]
Israel: Ralph Peters had the following thoughts on the 40-year
anniversary of the Six-Day War in an op-ed for the New York
Post.
“June 1967 announced Israel as a regional great power – less
than 20 years after the state’s desperate founding. And the Six-
Day War remains more important today for what it achieved than
for the Arab failures it left behind.
“We Americans face a fundamental problem in interpreting
Israel’s history: We imagine that every problem has a solution, if
only we can figure it out. But there are no solutions – none – to
the Middle East’s problems, short of atrocities too horrific for us
to contemplate. Israel may dream of peace, but must be content
to survive and muddle through. An erratic ebb and flow of
violence may be as good as the region gets.
“The Six-Day War didn’t create the Middle East’s problems, it
only changed the math. For Israel, it marked a coming of age.
Taken together with the Yom Kippur War six years later – two
rounds in a single fight, really – the war of June 1967 meant the
end of Israel’s basic struggle for existence and the beginning of
its ‘quality of life’ wars.
“We also forget that these two intertwined wars in 1967 and
1973 resulted in four decades of de facto peace between Israel
and the Arab states it had fought in four wars. Intifadahs make
great TV, but they can’t destroy Israel.
“In the real world, outcomes aren’t perfect. There are no wars to
end all wars. The proper question is, ‘Are you better off than
before the shooting started?’ Judged by that common-sense
standard, Israel is vastly better off than it was on the eve of the
Six-Day War. Thanks to the heroes of June 1967, Israel
survived. Miracle enough.”
In the here and now, Turkey is urging Israel to talk to Syria to at
least “test the waters,” as a senior Western diplomat told the
Jerusalem Post. What’s different here is that the Turks have real
credibility with the Israelis, having had good relations over the
years. Turkey has always been willing to act as mediator.
Washington, however, does not want the Israeli government
talking to Syrian President Bashar Assad at this time.
North Korea: Pyongyang test-fired two short-range missiles off
its coast, the second such incident in about two weeks.
Unbelievably, the $25 million in funds sitting in a Macau bank is
still frozen, according to reports. Until it’s released, North Korea
maintains it doesn’t have to follow through on the shutdown of
the Yongbyon nuclear reactor.
Saudi Arabia: Caution…it’s time to pat myself on the back. I
make some admittedly over the top comments from time to time,
only to be proven right later. Case in point, Prince Bandar bin
Sultan, the man who all the way back in Oct. 2001, I labeled
“Prince Bandar bin Dirtball.”
So what have we learned this past week? That this slimy figure,
who had the ear of American presidents of both parties for 22
years while ensconced in Washington as Saudi ambassador to
our country, was paid “$billions” in kickbacks to secure
contracts with British defense giant BAE Systems, money that
then flowed into his Washington, D.C., Riggs Bank account.
Both the BBC and The Guardian newspaper reported that Bandar
was receiving about $200 million a year from BAE for over a
decade.
You’ll recall that last December, British Prime Minister Tony
Blair abruptly cancelled an investigation by Britain’s Serious
Fraud Office into BAE’s ties to Saudi Arabia because, as Blair
reiterated at this week’s G-8 summit, it “would have involved the
most serious allegations in investigations being made into the
Saudi royal family, and my job is to give advice as to whether
that is a sensible thing in circumstances where I don’t believe the
investigation would have led anywhere except to the complete
wreckage of a vital strategic relationship for our country.”
Parliament, however, now wants the investigation reopened,
while BAE’s takeover of a U.S. defense contractor could be in
jeopardy due to the disclosures. Prince Bandar bin Dirtball
issued a statement denying the charges.
Spain: The Basque separatist group ETA formally ended its 15-
month-old ceasefire and warned Spain’s government of new
attacks “on all fronts.” ETA has killed more than 800 in four
decades of armed struggle for independence of the territory
straddling northern Spain and southern France, but most Basques
do not want to secede from Spain.
While hundreds of ETA terrorists have been arrested over the
years, including the leader on Friday, the threat is significant and
a sign that other home-grown terror groups across Europe could
be undergoing a resurgence. Both Spain and France, in
particular, are also extremely concerned about the prevalence of
North African terrorists in their midst. I’m just not real
optimistic about Europe getting through the rest of this year
unscathed.
India: Talks on the U.S.-India nuclear deal broke down without
the two sides having resolved their remaining differences, though
both remain optimistic. The key sticking points pertain to the
reprocessing of spent fuel and further nuclear weapons tests. The
Indian government has steadfastly maintained it will not accept
any restrictions that impinge on its sovereignty.
Caribbean: The four Muslim men arrested in the JFK Airport
terror plot all have ties to Islamist groups in Trinidad & Tobago
and Guyana. But some of them appear to have ties to Iran as
well, perhaps through contacts in Venezuela. A few
commentators this week thus had their “Ah ha!” moment. “Iran
has influence in our hemisphere through Venezuela!”
But you, dear readers, have been on top of this as I told you long
ago what was going on in the region.
To wit:
WIR, 10/14/06
“So I’m reading the Santiago Times and I see a note that Bolivia
is in the process of building 24 military bases, paid for by
Venezuela and Hugo Chavez, on its borders with Peru, Brazil,
Paraguay, Argentina and Chile as a way of promoting Bolivian-
style revolution. Isn’t that super? It certainly has Chile’s
attention. Now what other conclusion can you draw by this news
if you believe the theory I’ve been throwing out the past few
months? Iran could eventually have advisors at the bases.”
WIR, 1/1307
“And guess who’s coming to dinner this weekend? [To
Venezuela.] Why if it isn’t President Ahmadinejad himself. For
a while now I’ve warned you of the obvious dangers here. It’s
one thing for Iran to have terrorist bases in Iraq, Iran or Somalia.
It’s quite another to have ‘world-class terrorists’ located a few
hours flight from our shores.”
WIR 1/20/07
“(In) reading various editorials and reports on the Iran/Venezuela
relationship, including from the Wall Street Journal and New
York Times, I still can’t believe most folks don’t seem to get it.
There is zero talk of Iranian agents infiltrating not just Venezuela
but other compliant Latin American countries as well.”
Yup, the JFK plot was no surprise here.
Cuba: Fidel Castro appeared to be pretty darn healthy as he
addressed his people on television the other night. Castro said
nothing, however, about going back to work.
I’ll tell you what’s truly pitiful, though. Early this year there
were all kinds of stories Castro was near death, citing our
intelligence agencies. But I wrote on 12/30/06, and have
maintained ever since, “Castro will not die” this year. At this
point, regardless of what happens to him the balance of ’07, I’m
declaring victory over the CIA on this one.
**Finally, last week I hinted at a “Black Diamond” commentary
for this review and I need more time due to other issues of import
that came up. I promise to go into my theory in full next week,
but I’ve offered hints in the above discussions on Russia and
China in particular. It’s also about business spending and the
importance of the hot spots I continue to emphasize with each
review.
Random Musings
–The House passed another piece of legislation to allow for
federal funding of embryonic stem cell research, but the 247-176
margin is 35 short of that needed to override President Bush’s
veto.
Separately, three independent studies reported this week that
scientists have been able to produce the equivalent of embryonic
stem cells in mice using skin cells, which means that down the
road, if it can be replicated in humans, stem cells could be
produced without destroying embryos or requiring women to
donate eggs. However, we have a long ways to go…though the
research is both exciting and hopeful.
–The immigration reform bill is dead…for now…as many
Republicans in the Senate abandoned the president over the
amnesty issue.
–Peggy Noonan addressed some of the concerns of
conservatives the other day in her weekly op-ed for the Wall
Street Journal.
“One of the things I have come to think about the past few years
is that the Bushes, father and son, though different in many ways,
are great wasters of political inheritance. They throw it away as
if they’d earned it and could do with it what they liked. Bush
senior inherited a vibrant country and a party at peace with itself.
He won the leadership of a party that had finally, at great cost, by
1980, fought itself through to unity and come together on shared
principles. Mr. Bush won in 1988 by saying he would govern as
Reagan had. Yet he did not understand he’d been elected to
Reagan’s third term. He thought he’d been elected because they
liked him. And so he raised taxes, sundered a hard-won
coalition, and found himself shocked to lose the presidency, and
for eight long and consequential years. He had many virtues, but
he wasted his inheritance.
“Bush the younger came forward, presented himself as a
conservative, garnered all the frustrated hopes of his party,
turned them into victory, and not nine months later was handed a
historical trauma that left his country rallied around him, lifting
him, and his party bonded to him. He was disciplined and often
daring, but in time he sundered the party that rallied to him, and
broke his coalition into pieces. He threw away his inheritance. I
do not understand such squandering.
“Now conservatives and Republicans are going to have to win
back their party. They are going to have to break from those
who have already broken from them. This will require courage,
serious thinking and an ability to do what psychologists used to
call letting go. This will be painful, but it’s time. It’s more than
time.”
[Noonan also has the best criticism on the immigration bill.
There is no reason why it shouldn’t have been chopped up into a
number of smaller pieces of legislation that, for starters, would
have been far easier for everyone to digest. The initial bill, of
course, should have concerned security only.]
–In a Washington Post / ABC News poll, President Bush’s
approval rating is holding steady at 35%, though Congress itself
is now down to just a 39% approval mark. 73% believe the
country is on the wrong track, consistent with prior surveys.
USA Today / Gallup had a poll showing Hillary Clinton and
Barack Obama in a dead heat, nationwide, regardless of whether
Al Gore is included or not. On the Republican side, Rudy
Giuliani polls 32% in the same survey, with John McCain at 19,
Mitt Romney at 12, and Fred Thompson, 11. In Florida,
Thompson is already in second behind Giuliani.
I did not watch the last Republican debate but caught Tim
Russert’s analysis that John McCain did well. Sorry, but with
Thompson in the race, it’s over for the McCain campaign. And
let me tell you, Fred Thompson is no Ronald Reagan.
–Speaking of Reagan, I picked up a copy of “The Reagan
Diaries” and will begin perusing it shortly. Editor Douglas
Brinkley is receiving universal praise for his treatment of this
treasure trove.
For now, in reading a review of the book by Craig Shirley in The
Weekly Standard, I just have to pass along the following.
“Jimmy Carter is another personage Reagan could not warm to.
Reagan had presented the Congressional Gold Medal
posthumously to Robert F. Kennedy, and the entire Kennedy
family returned to the White House for the ceremony. But the
medal had been struck in 1978, and Reagan shook his head and
wondered why President Carter had not awarded the medal
himself: ‘It was voted by Cong. in 1978 and the former Pres.
never presented it.’ Carter also failed to give a posthumous
Congressional Gold Medal to Hubert Humphrey, but Reagan
presented it to Humphrey’s family: ‘I don’t know what was with
Pres. Carter – this Medal was voted by Congress in 1979.’”
And this one:
“There is a touching entry about a woman in Indiana who was
having hard times. Tenderly, he wrote her a check for $100 to
help her along, but a banker didn’t cash the check, telling the
woman’s son it was not intended to be cashed and she wanted to
keep it as a souvenir: ‘I phoned Mrs. Gardner and told her to
cash it and I’d send the cancelled check back’ for her to have as a
keepsake. The call with the struggling woman put ‘a lump in my
throat…She sounded like the nicest kind of person.’ He read a
story one morning about an unemployed young black man – ‘Mr.
Andrews’ – in New York, who risked his life saving a 75-year-
old blind man who had fallen onto the subway tracks. Reagan
called the man to congratulate him, and found out that he was
being considered for a job. Reagan called the company manager
to put in a plug: ‘Andrews has a job.’”
–In his Washington Post column, Robert Novak sums up the
problem Democrats have with John Edwards.
“Once their great hope for the future, Edwards now is massively
unpopular among party regulars, who neither like nor trust him.”
–Louisiana Democratic Congressman William Jefferson was
handed a 16-count indictment for massive corruption, what the
Washington Post editorialized as being “staggering in scope and
audacity.” Over the years, Jefferson is alleged to have accepted
$500,000 in bribes. Of course the idiots in his New Orleans
district re-elected him in 2006 despite knowing all this.
–Scooter Libby’s 30-month sentence is beyond absurd.
Assuming he can drag his appeal out for a month or two before
having to go to prison, I suspect President Bush will choose a
summer Friday to announce the pardon.
–It’s all about water. Friday’s USA Today had the headline “A
Drought For The Ages,” addressing issues such as the driest
June-to-May period since 1924 for California and Nevada. In
Los Angeles this week, the city instituted its first water use
recommendations since 1991, though rationing is not in place as
yet. The forecast for the summer is poor….little rain and record-
setting temperatures.
More broadly, Charles K. passed along a piece by Leah McGrath
from SFO Magazine (Stocks, Futures and Options), from which
the following tidbits are taken.
Water demand is doubling every 20 years, more than twice the
rate of the world’s population growth.
Global excess water supplies are now falling at their fastest pace
on record.
There are 260 major river basins in the world crossing 145
national boundaries – 60 percent of the world’s population lives
within those basins. [Water wars?]
Nine countries possess 60 percent of the world’s available
freshwater (with Canada leading).
More than 40 percent of the world’s population lives under high
water stress.
Roughly 70 percent of available fresh water is used for
agricultural purposes.
The United Nations estimates more than 10 million people die a
year from drinking unsanitary water.
On this last one, it’s why I always scoff at those who want to
introduce computers to the Third World, before addressing my
own mantra.
“Clean water and good roads, first!” All other development
flows from these two.
–I took my parents to see Bill Cosby last Saturday night. It
wasn’t the kind of stage for his more controversial comments on
race, but he was good. What struck me, though, was there were
about five African-Americans in an audience of over 1,000. I
guess seeing a legend such as Cos, who rose up from the Philly
ghettos to become an icon for mainstream America, isn’t exciting
enough for this hip-hop generation.
Then on Sunday I went to see my 8th grade nephew play in a
regional music festival (good job, Doug!), and I couldn’t help but
notice the female black student who was the featured trumpet
player in the jazz band. How proud her parents must be, I
mused, but at the same time I imagined this talented young
woman gets a lot of heat from her peers. You see, these days
success in school is frowned upon in some segments of the
population. Nope, wouldn’t be cool.
–Kudos to Edinburgh University for stripping Zimbabwe’s
President Mugabe of an honorary degree it handed him in 1984.
No one can recall this ever happening in Britain and Mugabe will
actually be asked to return it….rather humiliating, I think you’d
agree.
–The Los Angeles Times had a story on how natural history
museums could be on their last legs. A nationwide survey shows
that the average annual bottom line reflects a loss of $300,000,
which directly impacts research. As reporter Mike Boehm notes:
“Research is what makes natural history museums special: the
mandate to venture into nature and bring back new finds and
fresh questions, while maintaining millions of specimens.
“Some scientists say that amid global warming and a rapid die-
off of species, these collections encompassing the world’s life
forms, living and extinct, have become especially valuable for
the clues they might hold.”
But, as one who has been to his fair share of such places all over
the world, the fact is these museums are generally boring.
–Now here’s a story, from Agence-France Presse:
“An Australian oyster farmer has hit upon a technique he
believes has created the ultimate aphrodisiac – feeding his
shellfish the anti-impotence drug Viagra. George May said the
natural qualities of the oyster, known for arousing sexual desire,
combined with the best modern pharmaceutical equivalent
should create a potentially multimillion-dollar market.”
Something tells me this could go horribly, horribly wrong.
–Ordinarily, I wouldn’t comment on Paris Hilton, but in light of
Bob Barker’s retirement from “The Price Is Right,” I can’t help
but paraphrase his famous sign-off in relation to Hilton, Lindsay
Lohan and others of their ilk.
“Help control the celebrity population. Have them spayed or
neutered.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $650
Oil, $64.62
Returns for the week 6/4-6/8
Dow Jones -1.8% [13424]
S&P 500 -1.9% [1507]
S&P MidCap -2.5%
Russell 2000 -2.1%
Nasdaq -1.5% [2573]
Returns for the period 1/1/07-6/8/07
Dow Jones +7.7%
S&P 500 +6.3%
S&P MidCap +11.8%
Russell 2000 +6.0%
Nasdaq +6.6%
Bulls 52.2
Bears 22.8 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
