[Posted 7:00 AM ET]
And Now the Real Fun Begins….
Welcome to September. I hope you had a chance to recharge the
batteries this summer because the next 30 days, let alone the rest
of the year, promise fireworks on a number of fronts. Globally,
it’s all about Iraq and Iran, though one can’t ignore the elections
slated for two other hot spots this month, Pakistan and Lebanon
(if they indeed come off as slated).
And when it comes to Wall Street, we’ll soon learn the full
impact of the credit crunch as the players return from the
Hamptons to deal with the $300 billion or so backlog in
financing for previously announced deals, let alone Sept. 18 and
the Federal Reserve’s next move on interest rates.
It was really quite comical, though, to see Fed Chairman Ben
Bernanke admit that for all his brainpower he lacked, shall we
say, common sense when dealing with the housing bubble since
he took over for Alan Greenspan. Until this week, not one
pronouncement of his has proved to be on the mark; not that
being correct would have changed the Big Picture, however.
We have gone from ‘zero contagion,’ as Bernanke once put it, to
“global financial losses (triggered by the mortgage crisis) have
far exceeded even the most pessimistic projections of credit
losses on those loans,” which is what the chairman said on
Friday.
So now he’s beginning to understand and at the bankers’ shindig
in Jackson Hole this week Bernanke added, “Developments in
financial markets can have broad economic effects felt by many
outside the markets, and the Federal Reserve must take those
effects into account when determining policy.” Then the markets
roared with approval when he said the Fed “stands ready to take
additional actions” to boost liquidity, and “will act as needed to
limit the adverse effects on the broader economy that may arise
from the disruptions in financial markets.” Why the Fed has to
lower rates come September, mused traders…it just has to.
The Fed released its minutes from its August 7 meeting this week
as well and the contrasts are stark. Just three short weeks ago,
this brain trust offered that it was looking for “continued
moderate growth,” while “the upside risks to inflation remain the
most significant policy concern.” And just three weeks ago, the
Fed was sanguine on the mortgage market and credit availability.
Now, Bernanke has been forced to admit, as he did on Friday,
that the housing downturn “has been sharp,” and “further
declines in homebuilding are likely.”
“Obviously, if current conditions persist in mortgage markets,
the demand for homes could weaken further, with possible
implications for the broader economy. We are following these
developments closely.”
But Bernanke was also forced to admit that any changes the Fed
makes to the key funds rate could have minimal short-term
impact.
Of course….because it’s already too late!!!!
You may have noticed I have said little about my own thoughts
on actual levels of interest rates all year, except to note
emphatically from the first day of January that the Fed would not
raise rates once in 2007; this at a time when the Street was
divided 50/50 on such a proposition.
The reason why I have said little on the topic, though, is because
at this point in time the Fed is largely irrelevant. The die was
cast long ago. No one can dispute contagion is spreading and I
reiterate, this is global, sports fans. It’s just unfolding at
different rates of speed depending on where you are.
Economist Robert Shiller, in an op-ed for the New York Times,
Aug. 26, on market psychology.
“Classical economics cannot explain this (current boom cycle),
because underlying these booms is popular reaction to the price
increases themselves. Rising prices encourage investors to
expect more price increases, and their optimism feeds back into
even more increases, again and again in a vicious circle. As the
boom continues, there is less fear of borrowing heavily, or of
lending heavily. In this situation, lower lending standards seem
perfectly appropriate – and even a fair way to permit everyone to
prosper.
“Booms cannot go on forever. Downward price feedback sets in.
That is when balance sheets become impaired and widening
credit problems start to show up.
“The puzzle is why this speculative cycle has occurred recently
in so much of the world. What do all these countries share that
drives them to speculative booms?….
“As we all try to adjust to a rapidly growing and increasingly
capitalist world, we have been trying to discover who we are and
how we fit into it. This has meant an enormous change in values.
“Many people feel that they have discovered their true inner
genius as investors and have relished the new self-expression and
excitement. Investors across the world have been thinking that
they are winners – not recognizing that much of their success is
only a result of a boom. Declines in asset prices endanger this
very self-esteem.
“That is why it is so hard to turn around investor attitudes once a
downward psychology sets in. The Fed and other central bankers
do not have lithium or Prozac in their bag of remedies, and so
cannot control it.”
I hope the above sounds familiar. It should, by god.
Professor Shiller and his associates came out with their latest
reading on real estate values in 20 major U.S. markets and in the
second quarter, prices declined 3.2% year over year.
We also learned this week that inventories hit a 15-year high and,
obviously, there is no recovery in housing until we significantly
work off what is already sitting there, unoccupied.
Speaking of which, David Streitfeld had a piece in the Los
Angeles Times on the problems being created in some areas
these days.
“If the foreclosure trend continues on its current pace, experts
warn, communities will need to act decisively to avoid blight.”
Here’s a nightmarish example.
“In (a) Los Angeles cul-de-sac, this one off Coldwater Canyon
Drive near Beverly Hills, (there is a) mansion in question that
was bought by a man in early 2005 for $1.4 million. By last fall
he was gone and the property was in foreclosure.
“HSBC, a major lender that was carrying the biggest note on the
house, asked Leo Nordine, a real estate agent who specializes in
foreclosures, to represent it for sale.
“Nordine went to check out the property and realized that people
were living there. He left them a polite letter on the kitchen
counter. There was no response to that letter, nor to follow-ups
that he mailed.
“Neighbors, who asked that their names not be used because they
were worried about their safety, said the occupants were a group
of men apparently in their 20s and 30s. The men take the trash
out every week, but that was the only good thing the neighbors
had to say.
“Nordine said that HSBC was pursuing a formal eviction but that
it would probably take many months.”
As a senior officer with the LAPD said, “If you know what
you’re doing, you can get six months in a place with a kick-ass
view.” Squatters move in, change the locks, and turn on the
electricity. It’s just that simple, as Ross Perot would say.
So you read stories like this and it’s easy to be underwhelmed by
President Bush’s solution to the crisis. At least it wasn’t a pure
bailout, as presented, though I want to invoke my “24-hour” rule
to gather the facts. For now, let’s just say if Bush had been
asked by a reporter on Friday to explain his administration’s
plan, it would have been the most embarrassing moment of his
presidency and on par with the South Carolina girl’s performance
in the Miss Teen USA pageant.
Of course real estate is just one component of the global picture
these days. The number one concern of economists used to be
terrorism, in terms of a potential impact on the economy. But
today it’s the level of debt; as in leverage of all kinds, whether it
is margin debt, or the household and mortgage variety. Some
analysts have been waiting for a rise in credit card defaults as
well as a harbinger of tough times down the road, and that’s now
happening, too, up 30% over a year ago for the first half of ’07.
Lastly, as alluded to above, the first order of business when Wall
Street’s kingpins return on Tuesday is the state of pending
leveraged buyouts such as First Data, Alltel, Harrah’s
Entertainment and Sallie Mae. They may get done, but at what
price vs. the initial offer? Home Depot, for instance, was forced
to accept $1.8 billion less for its supply business ($10.3 billion to
$8.5 billion), while Lone Star Funds said, yes, it would buy
Accredited Home Lenders, but not for its initial price of $15 a
share. Try $8.50.
Yes, it’s September and the start of a new school year. What will
we all learn this go around?
Street Bytes
–For all the market’s gyrations this last week of summer, the
major indices finished mixed, with the Dow Jones losing 21
points, 0.2%, to finish at 13357, while the S&P 500 lost 0.4%
and Nasdaq gained 0.8%.
–U.S. Treasury Yields
6-mo. 4.22% 2-yr. 4.14% 10-yr. 4.53% 30-yr. 4.82%
I have to admit, it’s virtually impossible to explain in a line or
two exactly why bonds have been trading the way they have the
past month or so. On one hand you can break it down to ‘flight
to safety’ on the short end, which can reverse the next day as
money flows back into stocks or there is favorable news on the
commercial paper front; while the long end of the curve has
traded mostly on inflation expectations. Then you have the Fed
and the bond market’s conviction, or lack thereof, that Bernanke
will lower rates. But there are so many other factors, including
the yen-carry trade, that have been moving bonds. For this week
I’ll stick with the line that Treasuries rallied on Bernanke and a
good reading on core inflation from the Fed’s leading indicator
of same.
Ed Hyman, the top-rated economist on the Street, predicts the
Fed funds rate will eventually hit 4% from its current 5.25%
level, and that because of lower interest rates we will have a
“better economy next year.” But then he adds, not before we
have a quarter or two of 1.0-1.5% growth. I respectfully disagree
that 2008 will be better.
–Oil prices rallied back to the $74 level ($73.94) on the strength
of a deteriorating inventory picture for crude in the face of still
strong global demand, especially from Asia. At the same time
there remain serious supply issues from the likes of Venezuela,
Iran, Iraq and Mexico, to cite a few key players. And after a
break at the gas pump, gasoline futures are edging back up so a
return to $3.00 as a national average could be in order, especially
if the Weather Channel goes back into hurricane mode.
–There was a time when I’d write something like, ‘How can you
invest heavily in emerging markets when there is no
transparency?’ But today, the simple fact is our own markets
have become an embarrassment. And for those who are fawning
all over new French President Nicolas Sarkozy, understand this
week he asked his finance minister to prepare a proposal for
stricter disclosure rules on global market participants, i.e., the
United States, before the next Group of 7 finance ministers’
meeting in October. In other words, there are some who are tired
of the U.S. exporting financial garbage because American
regulators aren’t alerting investors to the risks; as in the
regulators had no control over the ratings agencies in the case of
the mortgage securities’ debacle.
–Speaking of transparency, of course the biggest culprits are the
investment banks. Goldman Sachs, Lehman, Bear Stearns and
Morgan Stanley wrapped up their quarters this week. Merrill
Lynch, J.P. Morgan Chase and Citigroup are on a Sept. 30 fiscal
quarter. What will they reveal, given that few if any individuals
at the firms have a clue what the value is of their derivative
positions, for starters?
–Saudi Arabia is establishing a separate, 35,000-strong security
force to protect its oil infrastructure. Already 5,000 in number,
the new recruits are “being heavily vetted,” according to the
Financial Times, as you’d expect when you’re talking about
access to more than 80 oil and gas fields and 11,000 miles of
pipeline.
–The London property market has been insane, up 50% the past
two years in the pricier neighborhoods, thanks to the riches being
generated in the financial services arena there. But as the profits
dry up, pop goes the bubble. [Ditto New York City.]
–Here in the U.S., a survey by the Mortgage Bankers
Association found that speculators accounted for between 21%
and 32% of the defaults on prime-quality home loans in Arizona,
California, Florida and Nevada. Add this growing source of
homes to others being foreclosed upon and you have an
inventory level that impedes any hoped for recovery.
–When I posted last week’s piece, I didn’t have time to comment
on Saturday’s Journal story on the condo market. Suffice it to
say, not only are buyers attempting to get out of their contracts in
droves (or merely walking away), but developers are defaulting
on huge construction loans, which in turn creates big problems
for the banks that specialize in that area of the market.
–In a terrific accounting of Countrywide Financial, the Times’
Gretchen Morgenson notes that CEO Angelo Mozilo “has not
bought a share (of his own stock) since 1987,” while reaping
over $400 million selling CFC options he has been granted since
the company went public in 1984. Mozilo sold $129 million in
stock during the last 12 months. Meanwhile, 46% of the loans
Countrywide holds on its books were made in California.
–Altria is finally spinning off its international tobacco unit from
the Phillip Morris division, while U.S. sales decline. The new
Phillip Morris International will boast seven of the top 20 global
cigarette brands and a 15 percent global market share. Anyone
who has traveled overseas is amazed how much everyone still
smokes.
–I noted with interest the opening of the $2.4 billion Venetian
Macau Resort, the largest casino in the world. But as I wrote
when I visited the territory last April, this is a classic boom/bust
scenario, with Macau’s own second-quarter GDP soaring 31.9%!
–Talk about a fire sale, Acer, the Taiwan-based personal
computer maker, picked up Gateway for all of $710 million. The
move also enables Acer to acquire Packard Bell of Europe,
because Gateway had the first right of refusal for it. Back in
Nov. 1999, Gateway shares traded above $80. Acer picked it up
for $1.90.
–Separately, Acer competitor Dell released its second-quarter
earnings and sales rose 4% as it continues its comeback efforts.
However, customer complaints are also still rising by some
accounts. I know I myself purchased my last Dell after all the
issues I’ve had with them.
–Management consultant Henry S. Givray had the following
thoughts on today’s CEOs in an op-ed for Business Week.
“Blackstone Group CEO Stephen Schwarzman is only the latest
high-profile poster boy in the furor over executive pay,
reminding us that some of today’s corner office occupants have
very different motivations and values from other Americans. His
‘I’m worth every penny’ jeering and other public comments
make his narrow self-focus clear, relegating him to the gang of
often piratical business executives who, sadly, have dominated
the headlines in recent years.
“Thanks to the lot of them and Enron, WorldCom, and other
corporate scandals, the image of the corporate CEO has taken a
pounding. While Americans generally strive for and celebrate
achievement and success, they are increasingly sickened by the
narcissism, greed, and other ‘me first’ antics of such CEOs.
Whether it is the imperious version (think Robert Nardelli or
Hank Greenberg) or the self-dealing version (think Dennis
Kozlowski or Jeffrey Skilling), much of the general public now
believes CEOs are in the game only for themselves. The good of
their employees, their customers, their communities, and even
their investors are merely ancillary issues for them.”
–The World Health Organization is warning that new infectious
diseases are emerging at an “unprecedented rate.” As in the case
of financial accounting, when it comes to the dangers on the
health front it’s all about transparency. And just this week in the
Congo, an Ebola-like hemorrhagic fever has killed at least 103 of
217 who became sick after attending funerals of two village
chiefs.
–Related to the above, and back to the ‘blight’ story in the L.A.
Times, there is a health issue connected to foreclosures. As in
standing water in abandoned swimming pools! Seriously, this
creates a breeding ground for West Nile Virus, which is
relatively new to California and has already killed seven. Don’t
worry, I’m not about to over-hype this, but it’s an interesting
sidelight.
–We note the passing of Arthur Jones, inventor of the Nautilus
fitness machines that transformed an entire industry. But
goodness gracious; I had no idea what a wild man he was…six
wives and a love of exotic animals such as crocodiles that he
kept at his farm. So I’m thinking, wife #s 1-5 must have all said,
“It’s me or the croc!” Guess it was the croc.
–My portfolio: I haven’t been doing anything except continuing
to buy small amounts of my China biodiesel play. Overall, I’m
still near my 80% cash, 20% equities recommendation.
–Check out my “Wall Street History” column for a look back on
Florida real estate………..before the Great Depression.
Foreign Affairs
Iraq: Congress begins its hearings this coming week and soon
General David Petraeus will give his long-awaited assessment on
the surge. To a large extent the debate is all about the ’08
presidential election, more than progress on the ground.
But there were a few developments this past week that bear
watching; such as Shia leader Moqtada al-Sadr’s call for up to a
six-month suspension of activities for his Mahdi Army while he
“rehabilitates the force.” It is far from clear just what he means
by this. In Karbala the other day, Shia militias battled each other
resulting in over 50 killed, while it’s also known that the Mahdi
Army has infiltrated all levels of Iraq’s government in order to
hurt the Sunnis, who in turn are not about to accept any
diminution of their once vaunted status.
Or is Sadr in trouble? By rehabilitating his army, as he puts it, is
he saying the rogue elements in his militia are a serious threat to
his authority?
Meanwhile, Prime Minister Maliki once again blasted
Washington politicians, this time Democratic Senators Carl
Levin and Hillary Clinton.
“Iraq is a sovereign country, and we will not allow anyone to talk
about it as if it belongs to this country or that,” this after both
Levin and Clinton called for his ouster.
Iran: The United States is all set to go before the UN Security
Council over the coming weeks and call for a third round of
economic sanctions against the mullahs but, once again, the
situation is muddied by the UN’s own International Atomic
Energy Agency, which this week praised Iran for taking
“significant steps” in explaining Tehran’s past actions on the
nuclear front. The IAEA did admit, however, that Iran was
continuing to defy the Security Council in enriching uranium, but
it added both enrichment and the building of a plutonium-
producing reactor was proceeding at a slower than expected
pace.
To which Iran said, ‘See! Look how cooperative we are!’ Then
various officials warned the United States and its allies not to
push for another round of sanctions, suggesting that Iran would
stop cooperating with the IAEA were this to be the case.
On the issue of Iran’s role in Iraq, such as their support for the
militias and the export of bombs to the theater that are killing
Americans, Iranian President Ahmadinejad said, “Soon, we will
see a huge power vacuum in the region. Of course, we are
prepared to fill the gap, with the help of neighbors and regional
friends like Saudi Arabia, and with the help of the Iraqi nation.”
President Bush countered that Tehran’s pursuit of nuclear
weapons threatened to put the Middle East “under the shadow of
a nuclear holocaust.”
And in his first major foreign policy speech, French President
Sarkozy weighed in, saying that if Iran insists on proceeding with
its nuclear efforts, then the alternative would be “catastrophic: an
Iranian bomb or the bombing of Iran.” Sarkozy said Iran’s
pursuit is “the most serious” issue confronting world order today.
Pakistan: To say the political situation here is in a state of flux
would be an understatement. As you know, Pervez Musharraf is
both president and head of the military. But for months,
Musharraf has been negotiating with exiled former prime
minister Benazir Bhutto for her return. Early in the week, it was
reported that Bhutto and Musharraf had reached an agreement,
whereby Musharraf would step down as army chief but could
serve another term as president if elected, while at the same time
Bhutto would be allowed to run for parliament, thereby bringing
her back into government.
But by week’s end, Musharraf’s people were saying no deal had
been cut, even though Musharraf’s greatly weakened political
status argues for him to take the offer.
Because…another former prime minister in exile, Nawaz Sharif,
who Musharraf deposed in 1999, has been cleared by the
Supreme Court to return and Sharif said he will do so to run for
president. Musharraf has hinted he would re-arrest Sharif, who
had been convicted on charges of corruption. One thing is for
sure, it will be interesting to see this whole situation play out
…but from a distance because there is bound to be a ton of
election-related violence over the coming weeks.
Meanwhile, India accused elements of Pakistan’s security
service, the ISI, of planting the bombs in Hyderabad that killed
40, and the Taliban captured at least 100 Pakistani soldiers near
the Afghan border, though it appears they will be released after
tribal elders said, ‘You know, this might not be a smart move.’
Turkey: As expected, Abdullah Gul won the vote for the
presidency and Gul, a devout Muslim, approved a Cabinet that
contained a mix of Islamist and secular figures. One fellow,
British-educated Mehmet Simsek, had been working at Merrill
Lynch and now becomes economy minister.
But Turkey’s military chief, General Yasar Buyukanit, warned
again that “insidious forces” are at work and that the Islamists
seek to undermine Turkey’s secular tradition. He added,
Turkey’s military would not “stand by.”
Lebanon: Elections are to be held in September for a new
president but the pro- and anti-Syrian camps remain deeply split.
Michael Young, editor-in-chief of the Daily Star in Lebanon, had
the following commentary.
“Half of politics is being there; the other half is knowing what to
do once you are there. Many of the better-known figures of the
Future movement, including Saad Hariri [Rafik Hariri’s son],
have neither been in Lebanon in recent weeks nor have they been
particularly adept at advancing their agenda when they are. It’s
dawning on a number of groups in the majority that the Hariri
camp may be the strongest yet also the most vulnerable
component in the March 14 [anti-Syria] coalition.”
The issue is that similar to the Iraqi parliament taking August off
amidst a crisis, Lebanon’s key players took one too, even as the
Army was continuing its fight against terrorists at the refugee
camp outside Tripoli. The nation’s infrastructure is also still
struggling to recover from last summer’s war and the economy is
sinking. Through this, Saad Hariri has been laying low at the
Hotel de Paris in Monaco, partly out of fear that if he returns to
his country, he’ll be assassinated. Without a display of true
personal courage, though, Hizbullah, Iran and Syria will emerge
the winners this fall.
China: Five ministers were replaced ahead of October’s
Communist Party meeting, including the finance minister who
had been at the helm since 2003. Rumors are that Jin Renqing
and the others were wrapped up in corruption, as well as having a
mistress or two which is increasingly frowned upon in the
corridors of central power here.
In other issues, China was accused of hacking into German
government ministries, including Angela Merkel’s Chancellery.
The magazine Der Spiegel laid it out in detailed form. China
issued a denial.
And on the matter of Taiwan and its plan for a referendum next
March on applying for UN membership under its own name,
U.S. Deputy Secretary of State John Negroponte was pushed by
China to issue a statement: “We oppose the notion of that kind of
a referendum because we see that as a step towards a declaration
of independence of Taiwan, towards an alteration of the status
quo.”
On the pollution front, many in Hong Kong’s investment
community are leaving to go to Singapore, “at least partly
because of concerns by staff about their children’s health,”
according to the South China Morning Post. But one banker told
the paper, “Hedge fund bosses want to move to Singapore for
their children’s sake, but their younger single staff want to stay
in Hong Kong to party.”
[For a depressing summary of China’s environmental issues, read
my current edition of “Hot Spots.”]
South Korea: The Afghan government blasted Seoul for
negotiating with the Taliban in a deal that freed 19 Christian
missionaries. The commerce minister said “We fear that this
decision could become a precedent. The Taliban will continue
trying to take hostages to attain their aims.” After initially
killing two of 23 taken (two others were released early on), the
Taliban emerges with greater political legitimacy, according to
some experts, as the hostage crisis lent them a political
dimension for their movement.
North Korea: The eldest son of Kim Jong-il, Kim Jong-nam, is
said to be the frontrunner to replace his father. The kid is based
in Macau but has evidently made a number of trips to
Pyongyang, as well as Beijing, recently.
But get this, the United States, Japan and Australia are holding
their first-ever summit next week to discuss North Korea’s
nuclear ambitions and China’s military build-up. The three are
meeting on the sidelines of the Apec summit in Sydney. “First-
ever.” Yes, years ago I broached the idea of a supra-alliance
between the U.S., Japan, Australia, India and Britain. Now if we
could just get the Indian parliament on our side, we’d be all set.
Russia: Investigators have charged four individuals in the death
of journalist Anna Politkovskaya, including former and serving
members of the security service and Interior Ministry. But
Russia’s prosecutor general said “We reached the conclusion that
the only people who could be interested in the removal of
Politkovskaya are those outside the territory of the Russian
Federation.” Yuri Chaika said it was all about destabilizing the
country.
Now while it is mildly encouraging that for the first time in 13
murders of journalists, the Kremlin has attempted to solve a case,
it is a total crock that Politkovskaya’s murder was orchestrated
by outsiders; including oligarch-in-exile Boris Berezovsky, as
President Vladimir Putin intimated this week. Berezovsky did
call for an overthrow of Putin, though, in an op-ed for the
London Times the other day.
Random Musings
–The Justice Department is looking into allegations Attorney
General Alberto Gonzales lied to Congress in recent testimony
about both the domestic-spying program as well as the firing of
eight U.S. attorneys last year. The truly pitiful Gonzales,
coincidentally, announced he is leaving office Sept. 17.
–White House spokesman Tony Snow is also leaving early,
despite saying initially he would stay until the end of the
president’s term. Snow said it had nothing to do with his health,
but was rather about money. It’s both.
–The less said about Idaho Republican Sen. Larry Craig the
better. It’s just incredible how the elephants keep shooting
themselves in the foot, thus neutralizing what should have been a
big positive for them with the campaign finance scandal now
enveloping Hillary Clinton and her fugitive donor, Norman Hsu,
who turned himself in to California authorities on Friday.
–Fred Thompson is finally formally entering the Republican race
on Sept. 6, while Republican Senator John Warner, one of the
good ones, announced he would not run for reelection, being 80
years of age.
–I have written that I’d like to see a two-step national primary as
a way of winnowing down the presidential field (and shortening
the process), though I admit this has all kinds of flaws, including
fundraising. Last weekend the Democratic National Committee
cracked down on Florida, stripping it of its delegates to the 2008
National Convention if Florida persists in moving up its
presidential primary to Jan. 29. Florida and the DNC now have
30 days to reach a compromise.
I can’t argue with DNC committee person Donna Brazile who
said, “I understand how states crave to be first. I understand that
they’re envious of the role that Iowa and New Hampshire have
traditionally played. The truth is, we had a process…We’re
going to back these rules.” You tell ‘em, girl. Deal with it.
Regardless, with the acceleration already in place, both parties
will have probably selected their nominee by Feb. 5, and of
course by May we’ll be sick of both of them.
Now if George Washington had declared himself king, we
wouldn’t have had this problem. We’d be on George XIII by
now, I figure, or Henry III, son of George X.
–Fred Kaplan had a story for the Sunday Times Magazine on the
state of America’s military leadership. In part:
“Before and just after America’s entry into World War II, Gen.
George Marshall, the Army’s chief of staff, purged 31 of his 42
division and corps commanders, all of them generals, and 162
colonels on the grounds that were unsuited for battle. Over
the course of the war, he rid the Army of 500 colonels. He
reached deep into the lower ranks to find talented men to replace
them. For example, Gen. James Gavin, the highly decorated
commander of the 82nd Airborne Division, was a mere major in
December 1941 when the Japanese bombed Pearl Harbor.
Today, President Bush maintains that the nation is in a war
against terrorism – what Pentagon officials call ‘the longer war’
– in which civilization itself is at stake. Yet six years into this
war, the armed forces – not just the Army, but also the Air Force,
Navy and Marines – have changed almost nothing about the way
their promotional systems and their entire bureaucracies operate.
“On the lower end of the scale, things have changed – but for the
worse. West Point cadets are obligated to stay in the Army for
five years after graduating. In a typical year, about a quarter to a
third of them decide not to sign on for another term. In 2003,
when the class of 1998 faced that decision, only 18 percent quit
the force: memories of 9/11 were still vivid; the war in
Afghanistan seemed a success; and war in Iraq was under way.
Duty called, and it seemed a good time to be an Army officer.
But last year, when the 905 officers from the class of 2001 had to
make their choice to stay or leave, 44 percent quit the Army. It
was the service’s highest loss rate in three decades.”
As Kaplan adds, there is a “trust gap” between junior and senior
officers, and while this has always existed to a certain extent,
today many of the juniors have more combat experience than the
seniors. “They have come to trust their own instincts more than
they trust orders.”
–In both a Wall Street Journal editorial and op-ed by the paper’s
Bret Stephens on the issue of global warming and evidence they
say proves the advocates wrong, the word “pollution” is nowhere
to be found. As I’ve been arguing all along, the current debate is
backwards. It’s not whether the planet is warming, it’s about
what we are spewing in the air and dumping in our water…
period. It’s a global pollution crisis. World leaders are
packaging it wrong.
–I got together with an old friend from Newark this week and we
were talking about his brother, currently serving his third term in
prison here in New Jersey. The stories of the gangs in the
corrections system are unbelievable. My friend, who was a high
school basketball star in Newark back in the day, said his brother
put him on the phone with some fellow inmates after he had been
transferred to his third facility in a short period of time due to
concerns over the gangs (and whether he would survive, frankly).
The fact that one of the inmates knew my friend from their hoops
days may have saved the brother’s life. “This guy’s your
brother? Oh don’t worry. We’ll protect him.”
–During the Minneapolis bridge collapse, you may have noticed
the cellphone system there crashed, a la 9/11. Last weekend the
Los Angeles Times ran a story on how current cellphone usage
has swamped L.A.’s 911 system, “resulting in hundreds of
thousands of lost calls and lengthy waits to reach dispatchers
even as crimes or potentially deadly emergencies unfold.” And
this is without a wide scale crisis. Good luck next time we
actually have one.
–Uh oh! Both The 2008 Farmer’s Almanac and The Old
Farmer’s Almanac are forecasting a brutal winter season for
those of us responsible for our condo development snowplow
budgets. But The Old Farmer’s Almanac also says 2008 will be
the hottest in the past 100 years. RUN FOR YOUR LIVES!!!!
–And now, Miss Teen USA contestant, 18-year-old Lauren
Caitlin Upton of Lexington, South Carolina.
Question: “Recent polls have shown a fifth of Americans can’t
locate the U.S. on a world map. Why do you think this is?”
Miss Upton: “I personally believe that U.S. Americans are
unable to do so because, uh, some people out there in our nation
don’t have maps, and, uh, I believe that our education like such
as in South Africa and, uh, the Iraq everywhere like, such as and
I believe that they should, our education over here in the U.S.
should help the U.S., err, should help South Africa and should
help the Iraq and the Asian countries, so we will be able to build
up our future for our children.”
Yikes. But a National Geographic survey from last year offered
this: “Given a map of a hypothetical place and told they could
escape an approaching hurricane by evacuating to the northwest,
one-third would travel in the wrong direction.” Yet another
reason why humans labor at #43 on the ‘all species’ list, just
ahead of lemmings, who would all travel in the wrong direction
in the above example.
–On Aug. 4, I wrote “I didn’t comment last week on the story of
the astronauts who may have been drinking because I wanted to
wait 24 hours.” NASA’s official investigation into the claims
now reveals no evidence of such behavior, though it will be
instituting drug and alcohol testing for both astronauts and other
employees.
But it’s just another instance of our sick, Net-based society
where the slightest rumor sweeps the world at light-speed. I
refuse to play this game, however. Doesn’t help my ratings, I
grant you, but I sleep better.
And no better example of ‘wait 24 hours’ ever existed than the
case of Richard Jewell, who passed away this week of natural
causes at the age of 44. This good, humble man, a real hero at
the Centennial Olympic Park explosion in Atlanta during the
1996 Games, was crucified when he was fingered as the suspect
in the local papers; and then between the press and the FBI
laying siege, as Jewell himself later put it, it was “like piranha on
a bleeding cow.”
For about three months Jewell was the target before the Justice
Department finally cleared him. Eric Rudolph later pleaded
guilty to the attack.
Jewell would win settlements from NBC and CNN, among
others, but this was small consolation. Our sympathies to his
wife and mother.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $681
Oil, $73.94
Returns for the week 8/27-8/31
Dow Jones -0.2% [13357]
S&P 500 -0.4% [1473]
S&P MidCap -0.2%
Russell 2000 -0.8%
Nasdaq +0.8% [2596]
Returns for the period 1/1/07-8/31/07
Dow Jones +7.2%
S&P 500 +3.9%
S&P MidCap +7.3%
Russell 2000 +0.7%
Nasdaq +7.5%
Bulls 41.7
Bears 37.4 [unchanged…Source: Chartcraft / Investors
Intelligence]
Have a great holiday. I appreciate your support.
Brian Trumbore
