[Posted 7:00 AM ET]
Wall Street….Housing Debacle, Part XXVI
There are basically two schools of thought out there. The first
says that the problems in the domestic housing sector will be
contained and that the U.S. consumer will keep spending, even as
their number one asset shrivels up, while the second says that
housing and all the pieces of paper attached to it is far from
bottoming and that eventually this will impact the health of the
overall economy.
It’s pretty funny how Federal Reserve Chairman Ben Bernanke,
a bright guy with a lot of brainpower, just a few weeks ago was
saying that the problems in housing would indeed be contained.
But this week in his semi-annual congressional testimony he was
far less sanguine, saying that housing “could get worse before it
gets better,” and that conditions in the subprime mortgage market
“have deteriorated significantly.” As the line from Meatloaf’s
“Paradise By The Dashboard Light” goes, “What’s it gonna be,
boy?”
Well, you certainly know where I’ve stood on this topic,
consistency being one of my virtues, I’d like to think, so I’ll let
others do the talking first today; such as Freddie Mac CEO
Richard Syron, who knows a thing or two about mortgages. In
predicting the subprime crisis would deepen, Syron said in an
interview with Bloomberg that “Unfortunately I don’t think we
have hit bottom. I think things are going to get worse,” though
Syron adds the crisis doesn’t threaten “the stability of our
financial system.”
But noted fixed income manager Robert Rodriguez, who has
been all over the mortgage debacle, told U.S. News & World
Report, “We’re set up for a storm that could be much larger than
Long-Term Capital,” referring to 1998’s meltdown. “The
elements are all there. The tinder is there. The question is: What
will be the match to set it off?”
Of course the answer is contained in the subprime market itself
and the $1.8 trillion in paper that was issued, including
collateralized debt obligations, or CDOs. Fed Chairman
Bernanke, when asked by a senator to quantify the potential
losses, said $50-$100 billion. But he doesn’t have a clue. In fact
I can guarantee all he was doing was parroting a story he saw in
Bloomberg or the Wall Street Journal. I’ve passed along that
number, too, as well as another one that said the losses would be
up to $200 billion. Of course I don’t have a clue either what the
actual number will be; except for the archives I’ll say it exceeds
$200 billion when all is said and written off.
We already know of $1.5 billion being wiped out in the two Bear
Stearns hedge funds specializing in this crapola (the actual total
is far higher, though as yet incalculable), as Archie Bunker would
have opined, and the contagion has spread to London and Sydney
as hedge funds are beginning to report large losses there due to
investments in our mortgage paper.
But Bear Stearns added that part of the problem in their offerings
was losses in AA and AAA securities, as well. In other words,
yes, the problem is far from contained and we’re beginning to
see emerging signs of a true credit crunch, as the likes of
Washington Mutual, for example, slam the door on some of their
more generous, and egregious, lending practices.
And it’s not just mortgages. Josh P. passed along a Bloomberg
story I had missed that sums up the issue in the loan market, as
in:
“Goldman Sachs, JP Morgan Chase and the rest of Wall Street
are stuck with at least $11 billion of loans and bonds they can’t
readily sell.
“The banks have had to dig into their own pockets to finance
parts of at least five leveraged buyouts over the past month
because of the worst bear market in high-yield debt in more than
two years.…
“Bankers, who just a few months ago boasted that demand for
high-yield assets was so great that they would have no problem
raising debt for a $100 billion LBO, are now paying for their
overconfidence. The cost of tying up their own capital may curb
earnings and stem the flood of LBOs, which generated a record
$8.4 billion in fees during the first half of 2007, according to
Brad Hintz, the former chief financial officer at New York-based
Lehman Brothers….
“ ‘The private equity firms, being very tough negotiators, are
unlikely to let the banks off the hook,’ said Martin Fridson,” a
leading expert in the high-yield sector.
The bottom line is there are a ton of highly-leveraged deals out
there that have yet to close and are relying on investors of all
shapes and sizes to step up. Will they?
But back to real estate, the CEO of KB Home said on Thursday
that he didn’t expect the U.S. home market to bottom until the
end of next year, 2008, and that he didn’t envision any real price
increases until well into 2009. You can take this to the bank. If
Jeffrey Mezger is correct, as I believe he is, we have serious
problems. It’s comments like Mezger’s that reaffirm my outlook
of last December that it’s not 2007 when the market and the
economy crater, but rather ’08.
Street Bytes
–Stocks had their first losing week in four as the Dow Jones
closed at 14000 on Thursday, but then fell 149 points on Friday
amidst poor earnings from Caterpillar and Google, as well as
further worries in the credit markets. So for the week the Dow
lost 0.4% to finish at 13851. The S&P 500 declined 1.2% and
Nasdaq fell 0.7%.
All manner of earnings were reported this week and thus far they
have generally been solid, but far from spectacular. IBM,
Schlumberger, Honeywell, and SAP were among the better
performers, at least when their report cards were released, but
Microsoft was ho-hum (no one gives a damn about Vista, sports
fans), while in the case of the investment banks, sure, the likes of
Citigroup and Merrill Lynch beat expectations, but their story is
about coming quarters, more so than any other industry these
days. What is their true exposure to the mortgage debacle, for
example? And if the problems in the credit arena spill over into
the acquisition game, as is already happening, how does this
impact the banks’ earnings when it’s been their bread and butter,
along with fixed income trading? Plus a lot of their own capital
is tied up in various investments, whether it’s private-equity or
hedge funds, so the second half of the year could be quite
volatile. In their defense, however, the investment banks are far
more diversified than before, it’s just that most of them have also
been taking on far more risk.
–U.S. Treasury Yields
6-mo. 5.04% 2-yr. 4.77% 10-yr. 4.96% 30-yr. 5.06%
If you doubted there were any serious problems in the credit
markets, all you had to do was look at the huge flight-to-safety
rally in U.S. Treasuries. The 10-year is now back below 5.00%
as fund and risk managers bail out of their lower-rated paper and
seek shelter from the rapidly gathering storm. Or think “Ghost
of Christmas Present” and the emaciated children clinging to his
robe. [Then again, that’s a poor analogy because the managers
getting beaten up have been socking away gigantic bonuses the
past few years…but maybe we’ll revisit this one in ‘08.]
Anyway, there was some inflation news this week and it
contributed in some small measure to the rally as both the
producer and consumer price reports for June met or beat
expectations. I’m not arguing about the real world in terms of
price pressures this week; for now the PPI was down 0.2% and
the CPI up 0.2%. As I’ve said ad nauseam all year, the Fed is
not raising rates, nor do I believe they are about to lower them,
though that could change in another month or two depending on
the speed of the unraveling mortgage crisis.
–Mr. Bernanke did admit this week he was concerned with rising
energy prices; but on a related topic, if you are in the “peak oil”
camp, the one that believes we are close to seeing a top in the
production of crude, perhaps in just a few years, you can’t help
but note that 27 of the 51 oil-producing nations listed in BP’s
Statistical Review of World Energy reported output declines in
2006.
William Rees-Mogg / London Times
“Oil ruled the 20th century; the shortage of oil will the 21st….
“The oil peak debate…is a complex issue, and there are some
grounds for questioning the most pessimistic forecasts, including
the likely development of the Canadian tar sands, and the success
of American enhanced oil recovery techniques. Past forecasts of
oil depletion have often proved wrong, and the present forecasts
are uncertain….
“The five-year view taken by the [International Energy Agency,
that ‘Oil looks extremely tight in five years’ time’] is itself a
central forecast. Some analysts think that the peak oil moment
has already been reached; some still think that it will not come
until 2020 – which is itself only 12 years away. Market trends
and the statistics both support the IEA’s view that consumption
is accelerating and supplies falling faster than expected. Of
course, if the ‘crunch’ point is only five years away for oil, and
closer for natural gas, it has, for practical purposes, already
arrived….
“The world is coming to the end of the age of oil, which
produced its own technology, its balance of power, its own
economy, its pattern of society. It does not greatly matter
whether the oil supply has peaked already or is going to peak in
five or 12 years’ time. There is a huge adjustment to be made.
There will be some benefits, including higher efficiencies and
perhaps a better approach to global warming. But nothing will
take us back towards the innocent expectation of indefinite
expansion of the first months of the new millennium.”
–China’s economy grew at a staggering 11.9% rate in the second
quarter, after rising 11.1% in the first. In response to fears of
overheating, the government raised interest rates a fifth time in
15 months. As you would expect, inflation is rising here, 4.4%
in June due primarily to rising food prices.
China has now passed Germany as the third-biggest national
economy at $2.9 trillion (or slightly higher), trailing only the
U.S. ($13.2 trillion) and Japan ($4.4 trillion). But, the 27-nation
European Union is really #1 with a collective $14.5 trillion.
–For all the talk of tainted food coming into the United States,
the fact is the Food and Drug Administration is able to examine
less than 1% of all imported products. For example, the FDA
never inspected the melamine-contaminated pet food from
China.
For its part, China currently exports $2.3 billion in agricultural
products to the U.S., its third-largest export for seafood, in
particular, after South Korea and Japan.
The food-safety concerns are leading to heightened trade
tensions, with China suspending imports of several major U.S.
meat processors this week, including the world’s largest, Tyson
Foods. China’s food safety organization also accused Tyson of
importing contaminated poultry containing salmonella.
–The surge in the production of biofuels, such as that derived
from corn, wheat and soybeans, is of major concern to the World
Food Program, the UN’s agency in fighting famine.
–I meant to note the declining federal budget deficit last week,
but from a different angle. While many are crowing it could
drop to $200 billion by the end of fiscal 2007 (9/30), which
would be just 1.5% of GDP, consider something you seldom
hear, if ever, when Bush administration officials step forward to
trumpet the improving picture. You know how much Exxon
Mobil paid in income taxes in 2006? Try $27.9 billion. In the
first quarter of ’07, Exxon paid the government another $7
billion.
I bring this up because while there is much talk among Bush
partisans about surging corporate tax receipts, and the impact of
tax cuts, consider how much of the improvement in the budget
picture is due not to administration policy as much as to soaring
oil, and the resultant taxes on same.
Look, I’m a big supporter of tax cuts, but the fact is revenues are
actually below what the Bush administration projected they
would be at this point in time when they issued their projections
years ago. Of concern going forward is the fact Medicaid and
Medicare expenses are already beginning to soar, as forecast, due
in no small part to dreadful actions in Congress.
So take away Evil Big Oil and the deficit picture would be far
drearier. And I shouldn’t have to add that any deficits, of course,
add to the “national debt” and it is this that foreigners have
largely been servicing in one form or another, much to our
benefit thus far, though this is beginning to change.
[By the way, in total taxes, Exxon paid $100 billion in ’06. I just
wish they would bring back the Tigerino and Tigerama games.
Remember those?]
–Real Estate tidbit: Home sales in June for the critical six-county
Southern California market were the worst in 14 years, but the
median price was still up 2.4%….however, the price was down in
2/3s of the zip codes…ergo, it helps when the Beckhams come to
L.A. to put down roots.
–In issuing its earnings report, Merrill Lynch said its subprime
mortgage positions were “appropriately marked.” Ha!
–This is classic…from Ryan J. Donmoyer and Alison Fitzgerald
of Bloomberg.
“The Robin Hood Foundation is a behemoth of New York
philanthropy, where hedge-fund luminaries like Paul Tudor
Jones II throw glittering parties featuring performances by the
Who, the Rolling Stones and Beyonce to raise hundreds of
millions of dollars to fight poverty in the city.
“Now one of the charity’s projects – a rainy-day fund that has
grown to $144.5 million from $20 million in less than a decade –
is drawing scrutiny from lawmakers in Washington. Their main
concern: About half the money is invested in hedge funds run by
Robin Hood donors or board members, who have been paid the
industry standard fee of 2 percent of assets and 20 percent of
profit for managing the donations.
“ ‘I don’t remember Robin Hood keeping two and 20 as his cut,’
says Senator Charles Grassley of Iowa.”
There’s nothing illegal about this, of course, and in some cases
the returns have been great; but it’s also just another huge
conflict of interest. It’s self-dealing.
–General Motors passed Toyota Motor Corp. in global sales for
the second quarter of 2007, but remained #2 for the first half of
the year. GM sold 2.41 million vehicles worldwide to Toyota’s
2.37 million in Q2. GM is doing particularly well in Latin
America and Asia.
–Shares in Google plummeted 7% at the open Friday following
release of its earnings, which while up 28% for the second
quarter, represented the slowest growth rate by far since
becoming a public company in August 2004. What’s interesting
is that Google now employs a staggering 13,800, up 74 percent
in one year, which, as you can imagine, cuts into profits at least
on a short-term basis. But there are also concerns that in listing
“content acquisition costs” in its quarterly breakdown for the first
time, it’s a sign that Google is anteing up large sums to avoid
copyright issues, particularly at its YouTube.com division;
Google having acquired YouTube for $1.76 billion last fall.
–This one surprised me. While the Gulf Coast of Mississippi
has 40 percent fewer hotel rooms and far fewer slot machines
than it did before Hurricane Katrina, as Gary Rivlin of the New
York Times reports, casino revenues are soaring. The same is
true of New Orleans, even though the population has shrunk
about 40% and tourism is down. But it’s kind of sad, really. As
Rivlin notes:
“The casinos in this region are generating more revenue – from
significantly fewer players – in large part because of the extra
money that many area residents have in their pockets and fewer
alternatives on where to spend it.”
There’s been a huge infusion of cash, federal money, and even
dishwashers are making $8.50 an hour due to a shortage of labor.
But then many of these folks just gamble it away.
–The newspaper industry continues to suffer on the advertising
front with little reason for optimism. The Los Angeles Times,
for example, reported its revenue is off 10 percent, and while
online revenue is rising rapidly, it can’t begin to make up for the
shortfall. Overall, online revenue in the industry increased 22
percent in the first quarter of ’07, but online represented just 5
percent of the $49.3 billion in total newspaper ad revenue for all
of 2006.
–Related to the above, Emily Steel of the Journal reports:
“In a development that could threaten the explosive growth of
online advertising, hackers have started to exploit security holes
in the online-advertising chain to slip viruses into ads. Just going
to a site that shows such an ad can infect a user’s computer.”
While this is a very small problem today, it is growing rapidly,
and “80% of malicious computer code on the Internet is found in
online ads.”
–The Financial Times reported that the options backdating probe
is being impacted by changes in the U.S. Attorney’s office in San
Francisco. “Several key lawyers at the top of the office,
including Kevin Ryan, the U.S. Attorney…have left, causing
uncertainty and slowing some of the probes.”
Ryan was one of those sacked by the White House, but what the
FT report doesn’t discuss is another angle. The firing of Kevin
Ryan impacted the investigation of Barry Bonds as a whole new
grand jury had to take up the case with the change in leadership
at the San Francisco office. So thank you, President Bush, for
screwing this one up as well.
–If all you read was the editorial page of the Wall Street Journal,
you’d get the impression that America’s corporate leaders can do
absolutely no wrong. When the post-Bubble fraud cases first
emerged, for example, it was as if the Journal initially defended
every single one of the dirtballs. And so this week I got a kick
out of the Journal’s vigorous defense of Whole Foods CEO John
Mackey and his blogging on the Internet, anonymously. To me,
in disparaging competitor Wild Oats in an attempt to drive down
its share price, just weeks before he made a move to acquire the
company, it’s fraud. Not because of what he said, which is no
more than you or I would do in columns such as this or on a
blog, but because John Mackey was CEO, that’s why, and this
wasn’t disclosed.
–The Times’ Louis Uchitelle had a story on the nation’s elite,
the wealthiest in a “New Gilded Age”; men like the cocky Sandy
Weill, former CEO at Citigroup, or Leo J. Hindery Jr., the latter
saying, “I think there are people, including myself at certain
times in my career, who because of their uniqueness warrant
whatever the market will bear.”
To which former Federal Reserve Board chairman Paul Volcker
responded: “I don’t see a relationship between the extremes of
income now and the performance of the economy,” in
challenging the contentions of the very rich that they are, more
than others, the driving force of a robust economy, as Uchitelle
writes.
“The great fortunes today are largely a result of a long bull
market in stocks, Mr. Volcker said. Without rising stock prices,
stock options would not have become a major source of riches
for financiers and chief executives. Stock prices rise for a lot of
reasons, Mr. Volcker said, including ones that have nothing to do
with the actions of these people.
“ ‘The market did not go up because businessmen got so much
smarter,’ he said, adding that the 1950s and 1960s, which the
new tycoons denigrate as bureaucratic and uninspiring, ‘were
very good economic times and no one was making what they are
making now.’”
–When I was in the mutual fund business, I was intimately
involved in the roll-out of “C” or level-load shares that levied a
higher 12b-1 fee than had been the norm; the 12b-1 being
earmarked for marketing and distribution. [Frankly, I, along
with my compatriots at Thomson Funds (later PIMCO), were the
pioneers.]
In return for not charging a client an upfront sales charge,
though, the annual operating expenses were higher, like by 1%
on an equity fund. In return, most if not all of this was then
passed on to the financial adviser for providing support services
to the client.
Every week the past few months I’ve been meaning to comment
on this issue, now that the 12b-1 charge is under fire from the
SEC, but every time I start to, something else takes precedence.
Let me just say that I totally support the industry in its effort to
maintain it. 0.75% to 1.00% compensation for an adviser on
equity funds, and generally lower on fixed income ones, is fair
when considering the services that they can provide. In almost
all cases, they deserve it.
Of course there are also good and bad advisers, and as a client
you can’t be afraid to ask questions about the investments he or
she is putting you into. The issue, though, often comes down to
disclosure and the fund industry needs to make sure, as much as
possible, that clients understand the charges. Separately, I just
want to reiterate that if you’re buying a fixed income offering,
especially in today’s low interest rate environment, be very
careful with the fees.
–Back to food safety, for the second time in less than a year, the
Easy Bake oven has been recalled. Now there are reports of
children receiving second- and third-degree burns when their
hands or fingers get caught in them. My own recommendation is
not to bake farm-raised catfish from China in the product.
–My portfolio: I haven’t been doing anything. Still hanging out
with a lot of cash, which earns 4.70% in my money market
account and isn’t subject to the subprime mess. But out of
nowhere, one of my two solar energy plays rose 50% this week,
so I may be treating myself to premium lager this weekend. At
least it helps offset my China biodiesel play which has been dead
in the vegetable and palm oil waste used to manufacture the
stuff, though I still believe in the story. [I also find myself
following the weather in Fuzhou to make sure it hasn’t floated
away in flooding or been slammed by a typhoon.]
Foreign Affairs
Iraq: It was a week in which some of the key players in Baghdad
were on a video-conference with members of Congress. At one
point Ambassador Ryan Crocker said, “If there is one word I
would use to sum up the atmosphere in Iraq – on the streets, in
the countryside, in the neighborhoods and at the national level –
that would be fear.”
The top two generals in Iraq, Petraeus and Odierno, offered that
the update to come on Sept. 15 will be but a report card, with
Odierno saying he needed until November “to judge whether the
strategy is working.”
This wasn’t what Congress wanted to hear, from both parties, but
earlier Senate Democrats gave in on attempts to force a troop
withdrawal and the debate will resume in earnest in two months.
I caught “Meet the Press” last Sunday and I’ve seldom seen a
more heated argument than the one between Republican Senator
Lindsey Graham (SC) and Democratic Senator Jim Webb (VA).
Webb acted like he was spoiling for a fistfight.
It’s been an ugly time, and perhaps Gerard Baker summed it up
best, at least for those of us still supporting the effort, in an op-ed
for the New York Post.
“Democracy, Winston Churchill famously observed, is the worst
form of government ever devised – except for all the others.
Well, he was right about the first part.
“In America these days, democracy is living down to its
reputation – producing sticking-plaster solutions to epochal
challenges, indulging the worst populist instincts of its voters,
throwing up demagogic leaders worthy of the job and rejecting
those of true courage. [Ed. see John McCain]
“The most depressing spectacle is unfolding over Iraq.
Washington has reached the stage where vital national interests –
and the security of much of the world – are being determined
almost entirely by immediate, panicky political considerations.
Americans want their troops home.”
Baker goes on to write that prevailing sentiment must be resisted.
But it’s not easy to do so when reports are released that show al-
Qaeda has reestablished its base of operations, and that
Northwest Pakistan’s “safe haven has become more secure,”
leading to an assessment that there remains a “persistent and
evolving terrorist threat.”
Yet when it comes to Iraq, specifically, al-Qaeda is responsible
for just 15% of the attacks, though obviously many of the
highest-profile ones, while a study of foreigners who have been
captured by the U.S. there reveals 45% of them are from Saudi
Arabia, with 50% of these entering as suicide bombers. [15% are
from Syria and Lebanon.]
Iran: Writing in an op-ed for the Wall Street Journal, Nir Boms,
of the Center for Freedom in the Middle East, notes:
“While the world focuses on Iran’s centrifuges, the regime in
Tehran appears to be in the midst of one of its most ferocious
crackdowns on dissent in years. The government has focused on
labor leaders, universities, the press, women’s rights advocates, a
former nuclear negotiator, Iranian-Americans and even civil
servants who demanded higher salaries. Iran’s cruel treatment of
its own citizens is yet another sign that it can’t be trusted to
respect the welfare of other nations….
“The world appears to be not watching. Yet a country brazen
enough to kidnap, torture and liquidate its own people, is an
unlikely partner for a new world order.”
This week President Ahmadinejad traveled to Damascus for
meetings with his partner, Syrian President Assad, whereupon
Ahmadinejad said the summer would see “victories for the
region’s peoples, and with consequent defeat for the region’s
enemies.” Also in attendance was Hizbullah leader Sheikh
Hassan Nasrallah, so the gathering resembled the cast of
characters from the board game “Clue.”
Pakistan: Nearly 300 have died in violence the past ten days,
including the attack on the Red Mosque, as the Taliban, al-
Qaeda, and other extremist elements attempt to topple the
government of Pervez Musharraf. The Fundamentalists
promised revenge for the mosque assault and they are carrying
through on those threats; but not just in targeting Pakistani troops
in the tribal regions bordering Afghanistan, but in other parts of
the country, too. With the situation in such a state of flux, the
Bush administration has to be considering more aggressive
action inside Pakistan, especially if it finds al-Qaeda’s leadership
on the move from their safe havens as a result of Musharraf
launching a full assault on North Waziristan and the Northwest
Frontier Province. [Not that this is likely.]
The lesson Musharraf has learned is that when you play with fire
you often get burned. In this instance, it was his ill-fated truce
with the tribal leaders from last year that backfired in a big way.
[One sidelight to the chaos is that Chinese workers here have
been increasingly targeted and it will be interesting to see what
Beijing does, if anything.]
But on Friday another element was introduced as the nation’s
Supreme Court reinstated Chief Justice Chaudhry. It was
Musharraf’s suspension of him that precipitated massive protests
last March. The vote for reinstatement was 10-3, and as
Chaudhry’s chief counsel said afterwards, “It will have a positive
impact on the independence of the judiciary, for the
strengthening of institutions and for democracy. It’s a big blow
to the Musharraf regime. It’s a big blow to dictatorship.”
In other words, Musharraf will be getting it from all sides and the
nightmare scenario of the nukes falling into the wrong hands is
an increasing possibility.
North Korea: There was some real progress on the
denuclearization front as Kim Jong il shut down the Yongbyon
nuclear reactor complex. But as important as this step is, it’s but
the first in a long line of ones and by week’s end there was
disappointment all around when a timetable for succeeding
actions failed to materialize.
Remember, Pyongyang doesn’t receive 950,000 tons of much-
needed fuel oil (50,000 was delivered with the shutdown at
Yongbyon) and other aid until it declares and disables all of its
nuclear facilities…with verification the obvious big issue.
But in the agreements to date, there is nothing about the actual
nukes that North Korea is said to have in its possession, an
estimated 5-12, nor is there any language on the missiles that
could deliver them. Kim will no doubt use his nukes as major
bargaining chips. So it would behoove U.S. envoy Christopher
Hill to keep from getting too excited, as he did earlier in the
week when he looked like a kid on Christmas morning. That’s
what some of us find disturbing; the Bush administration’s clear
objective of enhancing its legacy, but at what cost?
Israel: There is a surge in activity on this front in terms of
searching for some kind of peace agreement. Tony Blair, the
new envoy for the quartet (U.S., EU, Russia and the UN) is
setting up shop in the region while there is discussion about a
series of talks in New York come September.
Meanwhile, in offering major aid to the Palestinian government
of Mahmoud Abbas, some $270 million including for training of
Palestinian security forces, President Bush urged Abbas to prove
the Palestinians could be a “partner not a danger” for Israel by
arresting terrorists and confiscating weapons. Fat chance of that
beyond a few cosmetic measures. Israel did release some 250
Palestinian prisoners as an act of good will.
But the New York Post’s John Podhoretz observed:
“Right now, America is raining (money) on the Palestinian
government solely because it’s kinda-sorta acting a little bit like
it’s maybe possibly giving up on terror….
“(But) in the first place, we have no reason to expect that a single
cent of that money is going to go anywhere helpful or do
anything good.
“President Bush may believe Abbas has it in him to be the
Gandhi of Ramallah and the Martin Luther King Jr. of Hebron –
but Abbas was also Yasser Arafat’s trusted aide, and one thing
about Arafat and his trusted aides is that they were and are a
bunch of shameless, slimy, monstrous thieves.
“The history of Western aid to Palestinians is an unending and
repugnant tale of graft, theft and pilferage.”
Russia: The UK expelled four Russian diplomats for the
Kremlin’s failure to extradite Andre Lugovoi to stand trial in the
murder of Alexander Litvinenko. Moscow then booted four
British diplomats in a classic tit-for-tat move. Russia also
reminded Britain that it has filed 21 extradition requests, but as a
spokesman for President Vladimir Putin said, “not a single
suspect has been” returned.
Well, the Kremlin’s claim is laughable, especially after Scotland
Yard foiled an assassination plot on former Russian mogul Boris
Berezovsky, exiled in London, and one of those Moscow had
asked to be extradited. Berezovsky was told to leave the country
five days before the plot was to be carried out and the suspect
was then returned to Russia. Berezovsky directly blamed Putin,
this after Boris had said that Putin was responsible for
Litvinenko’s poisoning.
For his part, Putin said the situation between the two
governments was nothing more than a “mini-crisis” and
“everything will be alright.” But you can’t ignore the facts and
Scotland Yard will continue to reveal them.
Earlier, Putin suspended the 1990 treaty on conventional armed
forces in Europe, which had been intended to balance troop
levels between Soviet-led Warsaw Pact nations and NATO.
Putin said he was making the move “due to exceptional
circumstances, in relation to the treaty’s content, that affect the
security of the Russian Federation and require immediate
measures,” citing eastward expansion of NATO and the
placement of an anti-missile defense system in former Soviet
states.
But with all this going on, Putin’s popularity remains sky high at
home, amidst renewed rumors that he will find a way to stay in
power come next year. Just 8 months before the presidential
election, 80% of Russians believe life has improved under
Vladimir, and a like amount agree with Putin’s foreign policy.
He receives a 90% approval rating on his handling of the
economy, while a full 50% believe he will remain in power.
Boris Nemtsov, opposition leader in Russia:
“It is disgusting to watch the ‘Vremya’ nightly news on Channel
One, which reminds me of the broadcasts during the Brezhnev
era. It is appalling how all of the famous journalists who
disagreed with the Kremlin were fired. It is disgusting that the
St. Petersburg clan in the Kremlin controls billions of dollars in
wealth. It is offensive that the level of corruption is now twice
what it was under Boris Yeltsin, which has earned Russia
shamefully low marks in international corruption ratings every
year.
“It is reprehensible that police beat people with truncheons, not
because they are guilty of crimes, but because they have taken to
the streets to demand justice. It is offensive that Putin’s portrait
hangs in every public office….
“It is offensive that under Putin the state has taken on the role of
plunderer and racketeer, with an appetite that grows with each
successive conquest….
“It would be reasonable to ask if only the authorities are to blame
for all this. The answer is no, because it all happened with our
approval, outright support, or, at the very least, our tacit
complicity. The majority is either tired of thinking, is unable to
think, has grown out of practice of thinking, or else simply
doesn’t care. And as long as the majority is content with the
status quo, the chances are slim that conditions will improve in
any way.” [Moscow Times]
Japan: Prime Minister Shinzo Abe’s popularity had fallen to its
worst rating, 25%, when the earthquake hit, thus giving him a
chance to exhibit leadership in a crisis. It’s too early to tell if
he’ll be successful, but one thing is for sure, Japan’s nuclear
energy industry once again showed its true colors; as in it is a
most deceitful bunch.
In the case of the earthquake’s aftermath, the Kashiwazaki
Kariwa nuclear plant, the world’s largest by power output, leaked
about 1,200 liters of radioactive water, which was then flushed
into the sea, per the safety plan.
But officials were slow to notify the public and then we learned
that the fire that hit the facility spewed further radioactive
material into the atmosphere. Then, Japan’s nuclear safety
agency said it found further leaks; all pointing out that the plant
wasn’t built to withstand a powerful earthquake. So this
shouldn’t give anyone a warm, fuzzy feeling about all the other
facilities scattered about the country.
Turkey: Sunday is the big parliamentary election and the ruling
Islamists, the AK Party, should increase their percentage of the
vote, though it’s not clear what the composition of the legislative
body will be in the end. The free market policies of Prime
Minister Erdogan and his followers have worked and the
Islamists have the support of the middle class, it would appear.
But 2/3s is needed to make any changes to the constitution, such
as reversing decades of secular thought, and it’s not likely the
AK Party will reach that level. Much more next week, including
the generals’ reaction and the potential for a major incursion into
Iraq to go after the Kurdish terrorists.
China: The Paris-based Organization for Economic Cooperation
and Development estimated that 20 million people a year will
fall ill with respiratory diseases in China over the coming years
amidst its widespread environmental degradation.
Egypt: Charles K. passed along a story from Al Jazeera on
Egypt’s water crisis, which is little different from crises faced in
so many parts of the world these days. The UN estimates that
tens of thousands of people die each year in Egypt from water-
borne diseases or dehydration, as the country’s latest drought
rages on. And just as in China, the people are beginning to
protest the government’s inability to help them.
One opposition member of parliament said, “How can a country
that has the Nile River suffer like this? A glass of clean water is
a basic right of all citizens.”
Or, as I like to say, clean air and water are basic rights. And
when it comes to developing countries, clean water and roads are
the first two steps to real progress, not the acts of the
“philanthropists” running around Africa, for example, trying to
supply kids with computers. At least Bill Gates and Jimmy
Carter, for their part, focus on health measures, while an
increasing percentage of the world’s assets are going to have to
be directed at the water issue, and soon.
Random Musings
–Peggy Noonan on President Bush
“As I watched the news conference [the other day], it occurred to
me that one of the things that might leave people feeling
somewhat disoriented is the president’s seemingly effortless high
spirits. He’s in a good mood. There was the usual teasing, the
partly aggressive, partly joshing humor, the certitude. He
doesn’t seem to be suffering, which is jarring. Presidents in great
enterprises that are going badly suffer: Lincoln, LBJ with his
head in his hands. Why doesn’t Mr. Bush? Every major
domestic initiative of his second term has been ill thought
through and ended in failure. His Iraq leadership has failed. His
standing is lower than any previous president’s since polling
began. He’s in a good mood. Discuss.
“Is it defiance? Denial? Is it that he’s right and you’re wrong,
which is your problem? Is he faking a certain steely good cheer
to show his foes from Washington to Baghdad that the American
president is neither beaten nor bowed? Fair enough: Presidents
can’t sit around and moan. But it doesn’t look like an act.
People would feel better to know his lack of success sometimes
gets to him. It gets to them.
“His stock answer is that of course he feels the sadness of the
families who’ve lost someone in Iraq. And of course he must.
Beyond that his good humor seems to be disorienting, and
strange….
“Americans have always been somewhat romantic about the
meaning of our country, and the beacon it can be for the world,
and what the Founders did. But they like the president to be the
cool-eyed realist, the tough customer who understands harsh
realities.
“With Mr. Bush it is the people who are forced to be cool-eyed
and realistic. He’s the one who goes off on the toots. This is
extremely irritating, and also unnatural. Actually it’s weird.”
[Wall Street Journal]
–The latest Reuters/Zogby survey shows the Democratic-
controlled Congress with a 14% approval rating. Even President
Bush is at 34% in this one. 26% believe the country is on the
right track, 64% believe it isn’t.
–In an AP/Ipsos presidential poll, “none of the above” leads the
Republican field…23%…vs. 21% for Rudy Giuliani and 19% for
Fred Thompson. On the Democratic side, Hillary leads Barack
Obama 36-20.
–The New York Daily News conducted a national survey of its
own and in a three-man race, including Mayor Michael
Bloomberg, it was 40% for Hillary, 33% for Giuliani, and 10%
for Bloomberg.
–Bloomberg lashed out at federal lawmakers on one of his pet
peeves, illegal guns.
“You couldn’t write this stuff in a book,” Bloomberg said after
House members refused to strike down a law that limits
information that can be shared by police departments on the sale
of out-of-state firearms. “Plain and simple, this is to protect the
criminals, and it puts the civilians in this country at risk.”
[Maggie Haberman / New York Post]
This week another New York City police officer died, from
injuries suffered a week earlier in the line of duty; the 8th in two
years. New York State doesn’t have the death penalty.
–Bloomberg suffered a big defeat this week on his congestion
pricing plan designed to improve traffic and the environment,
thanks to New York’s dreadful legislative leaders.
–Last week I didn’t go with the story on Chinese street vendors
selling buns stuffed with cardboard because I didn’t believe it. It
now appears I was right to ‘wait 24 hours’ as the government has
arrested at least ten people in what Beijing health authorities
claim was a fake report, with officials at Beijing television
saying as much after an undercover investigation revealed no
such product.
–This is sick. According to a survey of 1,500 youths ages 10 to
17 conducted by the University of New Hampshire, one in 25
who surf the Internet are asked at some point to transmit a sexual
picture of themselves.
–And then there is Atlanta Falcons quarterback Michael Vick
and others of his ilk that engage in dogfighting, an activity that is
more common than most would believe. West Virginia Sen.
Robert Byrd took to the floor to label it “Barbaric,” adding “I am
confident that the hottest places in hell are reserved for the souls
of sick and brutal people who hold God’s creatures in such brutal
and cruel contempt. Who are the real animals: the creatures
inside or outside the ring?”
As of today, NFL Commissioner Roger Goodell appears to be
leaning towards letting Vick play while his case proceeds
through the courts. [Others are urging Vick to take a leave of
absence.] Should Vick play, fan reaction is going to be brutal.
This subject has touched a nerve unlike few others.
–The New York Post reported that the FBI is investigating an
NBA referee for allegedly betting on games, including some he
was officiating, as part of an organized-crime probe in the Big
Apple. This could be explosive, to say the least.
–When I was growing up and first becoming vaguely aware
politically, I would observe giants in the Senate such as Mike
Mansfield, Everett Dirksen, and Barry Goldwater. I didn’t
understand many of the issues, but knew these guys were leaders.
There is no way even 5% of today’s youth feels the same way
about Senate Majority Leader Harry Reid, a true embarrassment.
–Before he entered the diner, I asked Tony Soprano for his
thoughts on Barry Bonds, now at 753 home runs thru Friday
night’s action. “Whaddya gonna do?” he said.
—
Pray for the men and women of our armed forces. I admire Sec.
of Defense Robert Gates for his emotional tribute the other day
to a fallen soldier. I need to get back down to Arlington to pay
my own respects.
God bless America.
—
Gold closed at $684
Oil, $75.57…the highest weekly close since one year ago.
Returns for the week 7/16-7/20
Dow Jones -0.4% [13851]
S&P 500 -1.2% [1534]
S&P MidCap -1.3%
Russell 2000 -2.3%
Nasdaq -0.7% [2687]
Returns for the period 1/1/07-7/20/07
Dow Jones +11.1%
S&P 500 +8.2%
S&P MidCap +13.6%
Russell 2000 +6.2%
Nasdaq +11.3%
Bulls 52.3
Bears 19.3 [Source: Chartcraft / Investors Intelligence]
*Next week’s review may be posted a bit late. Among other
things I’m going to a Keith Urban concert in Milwaukee on
Thursday so if you’re attending, I’ll buy you a beer.
Have a great week. I appreciate your support.
Brian Trumbore
