[Posted 7:00 AM ET]
A Black Diamond View
Black Diamond is a term used to describe ski trails. Unless you
are an expert it’s not recommended you take them, particularly
“double black diamonds,” where the uninitiated could pull a
Sonny Bono. They’re dangerous…as is the world these days.
Today’s group of ‘hot spots’ are as numerous and serious as any
faced since the end of World War II, and with each passing
month I would argue the plight of peace-loving peoples grows
worse. It’s grim…particularly across the 30th Parallel….and this
week presented further evidence of a coming conflagration.
But before I tackle the depressing news of the week, I just have
to talk about two countries that have been on my mind a lot
recently, Russia and China; the real reason why I thought of
invoking the “black diamond” label two weeks ago.
One thing seems clear. These two are on the verge of a true axis,
one fueled by recent economic gains that in turn engender a
growing military threat. Russian President Vladimir Putin is a
big admirer of China’s success on the financial front, while
Beijing maintains its authoritarian sheen, and Putin knows that
both he and the Chinese Communists can create more than their
share of mischief to keep the world’s lone superpower, the
United States, off balance. So look for an increasing dialogue
between these two, but I’m about to tell you how it will all
unravel, to the detriment of both the United States and world
markets.
Putin’s authoritarianism, and that of his successor, possibly
Sergei Ivanov, along with any slide in oil prices (which will still
happen from time to time, oil bulls), will lead to growing unrest.
The democracy movement is not dead here, and the increasing
disparity between the classes in Russia will fuel an attempt at an
Orange Revolution, Russian-style.
At the same time, China is already facing mass protests. Each
week brings new tales, such as the case of 10,000 in Chongqing
who rioted after city inspectors beat up a pair of flower sellers,
one of whom later died. “Chongqing authorities issued a gag
order on local media after the riots last Sunday and the news was
only leaked to the Internet yesterday.” [South China Morning
Post.]
It’s about income inequality in China, just like it is in so many
other places these days; only here the people have to deal not
only with rampant corruption and having land taken away for a
pittance, but also environmental degradation on a scale never
seen in the history of mankind. China’s leadership is scared to
death of a mass movement that will eventually take shape, but
it’s been successful in tamping down the pressure thus far.
But I’ll tell you my main concern; one expressed in separate bits
over the years. It’s about the “nationalism card.” It’s about both
Russia and China, facing protests in the streets and a real threat
to each government’s survival, attempting to turn the people’s
disaffection against the United States.
You’ve seen loud hints of this strategy in Vladimir Putin’s
complaints about the missile defense shield, only you ain’t seen
nothing yet. Russia will also become an increasingly fascist
nation, as many in southern Russia already know so well.
China will turn its unrest into a movement to take Taiwan, once
and for all, and could also obviously wreak havoc with its
stupendous holdings of U.S. Treasury securities.
But aside from the national security implications, the economic
impact here in the U.S. will come from plummeting confidence
on the part of corporate executives, and that’s bad for capital
spending and employment, most directly.
So this is what’s really been on my mind recently, even as the
Middle East burns. You’ve just gotten off the gondola, you’re
admiring the gorgeous view, but you have a choice of going
down a trail that fits your skill level or throwing caution to the
wind and taking one marked by a black diamond. As Wall Street
resumed its uptrend this week, even as the global political
situation worsened considerably, I can’t help but add my voice to
the debate. Don’t get swept up in the euphoria. Understand it’s
not just about interest rates and a booming global economy.
Protect your assets. Stay off the dangerous path.
Israel’s New Neighbor
Ralph Peters / New York Post
“Wonder what Iraq would look like if we left tomorrow? Take a
look at Gaza today. Then imagine a situation a thousand times
worse.
“We need to stop making politically correct excuses. Arab
civilization is in collapse. Extremes dominate, either through
dictatorship or anarchy. Thanks to their dysfunctional values and
antique social structures, Arab states can’t govern themselves
decently.
“We gave them a chance in Iraq. Israel ‘gave back’ the Gaza
Strip to let the Palestinians build a model state. Arabs seized
those opportunities to butcher each other….
“Educated Palestinians flee, if they can. Civilians cower,
wondering where the next rocket-propelled grenade will hit.
And, amid the carnage, students risk death to take their final
exams so they can qualify to study abroad – and get out. The
indiscriminate violence is the Palestinian version of democracy:
Every citizen gets a chance to be killed….
“We’re stuck in Iraq, and it sucks. But were we to leave in haste,
far more blood than oil would flow in the Persian Gulf. The
disaster in Gaza’s just a rehearsal for the Arab-suicide drama
awaiting its opening night in Iraq.”
Barry Rubin / Wall Street Journal
“The seizure of the Gaza Strip by Hamas opens a new period in
the history of the Arab-Israeli conflict and the Middle East. A
new Islamist state is being established and it doesn’t bode well
for the West or regional stability.
“And yet we can hope that something will be learned from this
experience. Israel’s left-leaning Ha-aretz expresses the lesson
with what some would call British understatement: ‘Anyone in
Israel still contemplating the question of a Palestinian partner
might also need to do some rethinking. In Gaza, at least, it
seems there is nobody left for Israel to talk to….
“The radical forces have gained a major new asset that will
encourage the recruitment of new cadre. Iran, Syria and
Hizbullah will grow more confident and aggressive.
“We are now in the middle of the third great battle with
totalitarianism in living memory. As with the struggles against
fascism and communism, this conflict can only be won by a
mobilization of Western resources and resolve. What has
happened in the Gaza Strip is a lost battle in that process. There
is not room for too many more of these defeats.”
As I write, there really is little else to say about the sudden turn
of events this past week. It’s gotten so bad that even a U.S.-
sponsored plan to arm the Palestinian Authority backfired as
Hamas seized tons of weapons that were being delivered to Fatah
by Egypt and Jordan.
The immediate fear, though, aside from the impact on Israel’s
security, is that Hamas’ victory, with prodding from the likes of
Iran and Syria, encourages Palestinians in Jordan and Lebanon to
rise up.
Speaking of Lebanon, I noted with sadness the latest car
bombing that claimed ten lives in Beirut, including an anti-
Syrian member of parliament, as it occurred in a neighborhood
along the beautiful coast with which I am familiar.
I was also disheartened by some absolutely shoddy reporting by
Jay Solomon of the Wall Street Journal who wrote the following.
“The Bush administration seized on the election of Lebanese
Prime Minister Fouad Siniora (in 2005, following the
assassination of Rafik Hariri) as a symbol of what it described as
a democratization wave sweeping the Middle East. After last
summer’s war, the White House made stabilizing the Lebanese
government a cornerstone of its Middle East strategy.”
Earth to Mr. Solomon. After initially supporting the Cedar
Revolution in those first months of ’05, the administration totally
ignored Lebanon at the most critical time. Plus, it’s inaction
during last summer’s war was criminal.
And for those who saw the pictures of U.S. aircraft landing in
Beirut the other week, shipping arms to the Lebanese Army after
the battle started at the refugee camp near Tripoli, understand
this, as reported in the June 11 edition of Defense News.
“Pledges made over the past few months by Western countries to
give Lebanon weapons to replace aging tanks and artillery have
been broken or frozen awaiting political decisions, leaving the
Lebanese Armed Forces (LAF) virtually on its own in its first
direct engagement in the global war on terrorism.
“The LAF wants to improve its arsenal, not just restock its
ammunition, as it fights al-Qaeda-linked Islamic terrorists in
Palestinian refugee camps, according to military officials and
experts here.
“ ‘We are only asking for new weapons that would give us a
qualitative superiority against an enemy armed with similar or
even better weapons than what the LAF has,’ said one senior
Lebanese Army official.
“Late last year, the official said, Lebanon asked the United States
to deliver $800 million in weapons over three years, including
attack helicopters, M60 tanks, second-generation TOW missiles,
M109 self-propelled artillery, coastal patrol gunboats, some 250
modern night-vision goggles and an air-defense system.
“ ‘All that we got so far is nothing,’ the LAF official said….
“The West’s reluctance to send arms to Lebanon has encouraged
Russia, which has offered a substantial donation of weapons if
Lebanon agrees to buy some at a discount….
“ ‘The U.S. should take into consideration that the LAF is now
fighting terrorism and thus must forget about its old policies and
start supplying it with effective weapons,’ said Walid Jumblatt,
the Lebanese Druze leader.”
To date, the U.S. Air Force transport planes you’ve seen have
been carrying little more than ammunition. Germany, on the
other hand, at least supplied two patrol boats.
There is no doubt that the Lebanese government itself needs to
do more as it remains divided between the pro-Western and pro-
Syrian camps, but I don’t want to hear President Bush tell us the
United States is doing all it can to help the forces of democracy
vs. the Islamo-fascists. It’s a lie.
Iran
Defense Secretary Robert Gates added his voice to the chorus
singing of Tehran’s arms shipments to the Taliban in
Afghanistan, let alone suspected deliveries to Iraq. Newsweek
also reported of a train accident in Turkey, where it was
discovered some of the goods on board were weapons from Iran
bound for Syria, that would then be shipped to Hizbullah in
Lebanon. [There are conflicting theories on just how much
Hizbullah has rebuilt its arsenal in southern Lebanon. Israel says
they have more rockets than they did before last summer’s war,
while the general in charge of the UN force that is keeping the
peace says this is just not the case.]
On the nuclear weapons front, the head of the International
Atomic Energy Agency, Mohammed ElBaradei, reiterated that
Iran was close to reaching the capacity for enriching large-scale
levels of uranium, but then repeated his estimate Iran was still 3-
to-8 years away. Oh, were we so lucky. No one should be in the
least bit surprised to wake one morning and find Iran has tested a
device, at which point a full-scale attack on its suspected
facilities would be a certainty. Last weekend, U.S. Senator
Joseph Lieberman, in responding to the arming of insurgents in
Iraq, could just as easily have been talking about the nuclear
issue when he said, “We’ve got to be prepared to take aggressive
military action against the Iranians to stop them from killing
Americans.”
Lastly, in Iraq, the only good news was that Turkey appeared to
stand down from its threats of a full-scale invasion into
Kurdistan to root out PKK terrorists. Meanwhile, despite some
successes in Anbar province, where the United States is arming
Sunni Arabs if they’ll fight against al-Qaeda (risky, to say the
least), two U.S. generals decried the lack of progress in raising
Iraqi security forces, al-Qaeda has been destroying more bridges
and infrastructure, and the Iraqi parliament has been totally
ineffective on the law-making front.
—
Wall Street…back in rally mode
This was the week when traders were on edge about the inflation
numbers and if you exclude the things we use, food and energy,
the figures were tame. So the Street celebrated and resumed the
buying that has seen the Dow Jones tack on 1530 points, 13%, in
just the past 15 weeks (since March 16). As my grandfather used
to exclaim, “Gee willickers!” Of course my older brother and I
had no idea where this came from, but we kind of put two and
two together and figured it meant amazement. And that’s pretty
much how I feel these days in terms of the stock market. I mean,
goodness gracious!
Now I know there is some decent news out there in stock land,
such as the core inflation numbers that allow the Federal Reserve
to hold the line on interest rates, as well as earnings coming in
better than expected. And, first and foremost, 95% of us have
jobs, which means we can still buy stuff…lots of it…even if we
really can’t afford to.
That said, what’s so bad? For most Americans, not including the
folks at Blackstone Group, Goldman Sachs, or others of that ilk,
the number one asset is your home and, in just about every area
of the country these days, at best you are treading water…at
worst, the value is not only going down but your mortgage
payments could also be rising; let alone your property taxes.
The home, once a source of cold cash that was then used on all
manner of fun things and enhancements, is rapidly turning into a
staph infection. Even the mighty investment banks and mortgage
kings, from Goldman to Bear Stearns to Freddie Mac, have seen
their fixed-income departments, and/or portfolios, bleed red for
the first time in ages. And with gobs of mortgage paper out
there, and with few buyers, in many instances it’s increasingly
hard to put a value on it, let alone those dabbling with all the
derivatives attached like pins on an Olympic fan’s sweater.
Someone comes up and asks you about one.
“Hey, where did you get that?”
“Oh, that (derivative)? You know, I don’t remember!”
This week, we learned that by various measures foreclosures are
at or nearing record levels. And it bears repeating…the economy
isn’t even in recession.
But I want to finish this segment with some thoughts from my
favorite economist, Robert Samuelson, who noted the following
in his weekly op-ed for the Washington Post.
“The economic expansion, both in America and the rest of the
world, has rested on a foundation of abundant credit. Low
interest rates famously drove the housing boom. In the 1980s,
mortgage interest rates averaged 10.9 percent; after inflation, the
‘real’ rate was a hefty 7.2 percent. During the decade home
prices rose a meager 1 percent beyond overall inflation. Since
then, mortgage rates have dropped sharply. From 2000 to 2006,
they averaged 6.5 percent, and after inflation only 4.2 percent.
Lower rates meant people could afford to pay more. The result:
Existing-home prices rose 29 percent more than overall inflation
from 2000 to 2006.
“It’s not just real estate. Low interest rates have fueled the
private equity bonanza. Private equity refers to investment funds
that, borrowing massive amounts, buy all the stock of publicly
traded companies….Similarly, low rates enabled governments
and companies in developing countries to borrow huge amounts.
From 2005 to 2007, borrowing will total about $900 billion,
reckons the Institute of International Finance….
“But now rates are edging up. There are two ways that credit
tightens – that is, the price of money rises – and we’re seeing
both. The first is that government central banks, such as the
Federal Reserve in the United States, deliberately try to restrict
the amount of new credit. The second is that private investors
and lenders become more stingy and risk-averse. They demand
higher rates on bank loans, bonds and mortgages….
“As the price of money increases, borrowing and the economy
might weaken. The deep slump in housing could worsen. We
could also discover that the long period of cheap credit has left a
nasty residue.
“In this view, bad loans were made as lenders flush with cash
poured money into riskier bonds and loans for private equity
firms, hedge funds and developing countries. So defaults and
losses mount; in effect, the ‘subprime’ mortgage losses of earlier
this year are repeated on other types of credit….
“But this grim fate is hardly preordained….Aside from subprime
mortgages, delinquencies on other bonds and loans remain low.
Interest rate ‘spreads’ – the gap between rates on safe and risky
loans – also remain low.
“Government central banks are attempting to restrain economies
enough to prevent higher inflation, though not so much as to
cause a recession. It’s a delicate maneuver….The drama is
technical and mostly invisible. But the outcome will shape the
2008 economy – and help determine the next president.”
Street Bytes
–The Dow Jones rose 1.6% to close at 13639, less than 40 points
off its all-time closing high, while the S&P 500 added 1.7% to the
1532 mark, five points shy of its record. Nasdaq climbed 2.1%
to a 6+ year high, 2626.
–U.S. Treasury Yields
6-mo. 4.85% 2-yr. 5.01% 10-yr. 5.15% 30-yr. 5.26%
After opening the week with yet another bloodbath, as the 10-
year Treasury rose to 5.32%, a five-year high, before rallying
Thursday and Friday on the tame producer and consumer prices
news, net, it was still another down week in the bond pits, with
yields rising, albeit slightly. It would appear that we may have
set an intermediate ceiling at 5.30% since buyers did
aggressively move in at that level.
This is also assuming that after what is clearly an inventory-
driven, restock the shelves, rebound in the second quarter, the
economy doesn’t churn out 3%+ growth numbers in the second
half of the year. Even I, at that point, would have to be
concerned with inflation because, for starters, it would mean the
U.S. economy is using a ton of oil in a world where crude is
increasingly hard to bring up from the ground. Which leads me
to….
–Ye olde search for petroleum. I haven’t had a chance to read
BP’s annual review of the global energy picture but from the
bullet points I’ve seen, it doesn’t paint a pretty picture. Plus,
Royal Dutch Shell announced it was cutting back on its Nigerian
operations over the coming years to offset rising costs, as well as
losses caused by unending production issues related to the
insurgency in the Niger Delta. And, for its part, the International
Energy Agency stated this week that world oil demand continues
to rise at a rate exceeding the growth in supply for non-OPEC
suppliers. In other words, a good week for Peak Oil adherents.
–For the record, the core PPI was up 0.2% for May, with the
core CPI up 0.1%. The latter is up just 2.2% year over year.
–More on the real estate front. In the vital six-county Southern
California area, May home sales hit a 12-year low, though prices
were steady. However, if you took out homes valued above
$800,000, the median price was down. And in Dade County,
Fla., there is a 31-month supply of existing condos on the
market. That’s 3-1.
–To add a little more meat to the above-referenced plight of the
fixed-income departments on Wall Street, Goldman Sachs’ bond-
related revenues were down 24% in their last reporting period
while Bear Stearns’ declined 21%. BSC also has a large hedge
fund that is off 23% year to date thru April.
–Japan’s first quarter GDP was revised upwards to a 3.3%
annualized rate, though the Bank of Japan opted to hold the line
on interest rates at least for another month.
–In a big move on the food front, Kellogg Co., the world’s
largest cereal maker, said it would raise the nutritional value of
its product and stop marketing to kids. Kellogg was facing a
lawsuit by parents and nutrition advocacy groups worried about
child obesity.
–China’s government announced a moratorium on the
production of ethanol from corn and other food crops due to the
fact it is driving up the costs of corn and grain, with food prices
up 8%. Needless to say, I saw this headline and almost had a
heart attack, with my own investment in the biofuel sector there,
but I’m not impacted. Plus, those already manufacturing corn-
based ethanol have been grandfathered. [My biodiesel plant uses
mostly vegetable and plant oils.]
–Inflation Watch, part deux: The newsstand price of the Wall
Street Journal is going from $1.00 to $1.50, due in no small part
to the fact its advertising revenue is dropping precipitously.
Thursday’s edition, for example, was as thin as a two-ply sheet
of toilet paper. The New York Times announced that its own ad
sales have dropped 8%.
–According to a survey of 50 cities by MasterCard, Moscow is
the worst place to do business in terms of its economic stability,
legal and political environment. London was first, with New
York and Tokyo next. Stockholm, Copenhagen and Singapore
were also rated highly.
–Yahoo CEO Terry Semel received total cash and prizes of
$71.7 million in 2006, the highest paid CEO among 386
companies of the S&P 500 covered in an AP analysis, yet for
four years under his guidance the share price has gone nowhere.
So Semel faced a shareholder revolt at the annual meeting, but he
and the board of directors garnered enough votes to stay in
control. The 66% approval, however, is very low as these things
go. In the period Yahoo has been flat, rival Google shares have
risen six-fold since its IPO in August 2004.
–The same above AP survey revealed that CEOs made 179 times
the pay of the average worker in 2006, double the 90 to 1 ratio of
1994. The median compensation rose 23.8% just last year.
And on a related topic, a Bloomberg / Los Angeles Times poll
shows that six in 10 say CEOs are “not too ethical” or “not
ethical at all,” versus 33% who call them “mostly ethical.”
So knowing all this, it shouldn’t be surprising that the coming
Blackstone Group IPO is raising a few eyebrows as CEO
Stephen Schwarzman stands to take home $677 million, while
retaining a 23% stake worth more than $7.5 billion. Last year,
Schwarzman left the office with bags of cash totaling $449
million. I commented recently [3/24/07] that he is bound and
determined to be the wealthiest man in the world and he’s
certainly on his way to accomplishing this.
But I loved this passage by Journal reporters Henny Sender and
Monica Langley from a story on Schwarzman this past
Wednesday.
“Mr. Schwarzman is exacting in his personal life too. Once,
while sunning by the pool at his 11,000-square-foot home in
Palm Beach, Fla., he complained to Jean-Pierre Zeugin, his
executive chef and estate manager, that an employee wasn’t
wearing the proper black shoes with his uniform, according to
Mr. Zeugin, who says he has great admiration for his boss. Mr.
Schwarzman explains that he found the squeak of the rubber
soles distracting.
“He expects lunches consisting of cold soup, a cold entrée such
as lobster salad or fresh grilled tuna on salad, followed by
dessert, Mr. Zeugin says. He eats the three-course meal within
15 minutes, the chef says. Mr. Zeugin adds he often spends
$3,000 for a weekend of food for Mr. Schwarzman and his wife,
including stone crabs that cost $400, or $40 per claw.”
What a guy, eh?
[I do not expect a proposed bill in the U.S. Congress on levying
higher taxes on private equity groups and their executives to
torpedo the Blackstone offering. It won’t pass.]
–Former Federal Reserve Chairman Alan Greenspan is garnering
quite a bit of publicity for his views the past few months, but
you’ve probably noticed I haven’t mentioned him much in this
space. That’s because in all honesty I feel the man is totally
irrelevant and if you believe he is truly moving the markets, then
you probably think Stephen Schwarzman would share his crab
claws with you. For the financial press, however, it’s far too
easy to report that Greenspan still has influence.
–I noted with interest Steve Wynn’s announcement that he was
delaying a planned expansion of his Macau casino, citing both
new visa requirements from the mainland (Guangdong province,
specifically, where many of the gamblers come from) and an
unprecedented increase in capacity. I wrote in one of my reports
on the place, from my trip there two months ago, that “Macau
has the look and feel of one of America’s mining boom towns of
days gone by. It’s going to continue for a while, but major
competition looms in the form of Singapore, Japan (which is
changing its restrictive gambling laws) and Vietnam, for
starters.” [“Wall Street History,” 4/20/07.] I also wrote how
unimpressed I was with the place in my second visit there in
three years. Wynn is smart to hold off. Macau has another year
or two…and then comes the fall.
–Casino revenues in Atlantic City are tumbling, down 5.5% in
May. There are eleven resorts there…far too many for a market
facing increasing competition from New York and Pennsylvania.
I haven’t been to A.C. in about eight years, but my friends tell
me it’s still a dump.
–Australians are buying hybrid cars in record numbers,
according to the Sydney Morning Herald.
–PIMCO’s Bill Gross made a ten-bagger, minimum, on his
stamp collection, selling a large number of them for $9.1 million
at auction. Gross then donated the proceeds to Doctors Without
Borders, the charity’s largest gift from the United States in its
history. [Now as for the performance of his core bond fund…]
–More gossip on the recent dismissal of WellPoint’s CFO,
David Colby. What a creep…as I correctly suspected two weeks
ago. He was having affairs with a number of women, which he
managed to keep secret for quite a while, including two sisters
who worked for him…with neither knowing about the other’s
relationship with Colby!
–Next week…China and the growing possibilities of a trade war.
Foreign Affairs
North Korea: The $25 million in disputed funds has finally been
transferred from a Macau bank to Pyongyang, thus removing,
one hopes, the roadblock for the North’s dismantling of its
nuclear weapons facility at Yongbyon. For over four months, the
Commies have used the $25 million as an excuse. Don’t be
surprised if they come up with a new one, and new demands.
[Then again, I just saw a story that the money hasn’t been
transferred, despite reports to the contrary.]
But of more immediate concern should be the health of Kim Jong
Il. It is said he underwent heart surgery and some reports say he
is not mobile (others say he is).
So who is in charge…let alone of the nukes? That’s always been
my chief concern. We know zero, zippo, nada about the men
standing behind Lil’ Kim. Is there a reformer in the group? Or,
are they nothing more than a bunch of narco-WMD traffickers
far worse than Kim?
Russia: Defense Secretary Robert Gates said the United States
will not change its plans to deploy parts of a missile defense
system in Poland and the Czech Republic, though Gates didn’t
rule out having a radar site in Azerbaijan, as proposed by
Russian President Vladimir Putin, as a complimentary facility.
First Deputy Prime Minister Sergei Ivanov stated in an interview
this week that Russia will target any sites in Poland and the
Czech Republic.
“Of course. A new element appears, breaching strategic
stability, and any military, any general staff will plan action
aimed at neutralizing this….In the event of the appearance of an
anti-missile system, which in our understanding is aimed against
Russia and not against a mythical Iranian and North Korean
threat which doesn’t exist today, of course we must somehow
react to this and take measures.” [Bloomberg News]
But as I’ve been warning, there is a bigger immediate issue in
terms of Russian/U.S./NATO relations, that being Kosovo.
During his successful visit to Albania, President Bush said “At
some point, sooner rather than later, you’ve got to say, ‘Enough
is enough – Kosovo is independent.’”
But Serbian Prime Minister Kostunica said he was “disgusted”
with Bush’s call for Kosovar independence. “The United States
has a right to support certain states and nations in accordance
with its interests, but definitely not by giving away as a gift
something which does not belong to it.”
So it’s the U.S. and NATO supporting the ethnic-Albanian
majority vs. Russia’s Slav friend Serbia. Of course the air war
on Serbia in 1999 was over just this issue, and since then Kosovo
has been UN-run. Russia has vowed to veto a Security Council
resolution paving the way for independence. Sergei Ivanov said
“If we agree to the uniqueness of Kosovo, we are truly opening a
Pandora’s Box” throughout the rest of Europe; meaning
Abkhazia, South Ossetia, and the Basque region, for example.
This will all come to a head shortly.
China: A story in the International Herald Tribune by David
Lague discussed China’s strategy with regards to Taiwan and a
potential defense of the island by the U.S.
“The (Pentagon’s recent annual assessment) suggested that
Chinese forces could be tied up for years fighting an insurgency
on Taiwan while China faced a range of economic and political
repercussions including a possible boycott of the 2008
Olympics.”
This is absurd (the Pentagon’s conclusion, that is, not Mr.
Lague’s). All Beijing has to do is launch a hundred or so of its
missiles sitting across the strait from Taiwan, disable three key
air bases, and sue for peace. Knowing the U.S. will not go to
war with China in this instance, it would be over in a matter of
days.
Egypt: Parliamentary elections here went very badly, as the
opposition Muslim Brotherhood claims 75 of its members were
arrested after government agents beat them up inside polling
stations. In certain districts where the Brotherhood is strong, the
government has both stuffed the ballot boxes and turned away
supporters. Some independent international observers said they
were denied access to sites in question. Of course President
Hosni Mubarak would tell you that the elections were free and
fair…but if they weren’t, he’d add the Islamist Brotherhood
represents a threat to stability anyway so he’s doing what’s
right.
Saudi Arabia: Following the explosive allegations that Prince
Bandar bin Sultan received bribes totaling $2 billion from British
defense contractor BAE Systems for helping to broker the
world’s largest arms deal, both Bandar and BAE denied the
claims. The shifty prince said the charges “are not only untrue
but are grotesque in their absurdity.” Bandar then said he would
have no further comment. U.S. investigators have long known
that former ambassador Bandar was receiving at least $3 million
per quarter into his Riggs Bank account in Washington, D.C.,
from an account at Lloyd’s of London, but it wasn’t known who
owned the Lloyd’s account. [I think even Inspector Clouseau
could crack this one, quite frankly.]
Australia: Finally, some rain…lots of it…as parts of the country
received more from a single storm than they have in 30 years.
But I was glancing at the weather radar there from time to time
and I kept thinking, gee, it’s really only hitting the eastern coast,
and sure enough, there was little, if any, relief for the nation’s
prime farming regions. However, there is hope Australia could
be in line for its first La Nina event since 1998, which normally
spells significant rains over the coming months.
Chile/Argentina: I thought this was interesting. Douglas
Tompkins, founder of North Face and Esprit, has been buying up
huge swaths of land in southern Chile and western Argentina in
his singular attempt to save the planet. He has acquired over the
past few years a 35-mile-wide strip of Chile from a coastal bay to
the Andean mountain border with Argentina, as well as a half
million acres of an Argentine marshland teeming with wildlife.
In total, he owns well over one million acres in the two countries;
all, he says, to be dedicated to preserving the environment in
these locales. Others, such as Sly Stallone and Ted Turner, have
been buying up huge tracts in Patagonia. But now many in both
countries are concerned that Tompkins and the rest represent a
threat to their sovereignty.
Random Musings
–Owen and Bing West (the former is a Marine officer who has
served in Iraq, the latter a former assistant secretary of defense),
in an op-ed for the New York Times, had the following point
concerning the “consistent release of captured insurgents” in Iraq
and the lack of useful technology and biometrics in tracking the
evil ones.
“(According) to Pentagon records, more than 85 percent of the
suspected Sunni insurgents and Shiite militiamen detained are
soon set free. The troops call it ‘catch and release.’ The
American and Iraqi jails now hold about 40,000 prisoners – by
some estimates just half the number Saddam Hussein released
from prison in the mass exodus of 2002. Texas, with a smaller
population, has more than 170,000 in jail….
“The scale of imprisonment must be doubled or tripled if we are
serious about prevailing. There is no deterrence in Iraq today
because most captured insurgents are released. We will never
defeat an insurgency we allow to regenerate.”
–Some telling polls this week. From NBC News / Wall Street
Journal, only 19% believe the nation is on the right track, 68%
on the wrong one. President Bush’s overall approval rating is
down to 29%, an all-time low for his presidency, and but 62%
among Republicans. [I would not be in the 62% category
myself.] But Congress only has a 23% approval rating; truly
pitiful and a direct reflection on the Democrat’s own dreadful
leadership. However, by a 52-31 margin, Americans want a
Democrat to win the presidency in ’08.
The same NBC / WSJ survey has Hillary with 39% of the
Democratic Party faithful, Barack Obama at 25% and John
Edwards with 15%. [A Bloomberg / L.A. Times poll puts
Hillary at 33% and Obama at 22%.] Hillary’s big problem,
though, continues to be her incredibly high negatives, as a Gallup
survey showed a full 50% with a poor opinion of her. Tough to
win a nationwide race with those numbers, and reflected in the
Bloomberg / L.A. Times data by the fact she loses to the top
three Republican candidates (ex-Thompson), head-to-head, while
Obama beats them all.
On the Republican side, the NBC nationwide poll has Rudy
Giuliani at 29%, Fred Thompson 20%, Mitt Romney 14% and
John McCain 14%.
–Columnist George Will, in his Newsweek op-ed, didn’t have
too many kind words for Thompson. In part:
“Because this campaign started so early, it may be shrewd for
Thompson to bide his time until his rivals seem stale, and then
stride onstage. But once there, the latecomer should have some
distinctive ideas he thinks will elevate the debate. In a recent
speech, Thompson expressed a truly distinctive idea about
immigration. Referring to the 1986 amnesty measure that
Reagan signed into law, he said: ‘Twelve million illegal
immigrants later, we are now living in a nation that is beset by
people who are suicidal maniacs and want to kill countless
innocent men, women and children around the world.’
“Kids, do not try to deconstruct that thought at home; this is a
task for professionals. Thompson seemed to be saying that the
suicidal maniacs besetting us are among us – are among the 12
million. And that although the maniacs are here, they want to
kill innocents elsewhere (‘around the world’), too.
“Well, Reagan, too, had his rhetorical pratfalls, and Thompson, a
former prosecutor, must know how to sift evidence and
formulate arguments. But as Thompson ambles toward running,
he is burdened by a reputation for a less-than-strenuous approach
to public life, and that opaque thought he voiced about
immigration looks suspiciously symptomatic of a mind
undisciplined by steady engagement with complexities. If so, a
sound you may soon hear from the Thompson campaign may be
the soft ‘pop’ of a bursting bubble.”
–Backers of the immigration bill are attempting to keep it alive
and there is some hope it will yet be worked out. Opponents
want guaranteed funding for security measures such as for
increased border patrol officers, as well as stiffer penalties for
those who stay beyond their visas.
From a Washington Post editorial on the first failed attempt to
craft legislation.
“Let’s not forget the likely political fallout of the Senate’s failure
as voters assess a Republican Party whose elected officials have
too often demonstrated hostility to Hispanics, among the fastest-
growing segments of the electorate, as well as the Democrats’
failure to parlay their control of both houses of Congress into
resolving a festering domestic problem.
“There’s plenty of blame to go around. Blame George W. Bush,
a president whose self-inflicted wounds have left him too
politically incapacitated to deliver his own party. Blame
Republicans like Jim DeMint of South Carolina, John Cornyn of
Texas and Jeff Sessions of Alabama, senators more focused on
generating sound bites and 30-second attack ads than on solving
the nation’s immigration problems. And blame Democratic
senators such as James Webb of Virginia, who ducked the hard
vote while hiding behind a phony compromise proposal that had
no chance. Although it was Republican senators who bear
primary responsibility for killing off immigration reform, all of
them conspired to reinforce and justify the public’s disdain for
politics as usual. They abdicated their responsibility to deal with
one of the nation’s knottiest problems and perpetuated a system
rife with injustice, illogic and inhumanity. Having been offered
the best chance in a generation to make fix on immigration, the
Senate blew it.”
–I really couldn’t care less what happens to Scooter Libby,
though I believe the length of his sentence is absurd. But it’s
interesting to note the opinion of conservative leader William
Kristol of The Weekly Standard on President Bush and a
potential pardon; Libby having been told on Thursday that he
must go to prison while appealing his conviction for obstructing
a CIA leak probe. [Judge Walton didn’t set a date for Libby to
turn himself in.]
“For now, Bush seems inclined to duck. Bush spokeswoman
Dana Perino, noting that an appeals process was underway (and
ignoring the indication by the judge that he might imprison
Libby despite his pending appeal), said that ‘the president has not
intervened so far in any other criminal matter and he is going to
decline to do so now.’ She also emphasized that ‘the president
said that he felt terrible for the family, especially his wife and his
kids.’
“Whatever the intention, this touch is a bit chilling. Bush doesn’t
seem to have much sympathy for Libby himself – he was just
hired help, and hired help sometimes gets thrown overboard.
Normally, though, staff who get thrown overboard simply lose
their government job. They don’t go to jail. Nor, incidentally,
has the president said that he feels terrible for what the Wall
Street Journal correctly called ‘the cowardice and incompetence
of his administration’ – an administration whose CIA leaked its
referral of the Plame matter, and whose Justice Department
panicked and appointed a special prosecutor, all of which has
finally brought us to the present pass…
“Injustices happen in politics. Sometimes presidents have to put
the general good over individual cases of justice or humanity.
But Bush can’t believe any general good is served by Scooter
Libby’s going to prison. Quite the contrary. All that stands
against a pardon – or at the very least commutation of the prison
term – is a short-sighted, selfish, and petty desire to avoid some
additional criticism. We would like to think better of George W.
Bush.”
With friends like these….
–Rabies killed 201 people in China last month, once again
heading up the list of deadly infectious diseases there.
–I read a distressing story in the Los Angeles Times concerning
Palm Springs High School where three students have committed
suicide since last November. All were popular kids and knew
each other. But I just thought I’d pass along the thoughts of a
school official, as reported by Jonathan Abrams.
“Mills said students needed to take classmates’ concerns
seriously.
“The students did not divulge their issues to their parents, but
told friends of their plans to hurt themselves.
“ ‘You can’t take that lightly,’ she said. ‘One of the problems we
have are kids who are serious about this, but their friends think
they are joking around.’”
–According to a story by Steve Jones of USA Today, sales of rap
music are suffering even more than the industry as a whole, as in
twice as much. Jones notes “there are signs that many music-
buying Americans…are tiring of rappers’ emphasis on ‘gangsta’
attitudes, explicit lyrics and tales of street life and conspicuous
consumption.”
This is the best news I saw all week, with the exception of a
massive sweep of members of two deadly gangs here in New
Jersey; the 9 Tre Gangsters of Newark and Sex Money Murder, a
Blood faction operating in Passaic and Bergen counties. I
marvel at the courage of the undercover agents working these
cases, let alone the cooperating witnesses. Aside from an untold
number of murders, the 28 operatives swept up were also
involved in arms trafficking, including the sale of Chinese-made
assault rifles; in case some of you don’t equate today’s gangs
with the true terrorists and enablers that they are.
–In America, I can’t think of too many more despicable people
these days than Durham County, N.C., district attorney Mike
Nifong, who tearfully apologized about his prosecution of the
three Duke students in a last pitiful attempt to save his skin, and
his license to practice law. He deserves to be placed in a cell
with the 9 Tre Gangsters.
–Finally, I was reading the New York Times’ annual wrap-up of
commencement speeches and liked this bit from radio and
television talk show host Tavis Smiley in his address to Rutgers
University graduates.
“The tragedy of life does not lie, young folk, in not reaching your
goal. The tragedy lies in having no goal to reach. It is not a
calamity to die with dreams unfulfilled, but it is a calamity not to
dream. It is not a disaster to not be able to capture your ideals,
but it is a disaster to have no ideals to capture. It is not a
disgrace to not be able to reach all the stars, but it is a disgrace to
have no stars to reach for.”
Amen, brother. To the recent grads out there, work hard and
respect the little people. If you see someone who doesn’t, don’t
be afraid to tell them. Unless they are carrying a Chinese-made
assault rifle.
—
Pray for the men and women of our armed forces. RIP, Ruth
Graham.
God bless America.
—
Gold closed at $658
Oil, $68.00
Returns for the week 6/11-6/15
Dow Jones +1.6% [13639]
S&P 500 +1.7% [1532]
S&P MidCap +1.4%
Russell 2000 +1.5%
Nasdaq +2.1% [2626]
Returns for the period 1/1/07-6/15/07
Dow Jones +9.4%
S&P 500 +8.1%
S&P MidCap +13.4%
Russell 2000 +7.7%
Nasdaq +8.8%
Bulls 56.7 [up from 52.2]
Bears 21.1 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Happy Father’s Day!
Brian Trumbore
