[Posted 7:00 AM ET]
Iraq
President George W. Bush, 7/12/2007
“Since America began military operations in Iraq, the conflict
there has gone through four major phases. The first phase was
the liberation of Iraq from Saddam Hussein. The second phase
was the return of sovereignty to the Iraqi people and the holding
of free elections. The third phase was the tragic escalation of
sectarian violence, sparked by the bombing of the golden mosque
in Samarra.
“We’ve entered a fourth phase, deploying reinforcements and
launching new operations to help Iraqis bring security to their
people.”
Editorial / Washington Post
“It seems like just weeks ago, because it was, that Congress
approved funding for the war in Iraq and instructed Gen. David
H. Petraeus to report back on the war’s progress in September.
Now, for reasons having more to do with American politics than
with Iraqi reality, September isn’t soon enough. Senate Majority
Leader Harry M. Reid says he wants a vote in the next week or
two ‘to truly change our Iraq strategy,’ by which he means
starting to withdraw U.S. troops. Sen. Hillary Rodham Clinton,
the leading Democratic candidate for president, urged President
Bush on Tuesday ‘to begin ending the war…today.’ Increasing
numbers of Republicans agree. But many of them seem reluctant
to confront the likely consequences of a U.S. troop withdrawal…
“Advocates of withdrawal would like to believe that Afghanistan
is now a central front in the war on terror but that Iraq is not;
believing that doesn’t make it so. They would like to minimize
the chances of disaster following a U.S. withdrawal: of full-
blown civil war, conflicts spreading beyond Iraq’s borders, or
genocide. They would have us believe that someone or
something will ride to the rescue: the United Nations, an Islamic
peacekeeping force, an invigorated diplomatic process. They
like to say that by withdrawing U.S. troops, they will ‘end the
war.’
“Conditions in Iraq today are terrible, but they could become
‘way, way worse,’ as the U.S. ambassador to Iraq, Ryan C.
Crocker, a career Foreign Service officer, recently told the New
York Times. If American men and women were dying in July in
a clearly futile cause, it would indeed be immoral to wait until
September to order their retreat. But given the risks of
withdrawal, the calculus cannot be so simple. The generals who
have devised a new strategy believe they are making fitful
progress in calming Baghdad, training the Iraqi army and
encouraging anti-al-Qaeda coalitions. Before Congress begins
managing rotation schedules and ordering withdrawals, it should
at least give those generals the months they asked for to see
whether their strategy can offer some new hope.”
Thomas Friedman / New York Times
“(Getting) out has at least four advantages. First, no more
Americans will be dying while refereeing a civil war. Second,
the fear of an all-out civil war, as we do prepare to leave, may be
the last best hope for getting the Iraqis to reach an 11th-hour
political agreement. Third, as the civil war in Iraq plays out, it
could, painfully, force the realignment of communities on the
ground that may create a more stable foundation upon which to
build a federal settlement.
“Fourth, we will restore our deterrence with Iran. Tehran will no
longer be able to bleed us through its proxies in Iraq, and we will
be much freer to hit Iran – should we ever need to – once we’re
out. Moreover, Iran will by default inherit management of the
mess in southern Iraq, which, in time, will be an enormous
problem for Tehran.
“For all these reasons, I prefer setting a withdrawal date, but
accompanying it with a last-ditch UN-led – not U.S. – diplomatic
effort to get the Iraqi parties to resolve their political differences.
If they can, then any withdrawal can be postponed. If they can’t
– even with a gun to their heads about to go off – then staying is
truly pointless and leaving by a set date is the only option….
“We need to determine – now, today – whether this is a fight that
can be resolved or a riot that we need to build a wall around and
wait until it exhausts itself.”
John Podhoretz / New York Post
“What is going on in Iraq is a war. For three years, America
pursued a strategy that put the war in the background and the
political process in the foreground. The idea was that political
progress would have positive consequences on the battlefield –
that free elections would choke off the insurgency’s oxygen….
“But it turned out to be a disaster…We were so solicitous of
Iraqi political needs that we neglected our own military needs….
“Now we’re putting security and military needs first. And just as
we are doing so, we’re hearing complaints from people who
criticized the ineffectiveness of the war effort three years ago –
complaints that we are not doing enough on the political front!
“And so it goes with the elite American opposition to Iraq,
whose elasticity is matched only by its disingenuousness.”
Well, I could argue that while I agree with much of what Mr.
Podhoretz is saying, it’s also disingenuous in not recognizing the
profound issues when discussing Iraq’s political vacuum and
the poor prospects for real consensus.
David Brooks / New York Times
“Until this week I thought we were entering the last stages of the
Iraq war. Roughly 40% to 60% of Republican senators have
privately given up on the war. Senior GOP officials have told
President Bush that they are unwilling to see their party
destroyed by this issue.
“I figured that sometime between now and September the White
House would be so isolated that it would have to launch
withdrawal plans.
“But ending a war is as complicated as starting one. In order to
wind up the Iraq conflict there has to be some general agreement
about how to do it. We’re nowhere close to that. In fact, the
U.S. is now entering a phase you might call the Endgame
Deadlock.
“In this phase everybody argues bitterly over how to get out of
Iraq, but amid the discord nobody can do anything about it. This
phase – and with it, the war – could go on for a while.”
In the latest USA Today / Gallup survey, President Bush has an
overall approval rating of 29%, and, coincidentally, seven in 10
want all troops out by April, which is the deadline of the House
legislation that was passed along party lines on Thursday.
But as has been the case throughout, the people often show they
are conflicted as 55% still want to at least give Petraeus a chance
until September before looking for a new strategy.
There are two things I worry about, however. As Republican
Senator Lindsey Graham said, “The bad news is the Maliki
government is paralyzed.” The other is the state of the U.S.
military.
I wrote in this space on 3/10/07 how I had gone to see Senator
John McCain, where as part of his presentation he discussed the
‘surge.’ That evening, McCain told the gathering of supporters
that it was pitiful that the world’s best military can’t get five
brigades to Iraq before June. I wrote, “Of course we’re stretched
way too thin these days and we need to expand the Army in
particular, as McCain himself advocates.”
I couldn’t help but note this last fact because all of President
Bush’s staunchest supporters this week said, ‘Gen. Petraeus
has only had the full complement of troops for about three or
four weeks. How can you judge the effectiveness of the surge?’
I look at this, on the other hand, and think what a shame it is that
it took so long. Can you imagine during World War II what
would have happened if in various theaters our generals, years
into a conflict, took over four months to move 20,000-30,000
troops?! Can you believe that today, 2007, we are told, ‘Oh, you
can’t just move that many. It’s not that easy.’?
Can you imagine what would happen if the United States faced
another military conflict, like next year? We are one
assassination away (read Egypt, Jordan or Lebanon) from all-out
war in the Middle East, let alone we can’t for a minute let down
our guard on the Korean peninsula. And looking further out, you
have the growing potential of Russia and China to create
mischief.
The military is broken, as experts such as Ret. Gen. Barry
McCaffrey have long pointed out. For now, though, it’s already
July 14. The debate in Congress is part of our political process,
but Gen. Petraeus will get his hearing in September. Then it’s
Katy bar the door.
—
Wall Street
In November 1982, I received my first job on the Street and
seeing as how the bull market commenced in August of that year,
I view myself as a bull market baby. But aside from the Nasdaq
Bubble of 1999-2000, in the almost 25 years since then I have
seen few dumber days than this past Thursday when the Dow
Jones, in chalking up a new all-time high, registered its largest
point gain since Oct. 2002, up 283, with the S&P 500 hitting a
new record as well.
Now don’t get me wrong. I’m not ‘short’ the market and most of
my own remaining equity holdings rallied a bit, too, but just what
the heck was there to cheer this week?
The large retailers reported on Thursday and the numbers were
mixed, at best. I’ll grant you, Wal-Mart is very important in the
grand scheme of things and they beat on expectations for June
same-store sales, up a whopping (dripping sarcasm alert) 2.4%.
Others, such as Macy’s, were down like amounts. And overall
June retail sales were off 0.9%, far worse than expected.
Yes, we did have another large merger, Thursday; that being Rio
Tinto’s acquisition of Alcan for a nice premium, thus combining
the best in aluminum from Australia and Canada. But that was
it. Like whoopty-damn-do.
So here’s the real deal. The problems in the housing sector and
mortgage market continue to worsen, even as I read one report
that said the rally in stocks was due in part because “the credit
market showed signs of stabilizing.” Of course two days earlier
people were talking of it “seizing up.”
Ian Shepherdson of High Frequency Economics had a piece in
Barron’s addressing housing and today’s environment that
homebuilder D.R. Horton noted this week would “remain
challenging.”
“The key problem now is not the level of nominal mortgage
rates, which are not particularly high by the standards of the past
decade. Instead, buyers are backing off because the real
mortgage rate has rocketed and continues to rise. At the peak of
the boom, people essentially were being paid to buy a home.
The average 30-year fixed mortgage rate in 2005 was a tax-
deductible 5.9%. The Office of Federal Housing Enterprise
Oversight says that home prices rose 10.7% that year.
“As long as buyers expected prices to keep rising, the implied
mortgage rate – home-price increase minus mortgage-interest
rate – was minus 4.8%….
“But recently, the average 30-year mortgage rate was 6.5%, so
with home prices up just 3%, real mortgage rates are now 3.5%.
And with most potential buyers well aware of the huge excess
supply of homes, there’s no reason to expect prices to rebound
soon. A reasonable person might expect them to fall further,
boosting the real mortgage rate more so.
“People don’t like to borrow to pay for a depreciating asset.”
That’s just one issue. This week also saw the ratings agencies
scrambling to play catch up in downgrading $billions in
subprime mortgages and related collateralized debt obligations
(CDOs). By most estimates, there is about $800 billion in
mortgages backed by subprime loans and another $1 trillion in
CDOs. Anywhere from $100 billion to $200 billion is ultimately
at risk, according to the same experts, and should panic selling
ensue for a variety of reasons, the latter number could be low.
And as a New York hedge fund manager told Barron’s, with
regards to the ratings agencies, “I would expect a lot of holders
of these CDOs to sue the credit companies for handing out triple-
A ratings to paper that turns out to be toxic waste.”
Jonathan Laing / Barron’s
“Far greater troubles await the subprime market in the next two
years, when homeowners will face increases of as much as 50%
in their monthly payments after their two-year teaser rates expire
and convert to materially higher floating interest rates. The
period will see some $800 billion in subprime loans reset,
according to Deutsche Bank.
“For many subprime borrowers, default will be the only viable
option, as tighter lending standards slam the refinancing window
shut for them. Dwindling or negative equity in homes means
they won’t be able to roll into 30-year fixed mortgages, even
assuming that they handle the higher monthly payments.
Foreclosures are expected to surge…. [Ed. note: Nationwide,
foreclosures in the 1st half of the year set a new record, up 56%
from a year earlier.]
“The coming crisis in subprime CDOs is reminiscent of the S&L
collapse of the early 1990s; both involved imprudent lending and
will be enormously costly. The bill for the earlier fiasco totaled
more than $150 billion.
“This time around the burden will fall on global investors, not
the U.S. taxpayer. But the repercussions are apt to be felt on
Main Street as well as Wall.”
Jonathan Laing’s final point on global investors is an important
one. Whether in London or elsewhere, all hedge funds and their
pension brethren were investing in this garbage, with damage,
particularly in the former, dependent on the amount of leverage
employed.
But just as the leaders of our Iraq war strategy have largely been
in a state of denial for the past four years, so are many of the
hedge funds and investment banks, let alone the Street’s shills
that people outlets such as CNBC.
I get a kick out of those who say the damage from the bursting of
the housing bubble will be limited. This isn’t Black Monday,
Oct. 1987; a financial accident resulting from program trading
and a lack of coordinated activity among central bankers.
This time the same central banks had a coordinated policy of
whipping up the frenzy by keeping interest rates artificially low
for years, thereby creating a bubble in the chief asset most
Americans, Brits, Spaniards, and Aussies have…their home.
Now, good luck finding someone (read banks) to bail you out.
So the next time NBC national news rushes CNBC’s Maria
Bartiromo or Jim Cramer to gush about the new highs in the
market, certainly feel free to treat yourself to a premium lager, if
your portfolio is positioned to profit. But also step back and look
at the Big Picture. Sometimes the market rallies for good, solid,
fundamental reasons. This week wasn’t one of them.
Street Bytes
–Stocks indeed rose for a third straight week with the Dow Jones
up 2.2% to the new benchmark, 13907. The S&P 500 is also at a
new high, 1552, up 1.4%, and Nasdaq rose 1.5% to 2707.
On the earnings front, Dow component Alcoa’s were alright, but
it’s swept up in the takeover game, having pulled its own bid for
Alcan, while on Friday, General Electric reported earnings that
were in line. Next week things really begin to heat up and if
earnings do in fact knock the cover off the ball, I will lay off the
doom and gloom. Scout’s promise.
Just as importantly, next week we get readings on inflation as
well as Chairman Bernanke’s semi-annual testimony to Congress
on the state of the economy, at which point he is going to be
grilled on the subprime mess.
–U.S. Treasury Yields
6-mo. 5.04% 2-yr. 4.92% 10-yr. 5.11% 30-yr. 5.19%
Mr. Bernanke, in a speech to economists this week, addressed the
issue of how the Fed determines what the real inflation picture is
when coming up with its decisions on interest rates.
“Increases in energy prices affect overall inflation in the short
run because energy products such as gasoline are part of the
consumer’s basket, and because energy costs loom large in the
production of some goods and services. However, a one-off
change in energy prices can translate into persistent inflation
only if it leads to higher expected inflation and a consequent
‘wage-price spiral.’ …
“Notably, the sharp increases in energy prices over the past few
years have not led either to persistent inflation or to a recession,
in contrast to the U.S. experience of the 1970s [and the oil price
shocks of that era].”
In other words, Bernanke was saying ‘Don’t bother us’ when it
comes to the debate over the use of ‘core’ inflation rates vs. the
everyday items we all have to deal with.
–Energy bits:
The International Energy Agency was in the news on multiple
fronts this week, warning that OPEC needs to increase
production in the second half of the year in order to prevent
prices from skyrocketing with the ongoing pickup in demand for
oil. OPEC, in turn, continues to blame geopolitical instability,
such as in Nigeria, U.S. refinery issues and speculation in the
futures markets for the $70+ price per barrel that we’ve become
accustomed to. OPEC is still responsible for about 40% of
global output and remains a key swing producer. The IEA also
warned that China’s oil consumption will increase a further 6%
in 2008.
Earlier, the IEA offered that world oil demand will rise faster
than earlier forecast through 2012; this as production continues
to lag. Global output is expected to reach 96mm barrels a day by
that time, up from the current 86mm level.
If you believe the global economy is going to continue to rock
and roll, especially in Asia, there is no way around the fact the
oil industry needs to pick up the pace of spending on exploration
and development, but of course that entails long-term projects
that can often take a decade or more to reach fruition.
In the same vein, the IEA says Russian oil production could stall
out by 2012, which isn’t good considering the nation is
responsible for about 12% of the world’s crude these days. At
least Russian energy giant Gazprom, recognizing it needed help
in developing a major project, Shtokman, gave French major
Total a 25% stake in the field located in the Barents Sea.
–China’s June trade surplus hit a record $26.9 billion. Exports
were up 27% year over year, while imports rose 14%. Of course
this gives Washington and the EU further ammunition to rattle
the cage.
The New York Times, though, had the following editorial
comment.
“The cheap yuan, together with America’s voracious spending,
are the main causes of the enormous imbalances that have
developed in global trade and financial flows. It is certainly
worth reminding China that artificially holding down the price of
its currency and building an economy only on exports is also not
in its long-term economic interest. Its growth must be
rebalanced to rely more on the consumption of its own citizens.
“Starting a trade war, though, is not likely to change Beijing’s
mind. And it will make it harder to persuade and pressure China
to become a more responsible exporter and a more responsible
international player.”
The Times blasted Barack Obama and Hillary Clinton for
hopping “on the misguided bandwagon of those seeking to
penalize China for manipulating its currency.”
–Glancing at the Sydney Morning Herald to check out the
weather (and any shark attack stories….to be honest), I saw this
headline of note:
“Bankruptcies hit record high”
“The high cost of living and easy access to credit have led to the
highest number of bankruptcies in NSW (New South Wales)
since records began more than 20 years ago…
“ Some say Australia’s prosperity and booming economy is great
for everyone, but certainly the figures reflect another side to the
story,’ said a bankruptcy attorney.”
Aussies are also now using credit cards at record levels. Yes,
sports fans, this is all part of the global story of mine. And it
begins with a real estate bubble of mammoth proportions.
–Margin debt hit a new record. As Chris Mayer of Agora
Financial wrote, “A fellow at the blackjack table taking out a
$10,000 advance so he can double down is a ‘degenerate
gambler’; on Wall Street, in today’s parlance, he’s called an
‘investor.’”
–As an example of how many were blindsided by the subprime
debacle, GE is looking to sell its three-year-old mortgage unit
that specialized in the stuff, telling employees, “The mortgage
industry has greatly changed since the purchase of WMC.” Yup,
so it has.
–John Mackey, co-founder and CEO of Whole Foods Market is
in a heap of trouble for posting comments on stock-market
forums that among other things bashed competitor Wild Oats,
even as he geared up to make an offer for the company. But
Mackey didn’t sign his name. Nope, he used an anagram of his
wife’s name, Deborah. What a jerk. As David Kesmodel and
John R. Wilke broke in the Wall Street Journal:
“For about eight years until last August, the company confirms,
Mr. Mackey posted numerous messages on Yahoo Finance stock
forums as Rahodeb.”
This all came to light as part of a Federal Trade Commission
lawsuit seeking to block the Wild Oats takeover on antitrust
grounds.
For example:
March 28, 2006, Mackey wrote: “Whole Foods says they will
open 25 stores in OATS territories in the next 2 years…The
writing is on the wall. The end game is now underway for
OATS…Whole Foods is systematically destroying their viability
as a business…market by market, city by city.”
April 11, 2006: “Whole Foods has a hugely successful business
model by all objective financial measurements there are. OATS
does not.” [USA Today]
There were tons of them, as Mackey sought not only to boost the
share price in Whole Foods, but also to drive down the price of
Wild Oats to make it cheaper for him to acquire. In other words,
without proper disclosure this was nothing but outright fraud,
though with a good attorney who knows how it will all play out.
[Late Friday, the SEC said it had launched an informal
investigation.]
–As Congress debates how much hedge fund managers and
private equity partners should be taxed, Blackstone Group is
working the system to avoid paying taxes on $3.7 billion as part
of the sale of their stake in the management firm. Nothing
illegal, just the firm’s use of ‘good will,’ a term for the value of
intangible assets. The deductions must be spread out over 15
years, so, while Blackstone is paying $553 million initially in
taxes, it will get that amount back and another $200 million over
time. And that, friends, is how the rich get richer.
–I just glanced at Motorola’s dismal earnings outlook,
particularly for its cellphone division, and didn’t see anything
about a topic I broached last week; that being they may have a
real PR problem on their hands with the story out of China that
batteries manufactured under their name (albeit probably fake),
have been exploding.
–Sears’ earnings warning for its quarter ending Aug. 4 wasn’t a
surprise. CEO Aylwin Lewis said in a statement, “our recent
performance underscores our ongoing need to become more
relevant to consumers.” I have a Sears store about 15 minutes
from my home and I don’t think I’ve ever consciously thought of
shopping there. In fact, in 30 years I remember walking in once
and they didn’t have what I needed.
–You have to be a CNBC junkie to remember the clips of former
Broadcom CEO and co-founder Henry Nicholas III during the
Bubble. He always looked like he had just emerged from a
weightlifting session. In the mold of Oracle’s Larry Ellison,
Nicholas also didn’t come across as a real likeable fellow.
So on Friday, the Journal reported that a former personal
assistant and bodyguard to billionaire Nicholas is alleging in a
suit filed in Los Angeles Superior Court “that he was forced to
indulge in illegal narcotics with his boss, whom he portrays as
leading a raucous lifestyle that included spiking clients’ drinks
and offering prostitutes to customers.” Kenji Kato also alleges a
girlfriend of Nicholas’s supplied him with heroin. She denies the
claims, as does Nicholas through his attorney. But the reason
why this all became public is because it’s part of the backdating
of options investigation into Nicholas and the company. Many
are wondering what the personal stuff has to do with the SEC’s
case….but we love it!
–From Annette Haddad of the Los Angeles Times:
“The richest 5% of the nation’s population saw its average
household wealth soar 40% (adjusted for inflation) from 1990 to
2005, according to census data. That contrasts with a 7.3%
increase for middle-income families.”
Which is why the super high-end segment of the real estate
market in the Los Angeles area, for example, continues to
confound some of us. Haddad notes that David Beckham,
Amazon’s Jeff Bezos, and Tom Cruise all bought Beverly Hills
and Bel-Air properties for between $22 million and $35 million.
Kind of messes up the averages, you know.
–Speaking of high-end Beverly Hills real estate, Ms. Haddad
also had the story of the 1920s-era mansion of William Randolph
Hearst and Marion Davies that was put on the market Monday
for $165 million, making it the nation’s most expensive
residential listing. It’s spread over 6.5 acres north of Sunset
Boulevard and includes three swimming pools, 29 bedrooms, a
state-of-the-art movie theater and a disco. It’s actually four
houses, an apartment and a cottage for the security staff. The
seller is attorney-investor Leonard Ross, who bought the
property in 1976. A property in Montana’s Big Sky country is
on the market for $155 million and Saudi Prince Bandar’s spread
in Aspen is going for $135 million. So far, however, no U.S.
home sale has broken the $100 million mark. By the way, the
Hearst estate was used in the film “The Godfather,” including for
the severed horse’s head scene.
–Ben Edwards III, a former CEO of A.G. Edwards Inc., said he
is not happy with the merger between his family’s firm and
Wachovia Corp. But I liked his comment on mergers in general,
which he believes are often driven by CEOs with nothing better
to do.
“If you do a good job and have competent people in charge…you
sit there as the highest-paid person in the company and do
nothing. So [CEOs try to] acquire or diversity or do other big
things.”
From my past experience, very true.
–Last Sunday’s New York Times broke the story that while Bear
Stearns was having major issues with its hedge funds, CEO
James Cayne was choppering from Manhattan to play golf at his
club in New Jersey. Over a 9-day period, he played both
Thursdays and Fridays, four rounds. But as his staff notes, he is
in constant contact with the office. Well I believe that. This also
means he’s a most irritating chap to play with. [Then on Friday,
CNBC reported that Cayne is being investigated by this very golf
club for cheating, as in posting higher scores to raise his
handicap before a 4th of July tournament that he evidently won.]
–And former newspaper magnate Conrad Black was finally
found guilty on three counts of mail and wire fraud in connection
with the looting of Hollinger International to the tune of $7
million. While the verdict will be appealed, Lord Black (he
picked up one of those tidy titles they hand out across the pond)
faces 35 years in prison.
Foreign Affairs
Iran: The evidence is irrefutable at this point that al Qaeda is
using Iran as a base for operations in Iraq. And on the suspected
nuclear weapons development front, the U.S., Britain, France,
Germany, Russia and China are to meet to discuss a new
sanctions package within the framework of the UN Security
Council. But in the case of these last two, Iran has become
China’s third-largest supplier of oil after Saudi Arabia and
Angola (who knew?), while Russia not only has business
interests on the nuclear plant development side, but it’s in no
mood to help the U.S. these days.
Instead, Iran is playing games with the International Atomic
Energy Agency, it would appear, as a way of softening action in
the UN. On Friday, Tehran said it would allow IAEA inspectors
into key facilities, but the mullahs are making no indication they
will stop enriching uranium.
North Korea: Six-party talks are slated to resume in Beijing on
July 18, while International Atomic Energy Agency inspectors
are due to assist in shutting down the Yongbyon nuclear facility
at the same time. But before you go crazy and break out the
good stuff, remember this is but a first step in getting North
Korea to fully abandon its nuclear weapons program, including
telling us where the existing nukes are. In the meantime, South
Korea, ever the appeaser, sent the first shipment of fuel oil under
the February agreement.
But Kim Jong il is also now seeking military talks with the
United States, a first, for the express purpose of discussing the
security situation on the Korean peninsula, amid hopes of ending
the armistice that has been in place since the end of the Korean
War in 1953. Who knows what’s going on in Lil’ Kim’s head?
At least some have finally caught on to the fact that the man is
ill.
We could see some interesting, and encouraging, headlines over
the coming weeks and months. The White House desperately
needs to hop on any good news these days. Just remember my
adage, “wait 24 hours.” In other words, keep the champagne on
ice. But if you insist on being optimistic, there is a slight chance
we have another Libya type situation on our hands.
China: Last week I noted that Beijing had sentenced another
high-ranking official at the equivalent of their Food & Drug
Administration to death and commented “None of this due
process garbage, I say.” Well, about three days later the guy was
indeed executed. That’s quick. Aside from the high-profile U.S.
cases of tainted pet food and toothpaste that the man was
responsible for, even if indirectly, I didn’t realize that 93
Panamanians had died recently from poisoned cough syrup made
in China as well.
The government is in a rush to clean things up before the 2008
Olympics and towards that end China’s state television has been
showing undercover raids on food plants, while officials are
being amazingly candid.
Sun Xiande, head of a food safety department, said the country’s
credibility in international markets is at stake.
“Especially in the countryside, the food safety situation is not
optimistic. Hidden threats will gradually emerge and diseases
will likely gradually occur due to the harmful ingredients in
food….Food safety accidents or events will not only affect the
healthy development of the entire [food] industry, but also
possibly affect the local economy and social stability.” [Financial
Times]
Meanwhile, Premier Wen Jiabao, on the pollution issue.
“The situation remains quite severe and it is extremely difficult
to achieve the goals [of the latest five-year plan]…
“Government at all levels must fully understand the arduousness
and urgency of delivering on targets of reducing energy waste
and emissions of pollutants…and must endeavor to make
concrete progress.”
The State Council filed a report:
“The overdevelopment of industries with high energy
consumption and heavy pollution must be resolutely checked and
those illegal incentives encouraging their expansion must be
corrected.” [Xinhua News Agency]
But the problems have become simply overwhelming. I was
reading in the South China Morning Post of an algae bloom on
Chao Lake, the fifth-largest freshwater body in the country,
where a Hitachi Construction Machinery factory along the shore
was dumping “160 tons of acid waste into the lake every day,”
until authorities finally shut it down. Imagine how long it was
doing this, and what an impossible task it is to clean it up. Now
multiply it by the “342 enterprises in the industrial zone” there.
China is learning a painful lesson and if the Commies don’t
handle the crisis quickly, civil unrest is indeed going to be an
increasing issue, as I wrote recently in my Black Diamond
commentary of 6/16/07. After all, shoddy and tainted products
are killing their own people, not just foreigners.
Lastly, it appears China is going to have to deal with Taiwan, in
one form or another, as Taiwanese President Chen Shui-bian has
vowed to press ahead with a referendum on whether the island
should apply for UN membership under the name Taiwan;
exactly what the Bush administration does not want at this time,
or ever. The referendum could take place next March at the
same time a successor to Chen (who’s ineligible) is to be chosen.
We are talking major fireworks.
The Balkans: When Presidents Bush and Putin got together in
Kennebunkport, a summit that is proving to have been totally
worthless, the issue of Kosovo and independence wasn’t even
broached. Now it appears the ethnic Albanians, who comprise
90% of the Serbian republic’s population, are being screwed yet
again as an agreement on Kosovo’s future has been put off until
next year. Russia has said it will not agree to any UN-brokered
plan until both parties, Kosovo and Serbia, agree.
Well, that means there would never be agreement as Serbia is
adamant about keeping Kosovo under its clutches. Kosovo’s
leaders have now threatened to declare independence
unilaterally, which would immediately lead to violence.
Just a few weeks ago, President Bush received a heroes’
welcome in Albania. I suspect if he were to return today, he’d be
stoned.
Pakistan: The siege at the Red Mosque in Islamabad is over with
at least 85 dead, including the leader of the militants that held the
place. President Musharraf’s handling of the crisis is being both
praised and criticized and it is clear this is but the first of many
clashes as the Taliban-inspired Islamists seek revenge and an
overthrow of the government. Musharraf had appeased these
forces for years, allowing the madrassas’ to spread in an effort
just to maintain stability, but instead the policy is coming home
to roost.
Turkey: The big election is July 22 and polls show Prime
Minister Erdogan’s Islamist-leaning party with a commanding
lead, thanks in no small part to 21 straight quarters of economic
growth. But the generals, Kemalists/secularists, aren’t happy and
warn the Islamists better not push too hard in changing the nature
of the country.
Canada: Prime Minister Stephen Harper announced that six to
eight patrol ships will guard the waters of the Northwest Passage,
which the United States claims is international territory. It’s
about oil, with Harper saying “Canada has a choice when it
comes to defending our sovereignty over the Arctic. We either
use it or lose it. And make no mistake, this government intends
to use it.”
Uh oh. I hear war drums! This is no small issue because the
passage is becoming more navigable as the ice melts at an
increasing rate. Aside from oil, there are fish and minerals to be
plundered.
Britain: Speaking of war, at least of the cold variety, London’s
relations with Moscow continue to deteriorate to alarming levels
as a result of the Kremlin’s refusal to extradite the main suspect
in the murder of Alexander Litvinenko. A spokesman for Prime
Minister Gordon Brown said, “Russia is an important partner on
many issues, and we continue to seek a constructive relationship
with them, but given their refusal to cooperate on this matter, we
need to carefully consider our range of cooperation going
forward.”
Indonesia: Australia is warning its citizens not to visit the
country because of the terror threat, even with the arrest of the
leader of the Jemaah Islamiah group. Speaking of Australia, its
drought, at least in the critical New South Wales region (in terms
of farming and population), has eased some due to the recent
heavy rains.
Russia: Just a follow-up on my story of their winning bid for the
2014 Winter Olympics in Sochi. I noted the importance of
Vladimir Putin’s personal appeal at the deciding International
Olympic Committee meeting, Putin having swayed the IOC to go
with Sochi over South Korea’s entry. Now the IOC is looking
into banning personal lobbying such as this.
Mexico: Drug gangs have threatened to kill foreign journalists
who cover the violence on the Mexican-Texas border. Some
Texas newspapers have already pulled their reporters.
Random Musings
–According to the latest USA Today/Gallup survey, Rudy
Giuliani captures 30% of the Republican vote, nationwide, with
Fred Thompson, who still hasn’t announced, at 18%, and John
McCain at 16%.
On the Democratic side, Hillary Clinton has 37% (vs. 33% a
month earlier), to Barack Obama’s 21% (unchanged). Al Gore is
at 16%, with John Edwards at 13%.
As for John McCain, I wrote on 6/9/07 in this space:
“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.”
I have nothing but supreme admiration for McCain, but at the
same time I recognized last winter I made one foolish move in
contributing the maximum to his exploratory committee.
As I wrote on 3/10/07, and alluded to above, I attended a
fundraiser of McCain’s in New York that week, though I admit I
held back on my true feelings and I shouldn’t have. I did leave
you a clue in praising his wife, Cindy, who was superior to him
that evening, but to say McCain’s performance was lackluster is
putting it mildly.
Two weeks later, 3/24/07, I wrote: “I have to admit, I’m
extremely disappointed with the campaign Sen. John McCain has
run thus far and I’m undecided on sending in further dollars once
he formally announces next month.”
I didn’t. Then I wrote the bit above on 6/9/07.
So this week McCain came back from his latest trip to Iraq and,
according to reports, erupted as only he can over the way the
campaign was being run, forcing the resignation of his two top
aides, plus two others on the staff. The Wall Street Journal wrote
that McCain still can’t be counted out because of the lackluster
field and doubts about the others in the race (they didn’t include
Newt Gingrich, who no doubt is starting to drool over the
prospect of a post-Labor Day launch). Sorry, Journal editorial
board, it’s finis for McCain. And it’s sad, because as I’ve
discussed with some of my friends over the years, a lot of us
wish it was McCain in the Oval Office today.
–Back to Hillary and Obama, Newsweek asked registered
Democrats, “If the Dem race comes down to Clinton or Obama,
who would you vote for?” Among nonwhites, Hillary still won,
58-29. [56-34 among whites.]
–Michael Daly of the New York Daily News covers the crime
beat and has his connections. Following is a take on Al Gore and
his troubled son, Al Gore 3rd.
“My favorite NYPD detective recalled a story that helps explain
how father and son each became a particular kind of loser. The
story was told to the detective by a Secret Service agent some
years back as they worked security for a dignitary visiting New
York….
“The detective recalls the agent saying that he was outside a
room where Gore was loudly berating Al 3rd for something to do
with school. The agent then overheard the senior Gore say to his
son something truly stunning.
“ ‘What, do you want to end up like those guys standing outside
the door?’
“The guys being the agent and his partners, highly trained and
intensely dedicated individuals who remain ever-ready to take a
bullet for whomever they are assigned to protect. You would
think that such selfless and motivated people would be perfect
role models for a teenager having a little trouble staying on
track.”
And yet another reason why some of us can’t stomach the father.
–With food safety on everyone’s mind these days, and thoughts
of potential terrorism on this front, Sharon Begley had the
following in a column for Newsweek.
“Food-defense experts say the list of foods in which an attack
could have what FDA calls ‘catastrophic consequences’ begins
with those made in large batches; poisoning a 5,000-gallon kettle
of pasta sauce is easier and would cause more widespread harm
than poisoning 40,000 individual bottles of honey [or anything
else for that matter.] Other prime targets: foods subject to
uniform mixing, such as milk and liquid eggs, since
contaminating one of the multiple sources that go into the batch
would poison the whole thing and be tough to trace. Foods with
a short shelf life, such as ground meat, would likely be in
people’s stomachs before health officials identified the cause of a
mass poisoning, making such perishables attractive targets.”
Now who’s ready for dinner?
–Actually, if you’re going to eat, do so before reading this one
from the BBC.
“Severe flooding in central China has brought a mass invasion of
mice, raising fears of outbreaks of disease. The floods forced
about two billion mice from islands in Hunan province, local
officials said.”
[This is when I miss Carl Sagan…. “beellions and beellions of
meece.”]
“(Authorities) are building walls and ditches to keep the mice at
bay.
“Resident are also taking matters into their own hands, killing
more than 2,300 of the rodents using clubs, shovels and poison.
“But in the town of Lujiao, at least 1,000 cats have died after
eating mice that had been killed with poison.”
–Speaking of rats, former five-term Newark, NJ, mayor Sharpe
James (a man I’ve blistered on more than one occasion) was
indicted on 33 counts of fraud related to the sale of city property
before he left office, as well as massive abuse of city credit
cards. James, 71 and married, took at least 8 female
“companions” on various junkets, including to South America
and other exotic locales, all on the city tab. Just a truly awful
human being and an equally poor reflection on the judgment of
the voters of Newark who kept reelecting this dirtball.
At least there is hope in the current mayor, Cory Booker. This
week represented the 40th anniversary of the Newark riots, which
were a nightmare in so many respects. It was downhill for the
city before and downhill after thanks in no small part to massive
corruption. Enjoy prison, Sharpe.
–Louisiana Republican Senator David Vitter’s name was in the
phone records of the “DC Madam,” the first member of Congress
to have his identity revealed. Of course the senator is a staunch
advocate of family values. Vitter, in a statement, said: “This was
a very serious sin for which I am, of course, completely
responsible.” Of course. Vitter asked for forgiveness years ago,
he also assures us. Good for him.
–Lastly, we note the passing of a truly Great American, Lady
Bird Johnson, one of the first true environmentalists. But as the
Washington Post editorialized, she was far more than that.
“Lyndon B. Johnson once said of his wife that, given the choice,
people would probably rather vote for her than for him. LBJ, of
course, was not one to offer voters such choices, but he was
probably right about Lady Bird Johnson’s popular appeal and
abilities. She would have made a good leader at the national
level, perhaps a great one. She was an extraordinary first lady,
public-spirited, principled and steadfast when it came to those
causes advanced by her husband that she thought most important
– first and foremost the civil rights legislation that stands as one
of the greatest achievements of any American president.”
Joseph Califano Jr., who worked in the Johnson administration,
wrote in the Post:
“Lady Bird was not simply the best thing that ever happened to
Lyndon Johnson. She was also an extraordinary leader in her
own right who left our nation two monumental legacies;
beautification and Head Start.”
It was Mrs. Johnson’s tireless efforts on the environment,
years before this was popular, that will be most remembered.
Teach your children her story.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $654
Oil, $72.68
Returns for the week 7/9-7/13
Dow Jones +2.2% [13907]
S&P 500 +1.4% [1552]
S&P MidCap +1.1%
Russell 2000 +0.4%
Nasdaq +1.5% [2707]
Returns for the period 1/1/07-7/13/07
Dow Jones +11.6%
S&P 500 +9.5%
S&P MidCap +15.1%
Russell 2000 +8.6%
Nasdaq +12.1%
Bulls 49.5
Bears 21.3 [Source: Chartcraft / Investors Intelligence]
*So I made a few changes to the home page. Believe it or not,
it’s all about the search engines and I will be tinkering with it
further from time to time. Those phrases below the article links
are important in this competitive pool I’ve chosen to swim in.
But I want to alert you to the title for “Hot Spots.” Yes, one ‘t’.
It’s amazing how fast time flies and back when I was expanding
the site, about three months into the launch in the spring of 1999,
the fellow who ran the company that was hosting S&N back
then, as well as offering marketing and design ideas, said that
‘hot spots’ should be ‘hott spotts’ to distinguish the site from the
crowd. I thought, what the hell, even though I was from the sales
and marketing side myself. They’re the experts.
It proved to be incredibly stupid on my part, but once I got going
I was afraid to change it, until now. Of course eventually the
hope is when someone Googles the term, I’ll be in the first two
or three pages, as I should be, gosh darnit.
Anyway, as always I appreciate your support. Have a good
week.
Brian Trumbore
