[Posted 7:00 AM ET]
There was a time at the peak of the real estate bubble when I’d tell
you about the latest sale in my townhouse complex, and how
with the prices being totally absurd, I’d discount my own
valuation $100,000 when toying with my net worth. No doubt
I’ve been down on housing for years. It was always about
affordability, to me, and knowing there were a ton of folks who
were stretching far beyond their means.
I’m also always early. I was pounding the table on the Nasdaq
bubble all of 1999, and I was a good 12-18 months early on real
estate, as defined by figures such as housing starts, before it hit
the wall last year.
It’s not always fun hanging out with a doom and gloomer, I’ll
readily admit. All of those books you see on positive thinking,
for example, tell you to avoid the likes of me (he typed with a
grin). Surround yourself only with positive people, the authors
tell you.
And if you wanted nothing but happy talk there was no shortage
of it the past few years, though now you’ve undoubtedly noticed
there aren’t as many infomercials these days touting real estate
with no money down.
But I prefer to think of myself as a realist. Believe me, you may
not hit as many home runs when you adopt this mode, but you’ll
more often than not preserve your capital and still earn a decent
return over any significant period of time.
The world has changed, as economist Robert Samuelson
expounds on from a financial standpoint below. When I was on
Wall Street, I’d tell recent college graduates that were applying
to PIMCO for their first job that the great thing about the
financial services industry is it’s stimulating. Everything that
goes on in the world has an impact on what you do. I left 8 ½
years ago and I recognize the intensity has only increased two-
or three-fold since then.
Yup, you’re always learning and last weekend, as pessimistic as
I’ve been on real estate, I was driving around, checking out all
the For Sale signs (as well as half-finished developments that
won’t be completed, let alone filled, for years), and even I could
only conclude, “Goodness gracious….it’s even worse than I
thought.”
Some of the nation’s leading homebuilders and mortgage
operators have obviously reached the same conclusion in just the
past few weeks. Robert Toll, CEO of luxury homebuilder Toll
Brothers, warned of increasing obstacles to mortgage borrowing.
“In the near term, tightening credit standards for borrowers
should reduce the pool of potential buyers: Liquidity and
affordability issues may impede some customers from closing,
while others may find it more difficult to sell their existing
homes. Excess supply exists in most markets and there is
concern that additional inventory will emerge due to mortgage
defaults.”
That’s for sure. I have a short drive from my home to the office
and I probably pass 150 or so houses along the way, almost all
upper-middle class and above by traditional standards. But every
few weeks I notice a probable foreclosure, where the yard hasn’t
been cut for a few months. Not too long ago this was just the
sign of a pending teardown. No longer. And as I noted this is far
from subprime territory.
The nation’s leading mortgage lender, Countrywide Financial,
issued yet another gloomy statement this week, offering that it
was seeing “unprecedented disruptions” and that the “potential
impact on the company is unknown.”
But the week’s true poster child was French bank BNP Paribas,
which only recently was giving the all-clear signal when
questioned on its own exposure to subprime mortgages.
Suddenly, BNP suspended three of its hedge funds, totaling over
$2 billion, because, as it said, “The complete evaporation of
liquidity in certain market segments of the U.S. securitization
market has made it impossible to value certain assets fairly
regardless of their quality or credit rating.”
The other day, David Malpass, chief economist for Bear Stearns,
had the following conclusion in an op-ed for the Wall Street
Journal.
“The constant warnings of a housing-related collapse in domestic
consumption overstates the importance of housing in the
economy, while understating the importance of jobs and
economic growth, both of which have been solid.”
This totally misses the point that I’ve been making lo these many
years. Housing is the average American’s number one asset.
The bubble created an artificial sense of riches, the wealth effect,
from which the home became a piggy bank. That’s what fueled
consumption, more than anything else. Of course the labor
picture has indeed been a big help, as well, and thank god for
that, but the excess over what would be considered normal (or
‘trend’) came out of housing.
But for a more extended viewpoint, beyond the individual, here’s
Robert Samuelson from his op-ed in the Washington Post.
“(The) housing bust is really a small part of a larger story. Call it
the tyranny of capital markets – global markets for stocks, bonds
and other financial instruments. Our economy is increasingly
under their sway. These markets are, of course, huge. At last
count, the U.S. stock and bond markets alone were worth roughly
$18 trillion and $24 trillion, respectively. Consider the impact
on the ‘real’ economy of jobs and production:
“* In the 1990s, speculation in high-tech stocks and exuberant
venture capital funds fueled a market ‘bubble’ and much
wasteful business investment. From 1998 to 2000, venture
capital investment in start-up firms quintupled, to $105 billion.
Too much money chased too few good ideas. As start-ups went
bankrupt, the stock market lost half its value and the economy
went into a recession in early 2001.
“* The 1997-98 Asian ‘financial crisis’ began when foreign
investors abruptly withdrew funds from Thailand and other
‘emerging market’ countries. Many of them experienced deep
recessions. In 1998, Thailand’s economy was down 10.5
percent, South Korea’s 6.9 percent and Indonesia’s 13.1 percent.
“* High stock and real estate values have powered Americans’
two-decade-long consumption binge. From 1982 to 2005, the
personal savings rate dropped from 11 percent of disposable
income to almost zero. People felt freer to spend – or borrow –
as their financial and housing wealth rose. The Dow Jones
industrial average is now almost 15 times higher than in 1982.
“* Global trade imbalances – huge U.S. deficits and other
countries’ surpluses – stem partly from the ease of cross-border
investing. At year-end 2006, foreigners owned $7.3 trillion of
U.S. stocks and bonds. If the dollars foreigners earned by
exports couldn’t be invested, they’d be sold (depressing the
dollar’s value) or used for imports.
“All this revises standard economics. The basic college course I
took in the 1960s barely mentioned capital markets.
Finance…was considered a sideshow. If the economy did well,
the stock market rose. If companies needed money to invest –
and were good credit risks – they could borrow from banks or
sell bonds. Finance was passive….
“Housing is its latest refutation. The boom stemmed partly from
new ‘subprime’ mortgages, which enabled people with lower
incomes or weak credit histories to become home buyers. Credit
standards were relaxed, down-payment requirements lowered.
The packaging of these mortgages into ‘collateralized debt
obligations’ (CDOs) also encouraged lending….The result:
Credit flowed freely because a (relatively) small number of
investors assumed big risks.
“It was a bad gamble….But it captures a larger dilemma. Capital
markets are not just incidental to economic growth. They’re a
force for both good and ill. The recent financial innovations
have made it easier for countries, companies and individuals to
borrow and tap investment capital….
“The peril is that so much has changed so quickly that no one
knows how the system operates. It’s often roulette.”
About now, I imagine, you’re looking for some happy talk.
CNBC’s Maria Bartiromo chirped this week, “The world is not
falling apart…remember what Hank Paulson said yesterday!”
Oh brother. Treasury Secretary Hank Paulson. Look, we know
that administration lackeys are the last ones who will step before
the people and tell them the truth, but for weeks, nay, months,
Paulson has been saying the subprime housing debacle would be
“contained.” He’s also been saying he’s never seen a global
economy as strong as the current one in his lifetime. Cisco’s
John Chambers echoed the theme this week.
But this has been my bottom line. While the global economy is
strong and I underestimated its strength, we’re also in the midst
of a global real estate bubble; not just in the United States, but all
over. Other markets may not have securitized their mortgage
interests as we have, but eventually the impact will be the same.
There is over-building taking place all around the globe. Yes,
it’s a boom….but busts follow booms just as night follows day.
What compounds the issue, however, is leverage. Lots and lots
of it, from individuals to hedge funds to corporations;
particularly with the private-equity crowd in the last instance.
And notice how I’ve gotten this far in my commentary and
haven’t even mentioned the Federal Reserve. That’s because at
this point it’s largely irrelevant.
Oh, sure, the Fed and other central banks can stem the tide, short-
term, as they did late this week in injecting massive amounts of
liquidity to stabilize the cash market, but further out it is going to
take years to unwind the excesses regardless of what Mr. Central
Banker does.
For the record, though, the Fed’s Open Market Committee once
again held the line on interest rates this week, reiterating that the
“predominant policy concern remains the risk that inflation will
fail to moderate as expected.” They acknowledged that the
“housing correction is ongoing,” but then said, don’t worry…be
happy. Additionally, “The economy seems likely to continue to
expand at a moderate pace over coming quarters, supported
by…a robust global economy.”
There you go again…………….
Lastly, since I’m not losing my shirt holding CDOs, CLOs, or
any of the other exotica that is increasingly toxic these days,
what has been another common theme in these columns over the
years?
“When it comes to derivatives, people don’t know what they
own.”
I imagine I’ve only written that about 50-75 times. In case you
were on vacation the past few weeks (a real one) and have been a
little out of the loop, this has become the biggest immediate issue
in terms of determining securities’ values. That and the fact
many hedge funds were playing the same game, meaning
performance has suffered in some and now they face the
nightmare scenario of having to meet redemptions, which begets
further selling. It’s for a good reason that the SEC is looking
into the books of the investment banks to make sure the Goldman
Sachs’ of the world are treating both sides of the trade fairly.
Many on the Street are not, as will be proved later. There are
bonuses, third homes, and jumbo mortgages to worry about, after
all.
Street Bytes
–Stocks broke a 3-week losing streak thanks to a late rally on
Friday that allowed the major indexes to post gains after a 387-
point bloodbath on Thursday. The Dow Jones rose just 0.4% to
13239, but the S&P 500 picked up 1.4% and Nasdaq posted a
1.3% gain. As alluded to above, the Fed had to intervene three
times in adding cash to the system, which had a positive effect,
but the proof will be in next week’s action.
–Forget equities for a moment. Retail sales at the chain stores
were far from great for the month of July, while the back-to-
school season could be a real problem as well. And in another
sign of the times, Home Depot is being forced to lower the sales
price on its construction supply division by the private-equity
buyers. I’m picturing the latter jacked up HD officials in the
power saw department for full effect. Other announced deals
face a reworking of the terms as well, if they go through at all.
–U.S. Treasury Yields
6-mo. 4.78% 2-yr. 4.46% 10-yr. 4.80% 30-yr. 5.03%
Yields were all over the place and I’ll spare the commentary until
next time. The week was light on economic news, but this
coming one features a further report on retail sales, along with
data on industrial production, housing, and inflation.
–A Wall Street Journal survey of 54 economists found they
lowered their forecasts just a hair to 2.3% GDP growth in the
third quarter, 2.5% in Q4, and 2.8% for 2008. I would beg to
differ on ’08, big time.
–Crude oil slipped $4 despite bullish news on the inventory
front. The concern among traders was that a slowing global
economy would dampen demand. But the International Energy
Agency reiterated that the world’s current supply isn’t enough.
The IEA is urging OPEC to open up the spigots to prevent
another price spike that could kill economic growth for good.
–Mara Der Hovanesian had an excellent piece on real estate in
Business Week. She notes, “In January, industry analysts
predicted that the 10 biggest builders would have average
earnings per share of $3.69 for 2007; the latest forecast is for a
loss of $1.18.” That’s how quickly it turned.
–Another real estate tidbit: 32% of homebuilder profit at the
peak in 2005 came from California; with another 14% in Florida
and 10% in Nevada. 56% in just those three…which
coincidentally are about the three worst markets today.
–But wait…there’s more! According to S&P, homebuilder
Hovnanian has negative cash flow and faces far more
cancellations. One issue…it, and the others still own too much
land. Yet I saw Hovnanian’s CEO on CNBC the other day and
he said all is calm…all is bright.
–After the close on Friday, Beazer Homes announced it was
delaying its quarterly SEC filing due to accounting issues. If I
were them I’d change my name to Beaver and see if the
government notices.
–Reader Billy F., responding to my comment the other day about
the issue of rising property taxes while the value of your home
declines, notes “a market-friendly and equitable reform is to
lower the tax on buildings, while simultaneously increasing the
tax on land values; ‘two-rate’ taxation. Land with easy access to
public services is ideal for development and therefore very
valuable. However, such land often remains under-developed as
the landowners’ cost of inaction are small relative to the potential
profits from buying and holding land for speculative gain.” I’ll
explore this topic more as time goes on.
–China’s trade surplus for the month of July was another $24.3
billion, the second-biggest monthly figure ever, on the heels of
accelerating export growth, 34%, despite a string of recalls and
product safety concerns. Numbers like this make for an easy
target in the U.S. Congress.
–Cisco Systems supplied some good news in issuing a solid
earnings report with revenue up 18%, thanks to increasing
demand for upgraded networks that can handle the latest video
and data traffic; meaning YouTube and the like.
Speaking of which, I saw on the “Today” show the other
morning that the latest craze is for kids to order drinks at the
drive-through window of a fast food restaurant and then throw
the drink at the server, which is videotaped and shown on
YouTube. What a sick society we are.
–President Bush said he was convinced there would be a “soft
landing” in real estate. He also thought there was enough
liquidity for the “market to correct,” a statement that had some of
us scrunching up our faces trying to figure out if he had really
said this. But fear not…we were told on Friday “the president is
monitoring the economy.” Phewww. I feel much better.
–What an arrogant bunch Bear Stearns is. Bear liquidated its
two bankrupt hedge funds in the Cayman Islands instead of New
York to limit the ability of creditors and investors to get their
money back. The move also largely prevents victims from filing
lawsuits. You could sue in the Caymans, but judges there have a
track record of supporting management. Bear CEO James Cayne
also traveled to China looking for a cash infusion. Can you say
“China Century?”
–The Financial Times commissioned an analysis of 27 big deals
in North America and found suspicious trading in 60 percent of
them prior to any formal announcements. This compares to one
case out of the seven largest deals announced in 2003. John
Coffee, a Columbia University law professor, concluded:
“You’re in a world where there is much more competition. You
need to trade quicker, search for additional facts. Sometimes that
induces illegal behavior. Human nature has not changed since
2003, but the predominance of hedge funds has.”
[Of course with the current credit crunch, you aren’t about to see
another “27 big deals” anytime soon.]
–Former Brocade Communications CEO Gregory Reyes was
convicted on all 10 criminal charges for fraud and conspiracy
involving the backdating of stock option awards; a huge win for
the government as it represented the first guilty verdict in this
widespread scandal. The SEC is pursuing similar investigations
at more than 140 companies.
[Just a reminder to those who insist on defending the backdating
practice. If it wasn’t properly disclosed, it’s fraud, pure and
simple; let alone the fact in almost every instance there were tax
consequences. In Brocade’s case, it illegally boosted earnings,
which impacted the share price, the value of options held, etc.]
–Former Home Depot CEO Bob Nardelli has ended up at
Chrysler where he will head up the No. 3 U.S. automaker. This
reminds me of the major league baseball manager merry-go-
round, where one gets fired and very often ends up elsewhere
despite a sorry track record. Then again, the man Nardelli is
replacing is named Tom LaSorda.
–Scott P. was traveling in Colorado and drove past Lucent’s
facility in Littleton. He reports that the lawn looked green and
trimmed, which ordinarily would be a good sign when
employing my lawn indicator, but Scott added he couldn’t tell if
it was painted on.
Separately, Scott, who resides near Cape Canaveral, opined on
my NASA comments of last week; but from the standpoint of the
ongoing “brain drain” from the Cape as it “forfeits its
competitive advantage to Alabama’s and New Mexico’s
commercial space capabilities.” Good point. He adds it’s time
to “reignite the passion and energy that took us to the moon the
first time.”
–My portfolio: After reporting strong earnings, I purchased more
shares in my China biodiesel investment…selling some in
another holding to pay for it, thus keeping my cash level near the
80% benchmark I’ve advocated. The expansion plans I’ve been
betting on appear to be on track, even if a bit later than expected
(though the company would dispute this).
Of course I’m conflicted on the play. If you’re new to this
column, I read an interesting research report, flew to China
(Fuzhou) to visit the operation, liked the people, and am betting
an increasing portion of my equity exposure on its success, even
though I also see long-term problems for China in general.
But this isn’t buying into an Internet operator or a toy
manufacturer. China’s biggest issue over the coming years, aside
from the potential for political unrest, is its environment and a
biodiesel operation should be successful. That’s my bottom line.
I was, however, unhappy to hear my company will be
increasingly using palm oil leavings because palm oil is a major
target of environmentalists. For now, though, the company has
assured me they have alternative supplies should the palm oil
channel be cut off through government action in places like
Indonesia.
Meanwhile, on the pollution front, China celebrated the one-year
kick-off for the Beijing Olympics, which commence next Aug. 8,
and it brought to the forefront yet again the air quality issue. A
British Olympic Association executive told the South China
Morning Post, “It’s interesting to see the air pollution with my
own eyes over the past week. It’s really an acute problem. But
on the other hand, we have noticed the consciousness and efforts
by organizers to tackle the issue.”
They have no choice. The world is watching.
–Check out my “Wall Street History” series on Aug. 1982.
Sunday is the 25th anniversary of an historic market low.
–Lastly, the Journal ran a story by Kelly Greene on the backlash
against equity-indexed annuities, a hot investment product.
When I was in the fund business, I hated this stuff for the simple
reason that the expenses were high, many investors didn’t
understand the surrender charges, and it just made more sense to
buy a good equity fund and couple it with term insurance.
Since then, while expenses have come down some, from what I
understand (and I admit I don’t follow this arena closely
anymore), there is still a ton of deception taking place in the sales
process.
Foreign Affairs
Iraq: We all could use a break from the commentary, I think
you’d agree, and I have little to bring to the table today. In about
four weeks, General David Petraeus will present his update on
the surge to Congress and everyone knows what he’ll
say…aspects of the surge are working and we need more time.
Democrats, in turn, will have hammered out their talking points
during the recess and will advocate yet again for a timetable for
withdrawing troops. Some Republicans will join the Democrats,
as we saw recently, and President Bush will accept some form of
compromise.
What will force the issue is the fact that while militarily there
may be progress, there has been zero when it comes to the Iraqi
government and it will be impossible for the White House to
dispute this come September.
It also doesn’t help the White House’s case for staying the course
when you have reports that the U.S. military can’t account for
190,000 guns.
Meanwhile, the dialogue between Iraqi Prime Minister al-Maliki
and Iranian President Ahmadinejad was more than a bit
unsettling, as Bush himself had to admit. Iran said U.S. troops
must leave immediately, while Maliki praised Iran for its
“constructive” role in “fighting terrorism.” You can be sure
Bush read Maliki the riot act after this became public and the
president was made to look like a fool during his press
conference the other day.
Then there is Turkey. Maliki met with Turkish Prime Minister
Erdogan on the issue of the Kurds and Maliki vowed to crack
down on the terrorist PKK organization. Of course this was
meaningless, as Erdogan well knows, because there is no way
Maliki can crack down without having the Kurds withdraw from
his government.
For his part, Erdogan appears to be turning some to Iran as
Turkey seeks closer cooperation on both the energy front and in
dealing with their common foe; Iran having its own share of
Kurds seeking independence.
Back to Iraq, the evidence is irrefutable that Iranian-made bombs
are killing U.S. soldiers. At some point the administration has to
say ‘enough!’ Geopolitical concerns have taken somewhat of a
backseat the past few months, thanks in no small part to the
increased volatility in global financial markets.
But while we’ve been asleep, not only is Iran’s nuclear weapons
program progressing, virtually unimpeded, but Iran is also
getting bolder in confronting the United States through its
various proxies. This must stop.
September is going to be an incredibly busy month on the foreign
policy front. Aside from the Iraq debate, the U.S. will be
pressing its case for increased sanctions against Iran at the UN
Security Council, with probably little success. Other hot spots,
some of which I list below, will be heating up as well. Try and
get some rest over the coming weeks. You’ll need it.
North/South Korea: The leaders of the two are slated to meet for
only the second-ever summit in Pyongyang, Aug. 28-30. The
first was also in Pyongyang, June 2000; a fact that ticks off many
South Koreans. The North’s Kim Jong Il, after all, had pledged
the next one would be in Seoul. So Lil’ Kim is obviously afraid
to travel, let alone he’s a scheming liar straight out of the Gollum
mold.
As for what is expected to come out of the summit, no one
knows but I’ll take a stab at it. Kim will ask for all kinds of
goodies and investment, South Korean President Roh will likely
acquiesce as he seeks to burnish his legacy, there will be some
talk of ending the Korean War on a formal basis, but Kim won’t
do anything more than he already has on the nuclear weapons
front.
Israel: Citing a “severe potential threat,” the government is
warning Israelis not to visit Muslim countries over the coming
months, especially ahead of the mid-September Jewish holidays,
over fears Hizbullah is preparing to abduct Israelis. Aside from
Jordan and Egypt, terrorism experts are warning against going to
Morocco and Tunisia.
Pakistan: President Pervez Musharraf is in deep trouble and his
leadership is being questioned on a number of different levels.
Also his allegiances. This week he blew off Afghan President
Hamid Karzai’s “peace jirga,” or tribal council composed of 700
or so elders from the region, as did leaders from terror-plagued
Waziristan. Musharraf said he had other things to do, but as the
Taliban was not invited to the jirga it’s easy to read that
Musharraf didn’t want to tick them off any further than he has
already done so. In other words, once again Musharraf is
attempting to walk the tightrope where he doesn’t appear to be
too pro-American, especially since the jirga was basically
Washington’s idea.
Musharraf had also threatened to declare a state of emergency,
but here the White House prevailed and insisted that Pakistan
hold free and fair elections this fall.
Russia: The Kremlin denied it fired a missile outside a village in
Georgia, though Georgia claims it has irrefutable evidence it was
the target of a Russian airstrike. [The missile did not explode.]
But once again, Georgia appealed to the world community and
heard nothing in return.
China: Amnesty International issued a report saying that Chinese
authorities have reneged on pledges made when bidding for the
Olympic Games by heightening abuse and surveillance of
political and religious dissidents, as well as jailing journalists.
An AI official said “Not only are we not seeing delivery on the
promises made that the Olympics would help improve the human
rights situation in China, but the police are using the pretext of
the Olympics to extend the use of detention without trial.” [South
China Morning Post]
I also just have to comment on all the talk this week of China
using its huge U.S. dollar reserves as a “nuclear option” in
combating any new trade sanctions levied by Congress against it.
This has always been a concern.
But while a trade war is a distinct possibility unless cooler heads
prevail in Washington (and Europe, for that matter), I have
argued that where China can use its dollar reserves most
effectively is in its handling of a future crisis over Taiwan.
One must assume that taking Taiwan is off the table until after
the Olympics, but next year will also see some maneuvering out
of Taipei that will be none too pleasing to Beijing.
Here’s the bottom line. If and when China feels compelled to
strike Taiwan, which would fall in days, China will use the
nuclear option against any threats by Washington to come to
Taiwan’s aid. “Lay off…or we tank your economy.”
Lastly, some in the U.S. defense community are expressing
concern over strengthening ties between China and Thailand in
the wake of the September military coup that cooled relations
with Washington. As reported by Wendell Minnick of Defense
News:
“The United States suspended $24 million in military aid to the
country and canceled military education programs. But China
quickly recognized the new government and offered $40 million
in military training and other aid.”
For years people have been warning the U.S. not to take Asia’s
support for granted. But then the White House has had its
attention focused elsewhere.
–U.K. authorities said there is a “strong possibility” that the
current foot-and-mouth disease outbreak originated at one of two
laboratories nearby. At this point it’s unclear whether this was
an accident or sabotage. Back in 2001, an epidemic led to the
slaughter of as many as 10 million animals.
Afghanistan: Congratulations to our friends for increasing their
global share of the poppy crop from 92% to 95%, as production
has increased 15% since 2006! Most people aspire to be world
leaders in technology or manufacturing. But only one nation can
call itself the world’s leading source of heroin.
Others would say this is not a good thing; as in the profits help
fund the Taliban. The United States and the NATO coalition
have been in Afghanistan for almost six years. Counter-drug
efforts have obviously been a miserable failure.
Mexico: The White House is preparing a massive aid package to
counter the seriously deteriorating situation in Mexico
concerning the narco-traffickers.
Ralph Peters / New York Post
“Imagine if our country were so ravaged by drug cartels that the
president sent the military into a third of the states to break the
terror. That’s where Mexico is today. We all pay the price.
“Narcotraficante infighting took over 3,000 lives in Mexico last
year as the Sinaloa and Gulf cartels struggled for turf. With
government officials and police officers facing the old choice of
‘silver – or lead,’ out-of-control corruption plagued the
country….
“In response, Mexicans elected a tough president, Felipe
Calderon. And President Calderon took action, ordering the
army into nine states and deploying troops to cities such as
Tijuana and the run-down resort of Acapulco.
“But the drug lords are fighting back. Today, the level of
violence transcends mere crime. Mexico faces a narco-
insurrection. And its government needs help….
“(This) is going to be a long struggle. Ninety percent of the
cocaine and much of the heroin and methamphetamine entering
the United States now transits Mexico. For us, the immediate
problems are addiction and crime. Drug abuse was behind many,
if not most, of the 1.8 million violent crimes committed here in
2005….
“We can’t just blame this problem on Mexico. Without the U.S.
market for illicit drugs, Mexico’s transit-corridor problem
wouldn’t exist….
“Now, here we are. And we’ve got to do something. Because
Mexico’s problem is our problem.”
Felipe Calderon is a real hero in this crisis. He is the only one
who has been willing to stand up to the drug lords. But as Ralph
Peters concludes, “Thanks to his crusade… President Calderon is
himself a prime candidate for assassination….This is one
insurgency that must – and can – be defeated.”
Canada: Prime Minister Stephen Harper donned his rubbers and
trekked to the Arctic (the ground is soft underfoot this time of
year) after Russia’s action to plant a flag under the North Pole.
As a Harper spokesman said, it was time “to reassert Canadian
sovereignty,” by god, while the prime minister a few weeks ago
noted “We either use (the Arctic) or lose it. And make no
mistake – this government intends to use it.”
Canada’s opposition, though, has had a field day because, for
starters, Canada has no icebreakers heavy enough to even tackle
the Arctic ice.
No problemo, as Bart Simpson would say; the ice continues to
melt at a rapidly increasing rate. So who needs icebreakers?!
Meanwhile, Harper vowed Canada would build two military
bases in the far north on the shores of the disputed Northwest
Passage. Yes, soon we could be talking The Battle of the Baffin
Islands! [If I’m a soldier, I’m watching out for the ferocious
leopard seal.]
Random Musings
–In the latest USA Today/Gallup Poll, Hillary Clinton has a 48-
26 lead over Barack Obama, while among Republicans, Rudy
Giuliani leads Jeri, err, Fred Thompson, 33-21, with John
McCain hanging in there at 16%. President Bush’s job approval
rating ticked up to 34% from a low of 29%. Today is the
meaningless Iowa straw poll.
–The American Society of Civil Engineers estimates that fixing
all the structurally deficient bridges in the U.S. would cost
upwards of $190 billion over two decades. The obvious solution
is a dedicated gas tax, but President Bush on Thursday nixed this
idea. We will have zero sacrifices of any kind, ever!
On the broader issue of whose fault the Minneapolis bridge
collapse was and what it says about us, John McQuaid had some
of the following thoughts in an op-ed for the Washington Post.
“(The) bridge disaster reflects a broader and more troubling
problem. The United States seems to have become the
superpower that can’t tie its own shoelaces. America is a nation
of vast ingenuity and technological capabilities. Its bridges
shouldn’t fall down.
“And it’s not just bridges. Has there ever been a period in our
history when so many American plans and projects have, literally
or figuratively, collapsed? In both grand and humble endeavors,
the United States can no longer be relied upon to succeed or even
muddle through. We can’t remake the Middle East. We can’t
protect one of our own cities from a natural disaster or, it seems,
rebuild after one. We can’t rescue our citizens when they’re on
TV begging for help. We can’t even give our wounded veterans
decent medical care….
“When Hurricane Katrina comes up, most people think first of
the disastrous emergency-management response to the storm.
But the biggest screw-up wasn’t anything that then-FEMA
Director Mike Brown did; it was the failure to protect New
Orleans in the first place. In the decades before the storm, the
U.S. Army Corps of Engineers built a flood-control system for
the city that was sloppily designed, haphazardly construed and
failed to consider the obvious fact that the land it was built on
was rapidly sinking into the Gulf of Mexico. Worst of all,
agency engineers approved flawed designs that caused canal
floodwalls to collapse precipitously – errors that, when the
numbers were tallied, accounted for most of the flooding in
2005.”
If you felt my own comments from last week on the bridge
collapse were a bit over the top, here are the thoughts of the New
York Post’s John Podhoretz from his column on Tuesday.
“(In) this case, anger is an appropriate response, and it is proper
for that anger to be directed at government – government at all
levels.
“Through the normal wear and tear of the years – wear and tear
that was measured and is measurable – the bridge, dubbed the St.
Anthony Bridge, was a disaster waiting to happen. And it
happened.
“It happened despite a massive, 46 percent increase in federal
support for Minnesota roads in the 2005 transportation bill –
which provided the state with $1.1 billion over five years.
“It happened despite inspections, the most recent in May.
“There is literally, no excuse for an event like this….In this case,
a bridge collapsed during rush hour for no external reason other
than it just gave out. And that is a greater outrage than the
aftermath of Katrina.
“Why? Boil down government to its basics, and they are the
maintenance of public safety and the upkeep of publicly owned
spaces and services.
“To maintain public safety, we have armies (to defend us from
external threats), police forces (to protect us from criminals) and
firefighters. That’s part of the reason we pay taxes to
government in the first place.
“The other part is to keep up publicly shared spaces and utilities
– parks, streets, reservoirs, water tunnels, sewage tunnels and the
like.
“Government properly requires all citizens to share in defraying
the cost of these expenses because it supplies them to everyone
without question.
“The social compact here is simple. We give the money to
government, and all we ask in return is that these publicly shared
responsibilities are properly maintained.
“Maintenance is necessary but boring, and since government is
made up of human beings who abhor boredom, few elected
officials are all that interested in this mundane task. Instead, they
want to do big, exciting, bold new things – things they can claim
for their own….
“Under these conditions, government workers and elected
officials aren’t given much credit for just keeping things going –
for doing the invisible but necessary work of ensuring that
bridges don’t just fall down.
“Maybe that’s why the attack on government faded so quickly
after the tragedy last week – because this isn’t just a failure of
government. It’s a failure of the citizenry – of all of us.”
–By the way, if you are one of those adventurous types who is
contemplating moving to New Orleans like a homesteader of old,
you really should think twice. USA Today’s Becky Bohrer had a
most troubling story.
“The city Sewerage and Water Board says at least 50 million
gallons of water a day are being lost to leaks, or 2 ½ times pre-
Katrina levels. The board also believes raw sewage is leaking
out in places.
“The large fear is that if some water pumps fail – whether
because of a power outage, some other kind of mechanical
trouble, or another Katrina-like storm – a drastic drop in pressure
could allow raw sewage or other pollutants to back up into the
water system through the leaks. And that could contaminate the
drinking water in some neighborhoods for days or even weeks.”
–President Bush got a big win as the House voted 227-183 to
expand the government’s abilities to eavesdrop without a
warrant; following the Senate’s approval. Bush said, “The
Director of National Intelligence…has assured me that this bill
gives him what he needs to continue to protect the country.” The
act gives the government leeway to intercept calls without
warrants, which in most cases were required under the Foreign
Intelligence Surveillance Act (FISA).
–We had a high-profile murder case in Newark, NJ, as last
weekend three good kids were executed, with a fourth seriously
injured. Mayor Cory Booker did not handle the first hours after
the crime well, but afterwards sprung into action. Regardless,
some of Newark’s idiots (of which there are tens of thousands)
immediately blasted Booker and called for his resignation.
Understand that Booker, as I’ve stated in these pages numerous
times, is Newark’s best hope following over 40 years of just
godawful, corrupt leadership that helped bring the city down to
the depths of despair.
But as I’ve also noted, these days when it comes to the crime
problem in our inner cities, it’s also about victims or witnesses
being afraid to come forward. The whole ‘no snitching’
mentality promulgated by the hip-hop culture.
On a related issue, it should then come as no surprise that the
Justice Department released statistics this week showing half of
the nation’s murder victims are black, even though blacks make
up only 13% of the population. 93% of the black victims are
killed by other black people.
National Urban League President Marc Morial said “The mixture
of illegal drugs, easy access to handguns, and young men who
feel locked out of economic opportunity is what these statistics
reflect.”
The last part is a total copout.
–Last week I mentioned that when first given the opportunity to
comment on the NASA report that two astronauts may have been
inebriated before flight, I said I opted to employ my adage “wait
24 hours.” I also just had doubts as to the veracity of the story.
So it turns out that NBC News looked into the allegations and
reported the other day that it could not substantiate the claims in
any way.
–I received the Aug. 13 issue of Sports Illustrated on Wednesday
and it’s a super cover shot of Barry Bonds hitting No. 755. In
the old days I would have framed it and placed it in my game
room with other SI covers of Joe Namath, Tom Seaver and
Willie Mays. In fact, when Mark McGwire hit No. 62, I framed
that Sports Illustrated cover and put it up. I long since removed
that one, and as for the Bonds cover, it quickly found the trash.
It was a sad week. All of us baseball fans of a certain age
remember how exciting it was back in April 1974. I have to
admit that in 1972 and 73, I was the same traditionalist I am
today and didn’t want to see Ruth’s record broken, though I
learned to embrace Aaron.
But Bonds? I never gave it a second thought. I headed for bed
rather than stay up.
The New York Times editorialized:
“Well, that home run has now been hit, the one that breaks
Aaron’s record with an asterisk. Bonds, who has been the least
affable of players, has been affability itself for the past few days.
He is protected – or covered up – by the players’ union and
organized baseball, which loves the attention as much as Bonds
does. You can hear the logic of the game as it is played now in
Bonds’ argument that he is fundamentally an entertainer, a claim
that is echoed roundly by his fans. To our minds, though, there
was nothing wrong with the original Bonds, except perhaps his
character. Back then, at least he displayed – without those
nagging doubts – the grace of his own gifts, the patience of his
own strength.”
Christine Brennan of USA Today had an interesting take.
“What will (future) sports fans think of us – not just San
Franciscans, but all of us, the baseball media, too – decades from
now? Won’t they look at the replays of Bonds’ 756th home run
and ask how everyone, how anyone, could be so ecstatic
knowing our own era’s steroid history?
“How the East Germans stole Olympic medals throughout the
1970s and into the 1980s by giving mounds of steroids to their
teenage girl swimmers and track stars? How Canadian sprinter
Ben Johnson passed drug test after drug test, successfully getting
on, then off, the juice, before finally getting caught at the 1988
Olympic Games after winning the 100-meter dash?”
I read Brennan’s piece and couldn’t help but go back to the 1976
Summer Olympics. The previous year, a high school classmate
of mine, swimmer Kathy Heddy, was USOC Sportswoman of the
Year, having captured gold at both the Pan Am Games and the
1975 World Championships. U.S. women swimmers were
dominating. But one year later, things changed. A quick glance
at the results showed East German women sweeping all but one
event (a Soviet won the other) as we all watched on the screen
and thought, ‘Are those really girls?’ We learned years later they
basically weren’t.
–Finally, I’m heading out to Iowa for some research, fresh air,
and conversation. As you may have seen on the news, this is
Iowa State Fair time so I’ll also bump into a phony politician or
two, I imagine. Anyway, next week I’ll be coming to you from
Des Moines.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $681
Oil, $71.47
Returns for the week 8/6-8/10
Dow Jones +0.4% [13239]
S&P 500 +1.4% [1453]
S&P MidCap +1.3%
Russell 2000 +4.4%…yippee!
Nasdaq +1.3% [2544]
Returns for the period 1/1/07-8/10/07
Dow Jones +6.2%
S&P 500 +2.5%
S&P MidCap +5.9%
Russell 2000 +0.1%
Nasdaq +5.4%
Bulls 43.8
Bears 31.5 [Source: Chartcraft / Investors Intelligence…just
two weeks ago the figures were 53.9/18.0 and I reminded you at
the time this was a contrarian indicator. Newsletter writers had
suddenly become too bullish. Now sentiment has swung wildly
the other way. It’s just one indicator, but every now and then it’s
meaningful………which is why after all these years I keep
posting it!]
Have a great week. I appreciate your support.
Brian Trumbore
