[Posted 7:00 AM ET]
Wall Street…end of second quarter
I wrote the following on 12/30/06 about my outlook for 2007.
“So what of next year? Those who are trying to convince us
housing has bottomed and that it’s soon back off to the races are
nuts. There is absolutely no way housing, at least as represented
by prices, has a good 2007.
“Housing was in a bubble, period. Bubbles, witness Nasdaq in
1999/2000, don’t just pop and then return to old prices. But I’ll
grant you the housing sector could just stagnate for all of 2007,
though I believe instead we will see another leg down.
“Remember, it’s still largely about affordability and not one of
the optimist shills ever brings this up. Prices have only retreated
slightly in the bigger bubble markets and, as represented by the
huge percentage of first-time and new-home buyers who are
taking out subprime mortgages the past 12-24 months, a large
percentage of Americans are still stretching way beyond their
means. And this is with historically low interest rates and a solid
job market. I also need to add that while rates remain low, this
recent tick up in yields (to a 6.20% level for a 30-year fixed)
isn’t helping matters.
“So in our three-legged stool; housing, the consumer, and capital
(business) spending, housing remains a problem.
“And it will increasingly wear on (the consumer). This hasn’t
happened as quickly as I thought it would, nor has the market
stagnated long enough for psychology to begin to wear thin. But
at some point in 2007 reality will begin to hit Americans in the
face; their leading asset has stopped appreciating, best case. The
reverse wealth effect will then come into play.
“As for capital spending, I remain convinced this is to a large
extent hostage to the geopolitical scene because business leaders
are simply more in tune with what’s happening around them. If
Iran doesn’t pursue its weapons program, for example, and if
peace breaks out in the Middle East and oil drops below $50,
well then that’s a pretty positive scenario.
“But if as is more likely the case the Middle East flares anew, oil
heads back over $70 and the global economy shudders,
particularly in Asia, capital spending will dry up faster than you
can say ‘backdated options.’
“Bottom line, stocks will meander around the breakeven mark in
‘07, call it up or down 3% on the troika – the Dow, the S&P and
Nasdaq – when the final bell for the year rings next December.
But then all hell breaks loose in 2008.”
You know, six months into ’07 I don’t know if I’d change a word
of the above. In terms of housing prices, nationwide the median
has stagnated more than taking a header in most markets, but in
the biggest bubble ones such as in Florida and Arizona, prices
are collapsing, as any sane analysis would reveal. I keep
thinking back to my trip last fall in the Tucson area and all the
unfinished condo and housing developments I drove through,
wondering just how the developers would survive. Remember
how Will Rogers famously said, “Buy land, they aren’t making
anymore of it”? Ha!
Talk to one of America’s homebuilders these days and ask them
how they feel about all the earth they were gobbling up for what
is proving to be another unneeded project. More specifically, ask
KB Home, which just wrote down a massive amount of its land
holdings, or the biggest developer in America, Lennar. The CEO
of the former said this week “We can’t predict when conditions
will improve,” citing “tighter credit conditions” that have
“exacerbated market dynamics,” while Lennar’s CEO said “we
continue to see weak, and perhaps deteriorating market
conditions.”
The week also saw the figures on new- and existing-home sales
for the month of May and while the median price had declined
0.9 and 2.1 percent, respectively, over the past 12 months, the
more worrisome development was the continuing surge in
inventories. You don’t have to be Einstein to know that you
can’t have lasting improvement in the housing sector until you
work off much of what’s already on the market.
As for the mortgage debacle, as expressed in both the subprime
sector and the hedge fund crisis at Bear Stearns, it’s spreading,
pure and simple. Late payments and defaults on the next rung up
the ladder, “Alt-A’s,” are rising rapidly by most accounts, and on
Thursday we learned that a London fund manager, Cambridge
Place, was forced to close a $900 million listed vehicle because
of its exposure to the U.S. subprime market.
And what of the likes of Bear Stearns and its hedge fund
investors? I don’t mean to be trite, but who the heck knows what
the real story is? No one, after all, understands what the true
value is for a large segment of the mortgage paper first originated
by Wall Street as it sliced and diced mortgage pools like Ron
Popeil handling his Ginsu knife set. At the end of the process
what was left? As in Mr. Popeil’s case, by the time he was
finished slicing, you couldn’t identify it? Gee, was that a potato?
So Wall Street, in its never-ending quest to market crap to the ill-
advised and ignorant, said, “I’m recommending this security.
It’s a pool of mortgages, just like the one you have on your own
home. And you’ll earn 7%!”
“But what if some of the mortgages go into default?”
“Huh? Oh, no problem. It’s a diversified pool.”
“Oh, gee, thanks Mr. Baloney. Let’s take down a few.”
Now multiply the above by 1,000 for a hedge fund. And as
we’ve discovered recently, when the securities struggle, and the
market is illiquid, what value do you assign? The SEC is
examining Bear Stearns over just this issue and restatements for
its “High-Grade Structured Credit Strategies Enhanced
Leveraged Fund.” According to Business Week, the fund was
down 6.5% for April, but a month later was suddenly off about
19%. Or, as Josh P., who is a managing director with a rather
large financial outfit, put it, you have a situation where not only
are the hedge funds and brokerage firms attempting to assign
accurate values to its holdings, but the rating agencies “are
playing a major game of ‘CYA’ as they are forced to downgrade
a ton of the paper they once issued investment grade status to.”
In his latest missive on pimco.com, Bill Gross wrote the ratings
agencies, as represented by “Mr. Moody” and “Mr. Poor”, were
wooed by a floating brothel, “the makeup, those six-inch hooker
heels, and a ‘tramp stamp.’”
As your editor has himself opined throughout this growing crisis,
Gross added that “Escalating delinquencies of course ultimately
lead to escalating defaults….The percentage will grow and grow
like a weed in your backyard tomato patch….And the U.S.
economy? Consumption will be reduced, to say nothing of new
home construction over the next 12-18 months.”
Gross also surmises that as the scenario plays out the Federal
Reserve will be forced to take out an insurance policy in the form
of a rate cut or two. I don’t disagree with this, seeing as I wrote
in the beginning of the year that the Fed will not raise rates all of
‘07 because they know it would absolutely kill the economy. As
it is, reset time is fast approaching and we’ll see carnage on a
scale of the best of “Braveheart.” [Actually, those Capital One
commercials with the medieval characters were quite prescient;
Capital One having just announced a substantial number of
layoffs this week.]
And so it goes. The subprime disaster isn’t just important for its
impact on the housing market and those holding mortgage-
backed securities and all its derivations, but the damage spreads
to banks, who are now furiously hiking credit standards, which
impedes investment in other sectors of the economy, let alone
eventually stopping in its tracks the financing of future buyouts
and acquisitions.
Goldman Sachs CEO Lloyd Blankfein said, “We are organizing
ourselves like the market is undervaluing risk.” Blankfein
continued that he is wary of a “sentiment shift” that “could
unravel very quickly” the vast wealth that has been created by
the takeover boom. [Wall Street Journal]
He ought to know, Wall Street being where it all started. Then
again, some say it all began with the Federal Reserve and its
incredibly overrated former chairman Alan Greenspan for
holding interest rates artificially low in this country. Other
central bankers did as well, however.
But when Mr. Blankfein speaks of a “sentiment shift,” he could
just as easily be talking about one of my hot spots, or the ever-
present terror threat, such as the scare in London on Friday.
Recall just a few weeks ago [WIR 5/12/07, 5/26/07] I wrote of
how I was selling some of my equity holdings to raise cash
because I was more concerned than ever about this summer. One
attack on a major city we’ve proved we can deal with, I offered
then, but two in a fairly short period of time would create a major
problem, and yesterday we dodged at least two in London. Just
last weekend, German authorities said they were on their highest
state of alert since 9/11 as well.
So whether it’s geopolitical or financial, there is plenty to worry
about these days, and to those who might say stocks will simply
climb a wall of worry, go see Dr. Melfi. She has a free slot on
her calendar.
Street Bytes
–Stocks continued their recent pattern of one up week, one
down, with this week’s gains on the light side, just 0.4% for the
Dow Jones, 0.1% for the S&P 500 and 0.6% for Nasdaq. Forget
Apple and its iPhone, BlackBerry maker Research in Motion
rose 20% on Friday on the strength of strong earnings and a 3-
for-1 stock split.
For the second quarter, the Dow Jones rose 8.5%, the S&P 5.8%,
and Nasdaq 7.5%.
–U.S. Treasury Yields
6-mo. 4.93% 2-yr. 4.87% 10-yr. 5.03% 30-yr. 5.12%
The Federal Reserve met for the first time in seven weeks and as
expected left interest rates alone, saying the current outlook for
inflation has “improved modestly” but there was still cause for
concern. These guys are such wimps. Take a stand, for crying
out loud. Inflation, as measured by the core readings they
profess to follow, is and has been tame. If they want to turn
around and focus on what you and I have to deal with every day,
such as price hikes on beer and Chex Mix, then that’s a different
story. But I’ll say for the last time (that is for this week), that
they have to be smart enough to know they can’t possibly raise
rates because it could flip the housing market, and the rest of the
economy, into recession faster than you can say Vince
McMahon; just to throw a name out that is representative of
another industry about to take a major header…the sport of
professional wrestling. These guys beat their wives, for crying
out loud! But I digress.
For the week yields fell, particularly with the 10-year Treasury,
on tame inflation news as well as a flight to safety with rising
concerns over both the mortgage situation and the terror threat.
–Energy bits:
OPEC president Mohammad al-Hamli warned U.S. lawmakers
they were taking a “really dangerous step” in seeking legislation
to sue the cartel. The Senate recently approved a plan that would
enable the federal government to take legal action against OPEC
for price manipulation. OPEC could simply stop selling us oil
and there is no guarantee the crude shortfall could be made up
elsewhere after losing what we receive from the likes of
Venezuela, Nigeria and Saudi Arabia.
ExxonMobil said it was not concerned about its investment in
Sakhalin-1 in Russia, this after BP ceded its 50 percent stake in
another project there under pressure from the Kremlin. Gazprom
is putting the heat on as ExxonMobil makes waves about selling
gas to China.
Exxon is also involved in a dispute with Venezuela and President
Hugo Chavez, along with ConocoPhillips, with both refusing to
meet Venezuela’s deadline to reach an agreement on ceding
control of their major ventures, a sign the two companies will be
exiting Venezuela while others, such as Chevron, BP and Total
have agreed to a major reduction in their stakes. This continues a
trend where in countries like Russia and Venezuela, oil assets
will remain underdeveloped without the technology and expertise
offered by the likes of Exxon at a time when it is increasingly
difficult to find enough supply to meet demand. [See my latest
“Wall Street History” piece…a speech by Royal Dutch Shell’s
CEO.]
Back to Russia, PricewaterhouseCoopers’ Russian unit, clearly
under pressure from the Kremlin, suddenly announced “it
suspects former management of now-bankrupt oil giant Yukos
may have provided inaccurate information to its auditors and
thus Pricewaterhouse’s financial reports on the company for the
years 1994-2004 should no longer be relied upon,” as reported by
Gregory White in the Wall Street Journal.
This is an absolute disgrace. The Kremlin is pursuing yet
another case against former Yukos CEO Mikhail Khodorkovsky,
who has been in prison following a fraud and tax evasion
conviction, but Pricewaterhouse “is fighting a court battle in
Russia against tax authorities who have alleged that the auditor
knowingly aided Yukos in what authorities charge was a massive
tax-evasion scheme….A PwC official said Sunday the decision
to withdraw the Yukos audits wasn’t related to the court case
now under appeal.” Right.
Meanwhile, a congressional report blasts hedge fund Amaranth
and its former star trader Brian Hunter for its attempt to corner
the natural gas market last year; an effort resulting in a huge
price spike. Amaranth later suffered losses of $6 billion.
Democratic Senator Carl Levin said the current commodity laws
regulating such trades were “riddled with exemptions, exclusions
and limitations that make it virtually impossible for regulators to
police U.S. energy markets.”
“I don’t care whether they [Amaranth] lost all their money; they
are gamblers. We do care when they take others over the cliff
with them.”
After repeated warnings from commodities and futures
regulators, Amaranth continued to violate pre-set “position
limits” and traded on new markets that didn’t have the same
regulatory scrutiny. In other words, the whole episode was a
freakin’ mess and obviously represented a prime example of how
hedge funds can roil markets and hit the average American in the
pocketbook.
–China bytes:
Well, sports fans, I told you to stay away from fish labeled “farm
raised in China.” Now the Food and Drug Administration
blocked the sale of five such products from there, including
catfish. I’m serious when I say that I will only eat fish ordered
from sites such as conservationsalmon.com. I refuse to eat the
farm-raised variety from anywhere, including the U.S. Of course
we all have a problem when ordering from a restaurant, 90% of
which lie about the species they serve, let alone where it’s from.
Chilean Sea Bass? Try Jersey Sea Robin.
Anyway, China has a host of other problems to deal with on the
export side these days, as the government there races to correct
real issues as well as simple perceptions. Chinese-made tires are
being blamed for deaths in the U.S. [tread separation…and it’s
important to note these are replacement tires, not original
equipment], on top of previous product complaints on items such
as toothpaste, pet food, and toys. Beijing closed 180 food
factories after an inspection crackdown.
On a totally different matter, China is establishing a $200 billion
fund that will invest in assets around the world. That’s $200
billion of its $1.2 trillion in foreign exchange reserves. The first
such example of how this will work is China’s $3 billion
investment in Blackstone.
My first thought is this smacks of Japan and the late 1980s when
the government began investing in projects such as the Pebble
Beach Golf Club and U.S. office buildings, right at the top of the
cycle for these assets. In the case of China, you could build the
case that the time for diversification was at the global market
bottom, Oct. 2002, not today. Heck, they are already down on
their Blackstone investment in just one week.
So I say again, there are times when there is nothing wrong with
simple cash, whether it is a money market account, CDs, or
T’bills.
Lastly, due to soaring food prices in China, the government is
ordering minimum wages be raised to help the poor cope.
–You know who will go down as an idiot? Treasury Secretary
Henry Paulson, who recently said of the housing market, “I do
believe we are at or near the bottom.”
–Even though I’m on my condo board (I recently demoted
myself from president to treasurer in a bit of self-imposed term
limits), I couldn’t gain permission from my neighbors to knock
their homes down so I could plant some corn. It seems like
we’re the only ones in America who aren’t these days, as the
U.S. Dept. of Agriculture reported. 92.9 million acres of the
stuff, specifically, and far more than estimated just three months
ago. Of course it’s all about ethanol, baby; the world’s most
overrated fuel.
–I was watching the local New Jersey weather radar late
Thursday afternoon when word came out that all flights at
LaGuardia Airport in New York City had been grounded. There
was one little shower over Long Island at the time and a line of
storms in Eastern Pennsylvania, still 60 miles away. In other
words it was absurd, and further proof the U.S. air traffic control
system in this country is broken.
And look at Northwest Airlines. They’ve been canceling
hundreds of flights a day because they are short-staffed and can’t
find enough crews to meet demand. Plus now there’s word staff
at UAL are upset over their work conditions. And, of course,
you have Continental, my airline of choice, that had the now
infamous incident where they couldn’t fix a toilet.
–Looks like my suspicions concerning Saudi Prince Bandar were
well warranted. The U.S. Department of Justice has now
launched a formal anti-corruption investigation into British
defense contractor BAE Systems’ compliance with the laws,
“including the company’s business concerning the Kingdom of
Saudi Arabia.” The U.S. government had earlier approved
BAE’s $4 billion takeover of Armor Holdings, and it’s assumed
that acquisition will proceed.
–EnCap, a North Carolina developer, was supposed to spearhead
a $1 billion project in New Jersey’s Meadowlands for two golf
courses and a number of high-rise communities, but now it is
facing huge financial issues in its attempt to avoid default. For
starters, EnCap was responsible for cleaning up waste dumps and
the associated costs are soaring. This is emblematic of the kinds
of problems developers all over are facing, as one project suffers
because of financial difficulties elsewhere in a real estate
company’s portfolio.
–Former HealthSouth Corp. founder and CEO Richard Scrushy
was sentenced to seven years in prison for bribery, with former
Democratic Alabama Gov. Don Siegelman also sentenced to
seven years for their scheme to exchange a $500,000
contribution to a foundation established by Siegelman for a seat
on the state hospital regulatory board. Scrushy, you’ll recall, had
been acquitted of all charges in the $2.7 billion accounting fraud
at HealthSouth.
–When the Blackstone Group offering was first being discussed,
I mentioned that investors should beware they would receive a
K-1 tax form. Just a reminder to those thinking of investing in it
now that it’s trading. If you haven’t had to deal with K-1s
before, they are a royal pain in the butt because invariably they
are issued late and often you have to file for an extension on your
overall taxes.
Meanwhile, as Paul Tharp noted in the New York Post, a
research report from Renaissance Capital warns investors in
Blackstone that a global downturn could be particularly harmful
because the firm’s investments “are illiquid and difficult to value
and exit.”
–Apple Inc. is now the third-largest music retailer in the U.S.
behind Wal-Mart and Best Buy, but ahead of Amazon.com.
–As of 2003, according to the national Restaurant Association
(and the Wall Street Journal) there was one restaurant for every
664 people in the U.S. 30 years earlier there was one for very
1,029; the point being it’s increasingly difficult for chains like
Applebee’s to differentiate themselves from the competition.
–Crain’s New York Business published their annual report on
CEO pay for the New York area and at the top of the list is not
Goldman’s Blankfein, at $54.3 million for 2006, but the
incredibly overrated money manager Mario Gabelli, who raked
in $58.6 million.
–Housing Collapse, Part XLV…The late Curt Gowdy initially
listed his Palm Beach home for $27 million two years ago, but
the property was just sold for $19.5 million. Mr. Gowdy could
not be channeled for comment.
–Playboy Enterprises announced it is making a large investment
in Macau. While I’m convinced the bubble will pop here in
another year or two, Playboy will be well received. [Oh, you just
don’t know how much I want to add to this topic, but I don’t
want to lose my International Web Site Association license.]
Foreign Affairs
Iraq: By Friday morning, the death toll for this quarter was 329,
the deadliest three month period since the war began in March
2003. And in a major blow to the efforts to stabilize Anbar
province, four Sunni leaders, who had been cooperating with
U.S. forces, were killed in Baghdad where they were holding a
conference. Some U.S. generals also expressed doubts that any
territory seized in the surge against the militants can be held due
to the state of the Iraqi security forces that must then fill the
breach.
But the big story on the week concerned the comments of
Republican Senator Richard Lugar of Indiana. Like most
Americans who follow Washington, regardless of party
affiliation, I admire Lugar and when he speaks up on the foreign
policy front it’s always worth listening to. So this week he said
some of the following on the war from the Senate floor.
“In my judgment, our course in Iraq has lost contact with our
national security interests in the Middle East and beyond. Our
continuing absorption with military activities in Iraq is limiting
our diplomatic assertiveness there and elsewhere in the world.
The prospects that the ‘surge’ strategy will succeed as originally
envisioned by the president are very limited within the period
framed by our domestic political debate. And the strident,
polarized nature of that debate increases the risk that our
involvement in Iraq will end in a poorly planned withdrawal that
undercuts our interests in the Middle East….
“I believe that the costs and risks of continuing down the current
path outweigh the potential benefits that might be achieved by
doing so….I do not doubt the assessments of military
commanders that there has been progress in security. But three
factors – the political fragmentation in Iraq, the growing stress on
our military and the constraints of our domestic political process
– are converging to make it almost impossible for the United
States to engineer a stable, multi-sectarian government in Iraq in
a reasonable time.
“Few Iraqi leaders are willing to make sacrifices or expose
themselves to risks on behalf of the type of unified Iraq that the
Bush administration had envisioned. In contrast, many Iraqi
leaders are deeply invested in sectarian or tribal agendas. Even if
U.S. negotiators found a way to forge a political settlement
among selected representatives of the major factions, these
leaders have not shown the ability to control their members at the
local level….
“The president and some of his advisers may be tempted to
pursue the surge strategy to the end of his administration, but
such a course contains extreme risks for U.S. national security….
“The president and his team must come to grips with the
shortened political timeline in this country for military operations
in Iraq. A course change should happen now, while there is still
some possibility of constructing a sustainable bipartisan
strategy.”
Lugar calls for a downsizing and redeployment of troops to
defensible locations in Iraq, such as in Kurd territory, as well as
states like Kuwait; enough to enable us to “respond to terrorist
threats, protect oil flows and help deter a regional war.”
Iran: Back on 3/10/07 in this space, I warned of a coming crisis
in Iran due to the government’s imminent decision to hike the
price of gasoline and ration it.
“Look for major protests, possibly bloody ones, if the
government follows through. The U.S. can benefit; but if you
knew this wouldn’t you be talking to the opposition today, as
I’ve advocated?”
Alas, we didn’t, and yet after a lengthy delay (the rationing plan
was originally to be put in place around May 22), the
government sprung it on the people in the dead of night,
Tuesday. Immediately, there were violent protests and clashes at
filling stations which then spread to state-run banks and business
centers.
But it’s unclear just exactly what is transpiring around the
country because the mullahs have cracked down on any media
coverage. As I noted last week, however, any protests will be
“brutally repressed.”
There is a window of opportunity here, though it’s nowhere near
as big as it could have been even three months ago before the
Iranian government accelerated progress with its nuclear
program.
Iran imports 40% of its gasoline needs, despite its oil wealth,
because its refineries can’t keep up with booming demand.
Heretofore, gasoline was heavily subsidized, which only
exacerbated the problem.
But if the UN Security Council has the guts, it can target gas
imports for increased sanctions. Iran’s leadership would then be
forced to cooperate on the nuclear weapons front or face the
increasing wrath of the people.
However, as I keep noting, the clock is running and now we’ve
learned the Bushehr nuclear plant, the one Russia helped build, is
scheduled to go on line in October; this after Moscow and
Tehran evidently solved a financial dispute. That means another
potential facility for producing weapons-grade material.
Israel: Ex-prime minister Tony Blair is the new Middle East
envoy representing the quartet…the U.S., UN, EU and Russia…
at the peace table. The selection is being panned in some circles,
notably Arab and Palestinian ones, because Blair is seen as too
pro-Israel and Washington.
At the same time the West has opened up the money spigot for
Palestinian President Mahmoud Abbas in a last attempt to
support the moderate. The only problem is his Fatah party has
never been able to mend its own corrupt/terrorist ways that often
resemble those of Hamas.
Writing in the Wall Street Journal, Joshua Muravchik of the
American Enterprise Institute commented on the axis of
radicalism – Hamas, Hizbullah, Iran and Syria – and how it is
“feeling its oats” these days.
“Today, this same dynamic is creating a moment of great danger.
The radicals are becoming reckless, asserting themselves for
little reason beyond the conviction that they can. They are very
likely to overreach. It is not hard to imagine scenarios in which a
single match – say a terrible terror attack from Gaza – could
ignite a chain reaction. Israel could handle Hamas, Hizbullah
and Syria, albeit with painful losses all around, but if Iran
intervened rather than see its regional assets eliminated, could
the U.S. stay out?
“With the Bush administration’s policies having failed to pacify
Iraq, it is natural that the public has lost patience and that the
opposition party is hurling brickbats. But the demands of
congressional Democrats that we throw in the towel in Iraq, their
attempts to constrain the president’s freedom to destroy Iran’s
nuclear weapons program, the proposal of the Baker-Hamilton
commission that we appeal to Iran to help extricate us from Iraq
– all of these may be read by the radicals as signs of our
imminent collapse. In the name of peace, they are hastening the
advent of the next war.”
North Korea: Last Feb. 13, the Commies committed to shutting
down their nuclear reactor at Yongbyon, suspected of being used
in the nuclear weapons process, in exchange for 50,000 tons of
fuel oil. This was to be accomplished by April 14. If Kim and
his Orcs then agreed to disclose and shutdown their entire
nuclear program, they would receive further fuel of 950,000 tons
plus probable recognition by the United States.
So now the North has received the disputed $25 million from a
Macau bank that was holding things up and Pyongyang is saying
it is “committed” to scrapping its weapons program. Inspectors
from the International Atomic Energy Agency are being allowed
in for the first time since they were expelled in October 2002.
But as a number of folks have observed, the Bush administration
has done nothing more than make one concession after another
and there is zero reason to believe North Korea will totally come
clean.
The Washington Post editorialized:
“Mr. Kim seems adept at exploiting American impatience for a
breakthrough. During its last weeks the Clinton administration
was drawn in by North Korean hints about a deal on its missile
program, and it dispatched Secretary of State Madeleine Albright
to Pyongyang for what became a grotesque propaganda windfall
for Mr. Kim. The missile deal never came close to materializing.
“Given the threat posed by a loathsome dictatorship apparently
armed with nuclear weapons, the Bush administration is right to
explore whether Mr. Kim’s promises of disarmament are serious
this time. But it should stop making one-sided concessions to a
regime that has, as yet, not shown it will do more than pocket
them.”
Editorial / Wall Street Journal
“Here…are the truly hard steps ahead on the road to full North
Korean denuclearization: Where is the plutonium facility that
built the fuel for the nuclear bomb North Korea exploded last
October? Where are its plutonium stockpiles? Where is the
enriched uranium program it said it had in 2001? And finally,
the summit, where are the A-bombs it has already made, or
where is irrefutable proof that it has never done so?”
A new round of six-party talks has yet to be set, even as South
Korea resumed sending rice aid because it felt enough progress
had already been made, which is ridiculous.
China: President Hu Jintao gave a major speech ahead of this
year’s Communist party congress that will rule on his control
over the coming five years. Hu said any reforms must be carried
out in the “correct direction” under the stewardship of the ruling
party. “We must maintain the party leadership, empower the
people and rule the country by law.” In other words,
“democracy” under communist rule.
Hu added: “We should develop [the country] for the people and
by the people; and the fruits of our development should be shared
by the people.” Hu will seek to expand the electoral process for
local officials somewhat.
On the environmental front, Hu and the leadership are continuing
to struggle on balancing the pollution crisis with economic
growth. According to a story in the South China Morning Post,
by some measures, such as the average concentration of sulfur
dioxide, air quality in Guangdong province (outside Hong Kong)
has worsened by a staggering 11% in one year. In the booming
industrial port of Shenzhen, try 42%!
And as the Journal reported, it appears the government is going
to miss its air quality targets for Beijing and the 2008 Olympic
Games.
Lebanon: The crisis in government continues as the Arab League
failed to bring the feuding parties together during four days of
talks in Beirut.
Editorial / Los Angeles Times
“While the hapless West stands by, a Syrian campaign to retake
Lebanon is unfolding as crudely as the plot of Agatha Christie’s
‘And Then There Were None.’
“One by one, three anti-Syrian members of the Lebanese
parliament have been murdered, reducing the majority of
independent Prime Minister Fouad Siniora to a slim six seats.
President Emile Lahoud, a puppet of Syria, and the pro-Syrian
speaker, Nabih Berri, refuse to allow elections to be held to
replace them….
“Now the Cedar Revolution, which forced Syria to end its
military occupation of Lebanon, is unraveling. U.S. Secretary of
State Condoleezza Rice met with Siniora on Tuesday in Paris,
but where is the U.S. or UN plan for free Lebanese elections? If
the Lebanese parliament cannot meet in Beirut without the fear
of Hizbullah- or Syrian-inspired violence, and if the United
Nations cannot guarantee its safety, then let the parliament sit in
exile – perhaps in New York.”
Interesting idea. This comes as last weekend six UN
peacekeepers were killed (three from Colombia, three from
Spain) in southern Lebanon, victims of a car bomb that had the
hallmarks of al Qaeda. Hizbullah strongly condemned the attack.
But at the same time, a UN Security Council report this week
noted the flow of weapons to Hizbullah continues to pour across
the Syrian border.
Russia: This weekend President Vladimir Putin meets with
President Bush at Kennebunkport. Ignore any happy talk as the
Kremlin is hellbent on creating mischief in its dealings with the
West for the foreseeable future.
Venezuelan President Chavez, though, was in Russia this week,
praising Putin’s criticism of Washington, though Moscow kept
Chavez’s visit low-key ahead of the Kennebunkport summit.
The two leaders discussed economic and military cooperation.
Lastly, on the Russian front, dozens of ultranationalists attacked
‘black Russians’ (those from the Caucasus and Central Asia) at
two popular squares near the Kremlin in yet another sign of a
growing fascist movement here. Trust me, this is not an
overstatement. Law enforcement agencies normally just stand by
when these incidents occur. As Alexander Brod, a human rights
director in Moscow, told the Moscow Times, “One of Russia’s
most serious illnesses is xenophobia.”
Britain: Enter Gordon Brown, the new prime minister. Aside
from dealing with the terror threat, British citizens increasingly
seek a withdrawal of their 5,500 troops from Iraq, as another
three were killed in Basra this week, bringing the UK’s death toll
to 156.
Brown is also going to have to deal with the sudden decision to
reopen the Lockerbie investigation, in response to new evidence
suggesting the wrong man, al-Megrahi, may have been
convicted. The Libyan has been serving a life sentence for his
part in the bombing of Pan Am Flight 103 back in 1988. There is
growing evidence (at least in some quarters) that the original
premise, Syrian and Iranian culpability, rather than Libyan, may
indeed have been correct. This could be a big time mess.
Greece: I was watching the awful forest fire footage from near
Athens and the BBC commentator quoted a Greek official as
saying “the arsonists are having a field day.” That really sucks.
You already have terrorists such as the Earth Liberation Front
that have acted as arsonists in the U.S. Why wouldn’t al Qaeda-
types do something similar, only on a far broader scale?
Zimbabwe: President Robert Mugabe outlined a plan to transfer
majority control of all remaining “public companies and other
businesses” to black Zimbabweans, a move that will obviously
deepen this nation’s economic crisis. Then again, Zimbabwe is
already dead.
Colombia: Eleven state legislators, kidnapped five years ago by
rebel group FARC, were killed after a military attack on the
jungle camp where they were being held. President Alvaro Uribe
recently made some “good faith” gestures, such as freeing the
highest ranking FARC prisoner, but the rebels just raised their
demands before a prisoner/hostage exchange could be held as a
first step toward true peace talks.
Random Musings
–New York Post columnist John Podhoretz:
“President Bush’s disastrous second term has not been without
its moments. Unfortunately for him, these moments have come
primarily when members of his own party have risen up against
him to defy his wishes.
“That’s what happened (Thursday). For the second time in four
weeks, Republicans in the Senate put a stake through the heart of
Bush’s beloved but politically catastrophic immigration bill.
“It’s also what happened in the early months of the second term,
when Bush chose to nominate his unqualified aide, Harriet
Miers, to the Supreme Court – and finally backed down and had
her withdraw her name after three weeks of lobbying and
complaining.
“It happened, too, when our clever Democratic senator, Chuck
Schumer, stirred up a frenzy last year about the sale of various
American ports to a company owned by the emir of Dubai. Bush
stoutly defended the deal, which was dead in the water the
minute Schumer began his campaign against it, until finally Bush
was forced to back down by members of his own party.
“He would not and could not back down on immigration reform,
an issue far too close to his heart. But after the Senate first
rejected the bill at the end of May, Bush could have left it alone
and accepted defeat….
“But he miscalculated, as he has done so often since his
reelection. He chose to believe polls that said Americans
generally supported the ‘nice ideas’ in the bill rather than the
polls that showed Americans disliked the ‘actual bill’ as written
and described.
“And perhaps most interestingly, Bush chose to believe it was
more important to court potential future Republican voters – those
illegals who would have gained a ‘path to citizenship’
under the terms of the bill in 13 years’ time – rather than listen to
the concerns of present-day Republican voters.
“Those concerns were entirely justified. I write as someone out
of step with my fellow conservatives on the issue, as someone
with a very liberal view of immigration, including illegal
immigration. And yet the more I read about the bill, the more it
was clear to me it was an unholy mess and that the nation would
be far better off without it.”
As Peggy Noonan wrote on this topic a number of weeks ago,
there was no reason why the bill shouldn’t have been chopped up
into a number of smaller pieces of legislation that the average
Joe, you and I, could understand. The first one, of course, should
have then dealt with security.
And like John Podhoretz, I myself was once very liberal on
immigration, but I’ve hardened quickly, even as I’ve tried to
limit my take on the issue in this space. Like many of you I’ve
observed the drastic changes in my own community in just the
past ten years and I don’t like it.
But it’s not about xenophobia, it’s about simply obeying our
laws. Whatever limits Congress wants to set on ‘legal’
immigration is fine with me and we must do a far better job in
keeping the foreign graduate students, for example, who want to
stay here once their studies are over. Post-9/11, this part of the
system is obviously broken.
Again, though, the real bottom line with the immigration bill
was, ‘Just what the heck is this all about? Can any of you, in all
honesty, say you understood it? On something this critical to our
nation’s future?’ Of course not.
Republican Tennessee Senator Bob Corker summed it up:
“Americans feel they are losing their country.”
I’m still not sure New York Mayor Michael Bloomberg is the
right man to launch a true third party candidacy for the
presidency, but never has our nation been more ripe for the
biggest upset in our history. Yes, whether it’s the healthcare
system, military or natural disaster preparedness, the
infrastructure, our air traffic network, you name it…it’s all a
mess. And I didn’t even mention the looming entitlement
crises.
–Many of you probably feel the same about the U.S. Supreme
Court. It may not be broken, but it sure as heck is divided. This
week the Court threw out desegregation plans from Seattle and
Louisville, 5-4, with Chief Justice John Roberts speaking for the
majority: “The way to stop discrimination on the basis of
race is to stop discriminating on the basis of race.”
But Justice Anthony Kennedy, who ruled with the majority in
striking down the race-based systems in the two cities, broke
ranks in issuing a separate, concurring opinion that said in part,
“The decision today should not prevent school districts from
continuing the important work of bringing together students of
different racial, ethnic and economic backgrounds.”
Justice Stephen Breyer, in a blistering dissent, said the high court
is distorting precedent, as in Brown v. Board of Education, and
misapplies “the relevant constitutional principles…that will
obstruct efforts by state and local governments to deal effectively
with the growing resegregation of public schools.”
I noted a while back that I felt abortion and the makeup of the
Supreme Court would yet be a huge issue in the 2008
presidential campaign. No one agreed with me at the time, but I
would suggest this week’s moves by the Court back me up. The
Democratic candidate will use the potential reversal of Roe v.
Wade should a Republican win the White House as a major
campaign plank and there will be nasty protests in our nation’s
capital.
–And now…results from the latest Pew Research Center survey
of global attitudes. Looking at 46 countries and the Palestinian
territories, in 43 of the 47, including the U.S., a majority favored
the withdrawal of U.S. forces from Iraq as soon as possible. The
other four were Israel, Ghana, Kenya and Nigeria.
But it’s interesting that the number one issue around the world
these days is environmental degradation, outranking other items
such as the nuclear weapons threat and AIDS. Not surprisingly,
the United States is seen as the chief culprit, even as China
becomes the world’s #1 emitter of greenhouse gases. Here in
America, pollution was ranked lower as a concern than in any
other industrialized nation.
America’s image is worst, by the way, in Turkey; a depressing
fact at a time when we desperately need its cooperation on a
number of critical fronts. Only 9% have a favorable view of
the U.S., down from 52% in the first days after 9/11.
–Speaking of 9/11, former New Jersey Governor and EPA chief
Christie Whitman was lambasted at a congressional hearing this
week for her statements in those early days that the air was “safe
to breathe” in New York City. As columnist Tom Moran of the
Star-Ledger noted, however, Whitman is a victim of her
misplaced loyalties to the Bush administration, with Moran
observing she was a “wimp – a person so eager to please the
White House that she simply did not do her job.” The workers at
Ground Zero who suffered in the pile “counted on Whitman to be
an honest broker, and she had another agenda.”
–Boy, China has some bizarre lightning strikes. In an eastern
coastal village, five people, working around a tomb, were struck
and killed. It wasn’t known whether they were using shovels or
other metal tools at the time. Just last month, seven children
were killed when their school was hit.
–While just about anyone could do a better job at running the
country than the current edition of the U.S. Congress, I could not
make that claim about those waiting in line for an iPhone. Just
imagine how disappointed their parents are.
–Lastly, Americans continue to be the most generous people in
the world, giving nearly $300 billion to charitable causes in
2006, a new record. 33% went to religious organizations, with
the second largest slice, 14%, to education, including gifts to
colleges. 65% of households with incomes less than $100,000
give to charity.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $650
Oil, $70.40…highest since Aug. ‘06
Returns for the week 6/25-6/29
Dow Jones +0.4% [13408]
S&P 500 +0.1% [1503]
S&P MidCap -0.1%
Russell 2000 -0.1%
Nasdaq +0.6% [2603]
Returns for the period 1/1/07-6/29/07
Dow Jones +7.6%
S&P 500 +6.0%
S&P MidCap +11.3%
Russell 2000 +5.8%
Nasdaq +7.8%
Bulls 53.8
Bears 20.4 [Source: Chartcraft / Investors Intelligence]
Have a great week. Happy Fourth!
Brian Trumbore
