[Posted 7:00 AM ET]
Wall Street…Give me 50!
The Federal Reserve met this week and in a surprise move
lowered the key short-term funds rate 50 basis points, not the
expected 25, to 4.75 percent after holding the line at 5.25 percent
since June 2006. In its accompanying statement the Fed offered:
“Economic growth was moderate during the first half of the year,
but the tightening of credit conditions has the potential to
intensify the housing correction and to restrain economic growth
more generally. Today’s action is intended to help forestall some
of the adverse effects on the broader economy that might
otherwise arise from the disruptions in financial markets and to
promote moderate growth over time.”
Wall Street took the rate cut bait and ran with it, back into its
den, or up in some secure branch, and devoured it like a
mongoose that’s just strangled a cobra. But wanting more,
frothing at the mouth, and finding no road kill, traders began to
do the next best thing; bid up stocks for a second straight week.
It didn’t matter that the U.S. dollar was hitting mega-year or all-
time lows against other currencies, such as the euro and the
Canadian dollar, the latter now at parity for the first time since
the 1970s.
And it didn’t matter that gold, normally a harbinger of all things
bad when it takes flight, soared to its highest levels since January
1980, or that crude oil hit a high of its own, touching $84 before
finishing the week near $82…still it’s first weekly close at this
level.
It didn’t matter that the crisis in commercial paper, worldwide, is
still a factor, even if a diminished one for the time being, or that
the leveraged buyout premium that had helped propel stocks the
first half of the year was officially kaput.
And it certainly didn’t matter that everyone’s number one asset,
outside of those on the Forbes 400 list of billionaires, their home,
is no longer rising 8% a year; more likely than not it’s falling.
Yet Fed Chairman Ben Bernanke told a congressional committee
on Thursday that “Global financial losses have far exceeded even
the most pessimistic estimates” for the mortgage sector.
Speak for yourself, Bennie Boy. Some of us were bang on,
especially compared to your prior musings.
If nothing else this column is consistent. It’s gets a little
repetitive, for sure, and I’m early with many of my bigger
themes, such as the Nasdaq Bubble, concerns over Russia’s
political situation, or real estate. But it’s been about a key word
regarding this last one, “affordability,” around the world.
WIR 5/29/04
“Yes, since World War II, nationwide, housing values haven’t
declined in any single year, but tell that to California
homeowners during the period 1989-1997, or Houston residents
during the oil bust of the 1980s. No doubt, many parts of the
country have more diversified economies than they once did, as
in the above two cases, but the watchword is ‘affordability’ and
in large swaths of America, folks are either stretching beyond
their means or simply can’t make the move.
“Housing was the prime source of the wealth effect that helped
carry the economy through the post-2000 bubble period, as
people saw their #1 asset appreciate at 8%+ a year and then
borrowed against it. And heck, I know I’m a broken record on
this topic and have zero credibility by now, but the big gains are
in and now we wait to see if the next move is down or sideways.
Either way, many won’t feel as wealthy a few years hence, if not
sooner, unless there is a spectacular rally on Wall Street, and
consumer spending is bound to suffer.”
WIR 4/2/05
“Remember, the bubble isn’t just a U.S. story, it’s global;
whether we’re talking Britain, Spain, Australia, or China.”
WIR 5/27/06
“Ask anyone who’s been to Europe in the past few years,
chatting up a few blokes in a pub, and you’ll find everyone is
buying a second home in Spain, to cite but one prominent
example; thanks in no small part to the prevalence of low-cost
airlines that make it far easier to jet away for the weekend. But
these same communities are going to slide like the rest.”
WIR 5/12/07
“So pray the rest of the globe doesn’t catch the cold we appear to
be developing, though of course it will because it is suffering
from the same chief symptom we have…a real estate bubble.
Ours has popped. The rest are in the early stages of doing so;
whether it’s Britain, Ireland, out of control Moscow, Spain, or
Australasia. And you can take that to the bank.”
This week, for the first time that I can remember (at least it’s not
in any of his ‘monthly outlooks’ this year), PIMCO’s Bill Gross
specifically mentioned real estate bubbles in “Ireland, the UK,
and Spain.” And in my daily reading I saw these headlines in
just the past few days.
From the Sydney Morning Herald:
“Housing affordability has worsened (in Australia) as the pace of
house price growth has outstripped increases in disposable
income, said the report by Fujitsu and JP Morgan….
“ ‘It is really quite difficult now for many people to afford to buy
property. There is huge demand, huge drive to own your own
property,’ said the consultant at Fujitsu.”
The New Zealand Herald:
“A bank survey of residential real estate sector sentiment has
presented a pessimistic picture, with many professionals saying
the market has turned down fast….
“A valuer [appraiser] said some prices were ‘easing backwards’
and valuation work was very slow…
“Property investors said the market had turned and the peak had
been reached.”
Call this the popping of the “Lord of the Rings” bubble, in
actuality.
London Times
“House prices across much of Western Europe have stalled or
begun to fall as spiraling borrowing costs and fears of over-
supply take their toll on markets from Ireland to Spain, an
industry survey has revealed.
“The German housing market has been hit hardest. A glut of
property for sale in former East Germany dragged down price
inflation countrywide, leaving the national average down 6.9
percent over the 12 months to the end of June.”
Ben Bernanke may not really know what the heck is going on,
but while the focus this week was to some extent on the dollar,
gold and oil, when it comes to the Big Picture, globally, it’s still
about real estate by my way of thinking, linked with massive
debt loads.
The thing is, as I’ve noted on countless occasions, the picture is
unfolding at various rates of speed, as proved yet again in the
above anecdotes. I said long ago there would be no recession in
2007, but I’ve been focusing on 2008 because I felt by then it
would all come to a head when the decline in a chief asset’s
value finally begins to impact consumer spending…and thus
earnings. Frankly, some of the other items we’ve been
concerning ourselves with the past two months are noise.
None of this means stocks can’t still rally. I’ve almost given up
trying to predict the market. I also said the past few weeks the
Federal Reserve was irrelevant, outside of a few days’ response
to a change in interest rate policy, and I stand by that. The Fed,
as Bernanke and former chairman Alan Greenspan both said this
week, can’t be totally blamed for the housing bubble. But
accomplices? Yes.
For now, I agree with Yale Professor Robert Shiller’s statement
to a Senate committee.
“The decline in house prices stands to create future dislocations,
like the credit crisis we have just seen.”
Street Bytes
–Wall Street’s rally continued due in no small part to earnings
reports from the likes of Lehman Brothers, Bear Stearns, Morgan
Stanley and Goldman Sachs. In the instance of the first three
results generally weren’t as bad as feared, while Goldman Sachs
simply blew the door off. Goldman added insult to injury, when
it came to its competitors, because while the others were
announcing writedowns in their mortgage and derivative
holdings, Goldman announced it scored a profit of $900 million
from ‘shorting’ mortgages.
But while no doubt the larger investment banks are far more
diversified than they once were, particularly in terms of
international revenue streams, some could still be considered
ticking time bombs and you and I have no idea to what extent
they really recognized fair market value with their derivatives
holdings, many of which haven’t traded in weeks so how the
heck can you price them? And you still have the issue of off-
balance sheet vehicles, which Greenspan correctly labeled a
“disaster waiting to happen.”
It would also appear the leveraged buyout game is dead, this
being a major source of income for the Street in terms of
advisory fees. Plus some are still holding gobs of LBO debt,
waiting for deals to close, while others are reneging on
transactions they cut with the private-equity side of the game.
Such was the case late Friday when Goldman and KKR backed
out of a deal for audio-products manufacturer Harman
International, which saw its shares plunge from $110 to $82 on
the news.
Back to the weak dollar, yes, it’s splendiferous for U.S.
multinationals as their exports are cheaper. But the flip side is
we are now importing inflation in higher prices for foreign
goods, let alone the fact European manufacturers, for one, are
feeling major pain as their own exports plummet. A key Euro
manufacturing index hit a two-year low this week. Personally,
I’m about to get slaughtered in a trip overseas.
–U.S. Treasury Yields
6-mo. 4.07% 2-yr. 4.04% 10-yr. 4.62% 30-yr. 4.89%
There was some inflation news and if you choose to ignore all
the stuff we’d generally consider important, like the price of
wheat, milk, and beer, the ‘core’ figures that the government
foists on us were once again tame. Both producer and consumer
prices for August were up 0.2 percent. The core CPI, year-over-
year, is running at a 2.1 percent clip; not of particular concern to
the Fed. Bill Gross, incidentally, is calling for the Fed to
eventually lower the funds rate to 3.75 percent as PIMCO sees
growth in the U.S. economy slowing to a 1.25-1.75 percent rate
over the next 12 months.
Back to housing, the Fed’s move was designed in part to help
homeowners whose adjustable rate mortgages are about to reset,
which it will to a small extent, but the yield on the 10-year, from
which traditional mortgages are pegged, soared from 4.46% to
4.62% after the Fed lowered short rates, thereby proving once
again they have zero control over the long end of the yield curve.
The 10-year rose because bond traders know that inflation could
yet be a concern if the dollar were to continue to slide, which in
turn portends higher rates for a myriad of reasons, not least of
which may be the need to protect the value of the greenback.
–I continue to focus more on gasoline and natural gas futures
than the price for a barrel of crude and until gasoline futures,
which finished the week around $2.10 (tack on 70 cents or so for
a pump price…with a little lag time), hits $2.30 plus, I’m not
going to start screaming as to its impact on the consumer. That
day is coming, however.
And I do have to reiterate something I said a number of months
ago. I am NOT concerned about the flow of oil through the
Strait of Hormuz, even if 25 percent of the world’s crude transits
through there. No doubt, should there be an incident, such as
with Iran, oil would immediately skyrocket to $100, but within
days the U.S. and its allies would unclog it and protect the
tankers.
–David Rocker, former hedge-fund manager, in an op-ed for
Barron’s.
“When highly leveraged strategies blow up, even the
unleveraged public may suffer great losses. Big stock market
declines breed fear, and lead to hasty investment decisions.
Innocent companies may lose access to capital. Demands for
bailouts by the Federal Reserve and other agencies proliferate.
This crisis atmosphere breeds political pressure to force the Fed
into unplanned and inappropriate policies. It seems unlikely that
the Fed would be contemplating cutting rates now if there had
been no market turbulence.
“As the Fed has come to the rescue again, the question of what is
necessary to reduce the likelihood of future meltdowns remains.
Better predictive power is not enough. Market collapses have
occurred as a result of very-low-probability events hitting highly
leveraged portfolios.
“While we have stepped back from the brink this time, we may
be less fortunate in the future. The use of excessive leverage to
enhance a manager’s personal gain should no longer be tolerated.
The societal risk is simply too great. Transparency must be
increased and a real-time monitoring system must be put in
place.
“A world of terrorism and broadening nuclear capacities is no
place for highly-leveraged investments to exist on a grand scale.
We no longer have the luxury of conducting an investigation to
identify the parties responsible for a massive collapse. There is
room to debate the regulations and legal powers required to
reduce leverage, but it is imperative that the debate begin
immediately.”
–With the Fed’s move, us savers (and those on fixed income) got
screwed. Lower rates for our CDs and money market accounts.
Thanks, Ben.
–For the record, August housing starts fell to their lowest level
in 12 years, as did building permits (an indicator of future
activity).
–What a mess the Bank of England found itself in following the
run on the bank involving depositors of Northern Rock, a leading
UK mortgage lender. As Carter Dougherty of the International
Herald Tribune put it:
“After weeks in which (Bank of England governor Mervyn King)
preached against rescuing investors who had made bad decisions,
King told a parliamentary committee that the bank had to walk a
fine line between financial stability and taking steps that could
encourage reckless behavior in the future,” i.e., the issue of
‘moral hazard.’
King was the one who blasted both the U.S. Federal Reserve and
the European Central Bank for bailing out the banks during the
current credit crisis, but as thousands rushed the doors of
Northern Rock branches when it announced it had severe
problems related to the subprime and commercial paper debacles,
the first run on a British bank in 140 years, the Bank of England
reversed course. The criticism was why it hadn’t acted sooner,
such as in moving Northern Rock assets into a better capitalized
bank before the run started.
John McFall, chairman of the Commons Treasury Committee,
told King:
“People were talking about Northern Rock. I think it is absurd
that you should come here and say you didn’t know anything
about it. You were the guy in charge of financial stability…The
answers you have given us this morning (say) that you weren’t
very much alert.” [London Times]
Can it happen here? Of course it can. We had a mini-preview
when rumors were swirling around Countrywide Bank about a
month ago.
–Inflation in China is running at an 11-year high of 6.5 percent
so the government has begun freezing items Beijing controls
such as oil, electricity and water. The Communist party has a
crucial meeting in October when it will choose the senior
leadership for the next five years. There are fears the spike in
food prices, in particular, will cause severe problems for the
economy.
–Out of nowhere, Friday, Mattel apologized to China over the
recall of Chinese-made toys, taking the blame for design flaws
and saying it had recalled more products, including what had
been said were lead-tainted toys, than justified. Mattel lawyers
were on hand during the extraordinary meeting in Beijing with
China’s product safety chief. The Mattel executive vice
president who issued the apology was then sent to a reeducation
camp and will be allowed visitors once a year. Left unsaid was
the move helped save Christmas, though shares in Island of
Misfit Toys, which stood to profit from the mess, suddenly
tanked on news of the Mattel apology.
–The European Court reaffirmed a 2004 antitrust decision of the
European Commission against Microsoft, wherein the
Commission had found that Microsoft abused its dominant
position in the market for desktop operating systems, freezing
out the competition in markets such as media player and server
software. Microsoft said it will accept the final judgment, which
carries with it a $690 million fine. Opponents say it will chill
innovation and discourage competition, and could prove dicey
for other dominant companies such as Google and Apple.
–Larry Ellison’s Oracle issued a solid earnings report that aided
in Wall Street’s positive tone. He then spent a $billion on
another yacht.
–The National Retail Federation is predicting holiday sales will
rise just 4% this year, the smallest gain since 2002.
–There continue to be concerns over various illnesses in China,
including pig disease (a major cause for the spike in food prices
there) which is devastating farms throughout the country. The
virus has also now been found in Vietnam and Burma and you
never know which of the viruses could one day mutate. Of
particular interest is Guangdong province (in the south next to
Hong Kong), where earlier cases of bird flu were reported,
including a new outbreak among ducks. A Hong Kong
newspaper editorialized this week that “Alarm Bells Are
Ringing” a day after the city suspended imports from
Guangdong. [Maureen Fan / Washington Post]
–To qualify for Forbes’ latest list of the 400 wealthiest people in
the U.S. you now need $1.3 billion. Bill Gates remains #1 with a
net worth of $59 billion and Warren Buffett is second at $52
billion. 270 of the 400 are entirely self-made. The other 130 are
spoiled brats who are the last people you’d want to spend any
time with at a party, not that they would give you the time of
day.
–Two of our nation’s bigger dirtballs were in the news this
week. Securities lawyer William Lerach pleaded guilty to
conspiracy involving his former firm, now known as Milberg
Weiss. Lerach was king of the class-action lawsuit and earned
for Milberg Weiss an estimated $216 million. But Milberg
Weiss, and Lerach, paid $11 million in kickbacks to plaintiffs in
more than 150 cases. Lerach admitted that typically the plaintiffs
received secret payments of 10 percent of the attorneys’ fees,
which were not disclosed to the courts.
And then Melvyn Weiss himself was indicted for his role in the
scheme. Milberg Weiss LLP was also charged with obstruction
of justice. From 1983 to 2005, Mr. Weiss took in about $210
million as his share of the profits. Lerach agreed to give up
$7.75 million, for starters, and faces a prison term. Weiss, if
convicted, could face more than 40 years. He was known to
carry around “thousands of dollars in cash from New York to
Florida” to compensate plaintiffs for taking the lead in class
actions, according to court documents.
–I got a kick out of the video of the jerk at the University of
Florida who was tasered at a Sen. John Kerry appearance. I
would have tasered him too, only earlier. But I see that Taser
International received an order for 700 devices from the U.S.
Forest Service to aid in the undeclared war between the animal
kingdom and us. At least I’m assuming this is what the order
was for.
–Zimbabwe’s inflation rate “slowed to 6,592 percent in August
from a year earlier, down from a record 7,634 percent in July, the
government’s Central Statistical Office said.” [Reuters] We
congratulate President Robert Mugabe for this wonderful
achievement, even as ¼ of Zimbabweans have left the country,
with about 5,000 more a day still streaming into South Africa,
causing major problems there. [Don’t pay any attention to the
stories of a political settlement this week that would give more
power to the opposition. At this point it just doesn’t matter. The
country is dead, finished. Change the name and start over.]
–My portfolio: I forgot to mention last time that I have been
nibbling at the oil sector again, selling some of another holding
to keep my allocation basically in line with the 80% cash / 20%
equities recommendation I’ve touted. And with $80 oil my two
solar plays have been doing well, though these are volatile
suckers. As for my China biodiesel holding, it’s stuck in a vat of
vegetable oil.
–Finally, astronomers have concluded that Neptune has the
strongest winds of any planet in the Solar system, up to 1,200
miles an hour or CAT 98 status. Oil companies would have
trouble keeping their workers on deep-water platforms in these
kinds of conditions, I imagine.
Foreign Affairs
Iraq: If you’re looking for good news, USA Today had a story on
Friday that the “alliance-building initiative is spreading.” The
fact that there have been some advances on the military end has
certainly impeded Democratic efforts in Congress to change the
strategy. So the surge continues.
But nothing of a positive nature has occurred politically and with
the formal exit of Moqtada al-Sadr’s faction from the ruling
Shiite Alliance, the Maliki government only has the support of
half of parliament.
Then there is the issue of the 20,000 to 50,000 private security
guards in Iraq. The fact no one can pin down an exact number
speaks volumes to yours truly. These mini-militias are best
exemplified by Blackwater. Retired Lieut.-Colonel Ralph Peters
commented from his perch at the New York Post.
“Picture foreign diplomats racing through Midtown [Manhattan]
– in armored SUVs, with automatic weapons bristling from the
windows. It’s up to you to get out of their way.
“Then a car backfires in Times Square – sounds like a shot. At
the corner of 42nd and Broadway, the diplomats’ security guards
open fire in all directions. Civilians fall dead and wounded by
the dozen. The diplomats drive on.
“How would we like it?
“That’s the situation in Baghdad, where the lawless actions of
mercenaries on steroids undercut the progress made at such great
cost by our troops.
“Last weekend, a convoy ferrying nervous-Nellie diplomats (do
we have any other kind?) panicked. The guards, employed by
Blackwater, shot the hell out of civilians going about their
business in downtown Baghdad.
“Nine dead, two dozen wounded. Given what we know now, it
looks like a war crime.
“It’s bewildering that our anti-war crowd, while anxious to
discredit our troops with lies, ignores the very real depredations
of trigger-happy contractors – who don’t answer to military
discipline.”
Peters notes that this is the fault of both Democrats and
Republicans who underfunded our ground forces to the point
where the security job couldn’t be performed by soldiers and
Marines.
“So the Bush administration ‘outsourced’ the work to thugs,
vultures and cons. We wasted billions. And virtually every
major contract to rebuild Iraq has failed to meet its goals. And
corporations that fail face no penalty. They just get new
contracts.”
Yes, there are some honorable veterans serving in security
details, but Peters adds, “a few bad apples don’t just spoil the
barrel – they destroy the orchard.”
“Iraq’s government responded to last weekend’s bloodshed by
ordering Blackwater out of the country. Now our diplomats are
bullying Iraqi officials to let the company stay.”
[On Friday, Blackwater was allowed to stay in Iraq in a “limited”
capacity.]
Iran: The White House is promoting a third round of sanctions in
the UN over the next week or so, including discussions with the
main players…France, Britain, Germany, Russia and China.
After all, sports fans, Iran continues to blow off earlier UN
demands to halt its uranium-enrichment efforts.
And Iran is playing with its traditional enemies, such as the
Taliban, in its ongoing effort to hurt the U.S. This week a major
arms shipment from Iran to the Taliban was intercepted in
Afghanistan, one that included armor-piercing bombs.
I do have to say the comments on war with the mullahs by the
French foreign minister were way overblown in the press, but
what is most encouraging under the new government of President
Nicolas Sarkozy and his foreign policy is France’s increased
support for playing hardball with Iran, including Sarkozy’s call
to French companies to stop doing business with it.
Lebanon: Tehran, of course, working hand-in-hand with Syria,
would love to see this nation’s presidential election process,
which is slated to commence next week, fall apart. The
assassination of MP Antoine Ghanem the other day was the 4th
member of parliament to be taken out since Feb. 2005, and the
Syrian inspired assassination of former prime minister Rafik
Hariri. 10 other anti-Syrian figures, including leading
journalists, have been killed during this time.
The ruling March 14 coalition is now left with 68 seats out of
128 in parliament and a simple majority of 65 is needed to
replace Syrian butt-boy Emile Lahoud as president.
But 2/3s need to be in attendance for a quorum (this is going to
be a long affair, possibly lasting months), and Hizbullah and its
pro-Syrian supporters could easily boycott the process….which
brings us to…
Israel: Everyone wants to know, just what happened on Sept. 6?
The consensus is Israeli warplanes struck some kind of nuclear
facility in northern Syria near the border with Turkey; an act of
nuclear preemption similar to the 1981 Israeli raid on Iraq’s
Osirak nuclear complex. The rumors are that North Korea has
been supplying Syria with components and/or material for a
fledgling program. No one knows for sure, though, because of a
virtually total news blackout. Many, though, are pointing to the
encouraging sign that the Arab world issued no real protests,
which some are reading as a signal to Iran; seeing as Saudi
Arabia and Egypt, for starters, are increasingly concerned about
the intentions of its belligerent neighbor.
So until we know for sure, there is little left to say, except I
couldn’t help but think back to the Clinton administration’s
bombing of a pill factory in Sudan. Yet the authoritative Jane’s
Defense Weekly reported earlier that back on July 23, there was
an accident in Syria that claimed the lives of dozens of Syrians
and Iranians as a result of an explosion when Iranian ‘experts’
were attempting to mount a chemical warhead on a missile.
[As an aside, it’s also interesting how the latest round of six-
party talks on North Korea’s nuclear program were suddenly
cancelled, though there are reports they may start up again next
week.]
Pakistan: Osama bin Laden and Zawahiri declared war on
President Pervez Musharraf, this while an election has been set
for Oct. 6 following a ruling that Musharraf can run for president
while still serving as army chief.
You talk about a fluid situation, there is a new story here every
day. Oct. 18 is a key date because that is when former leader
Benazir Bhutto returns to the country, thus the rush to hold
elections beforehand; Musharraf and Bhutto having apparently
broken off their power-sharing negotiations. All this while the
Supreme Court has yet to decide on the entire process, including
the fate of another former prime minister, Nawaz Sharif, who
was sent back into exile after but four hours on Pakistani soil.
Musharraf’s term as president expires Nov. 15, and at last word
he has vowed to step down as military chief if reelected. But
critics say, how can you trust him? Musharraf, after all, has long
said he would give up one of his dual posts ever since he took
over in the 1999 coup.
Back to bin Laden, a Saudi Islamist and prominent cleric, Sheikh
Salman al-Odah, spoke out against him.
“How many innocent people, elderly men and children have been
killed or displaced under the al-Qaeda banner? Would you be
happy to meet God carrying the burden [of their death] on your
shoulders?
“What did we gain from the total destruction of a people as
happened in Iraq and Afghanistan? Who benefits from the
attempts to turn Morocco, Algeria, Saudi Arabis and other
countries into scared countries where people don’t feel secure?”
[Agence France Presse]
Why can’t more Islamists say this?
Japan: As I write, the Liberal Democratic Party is about to select
71-year-old Yasuo Fukuda to replace Shinzo Abe as prime
minister. Fukuda is an advocate of a less U.S.-centric foreign
policy and has been critical of Abe’s proposal for an “arc of
freedom” that would include India, the United States and
Australia – but not China.
“The U.S.-Japan alliance is the cornerstone and we must place
weight on that,” said Fukuda. “But if there are deficiencies in
other areas, we should fix them. China is making efforts towards
a free economy, so if we say they must change their system
completely, that would seem to be rejecting them. We need to
cooperate instead.”
At least Fukuda said Beijing must explain its big increase in
defense spending. He also said he would stay away from the
Tokyo war shrine that miffs both China and South Korea.
China / Taiwan: The two were close to an agreement on the
island’s role in the Olympic torch relay, and then it suddenly
collapsed and now the International Olympic Committee itself
said Taiwan will not be part of the relay after all. The dispute
arose over the use of the flag. Beijing insisted Taiwan fly the
Olympic flag of Chinese Taipei, the name under which Taiwan
participates. But Taiwanese leaders said they couldn’t accept
this.
On the issue of UN membership, Secretary General Ban said it
was illegal under UN rules to accept Taiwan’s application; a
decision that China of course applauded as reaffirmation of the
one-China principle. But Taiwan’s President Chen Shui-bian is
determined to hold his March referendum on a name change to
“Taiwan,” which China views as a call for independence. The
U.S. State Department is adamantly opposed to this move.
France: President Sarkozy has begun his attempt to overhaul the
country’s overly generous pension system and, as you’d expect,
he is meeting stiff resistance. Many civil service employees, for
example, can retire at 50 with generous benefits.
But in another controversial move, the parliament is debating
proposals to tighten entry requirements for relatives of
immigrants who want to join their families in France. Under the
bill, immigrant families would need to prove they are financially
solvent and can speak French. Sarkozy has set up deportation
quotas, promising to send home 25,000 illegal immigrants in
2007 alone. Civil liberties groups are up in arms over this.
Russia: As the Arctic sea ice melts to its lowest level in recorded
history, and as shipping routes through the Northwest Passage
open, Russia says it has conclusive evidence the Lomonsov
Ridge, which runs hundreds of miles along the bottom of the
Arctic seabed below the North Pole, is part of the adjoining
continental shelf of the Russian Federation. Ergo, all mineral
and oil and gas assets are Russia’s as well. Russia will present
its evidence to the UN. Of course Russia could also claim
eminent domain and boot Mr. and Mrs. Claus, their elves and
reindeer from their enchanting home.
Belgium: There are growing calls for a breakup between the two
major ethnic groups, the Flemish (or Phlegmers) and the
Walloons; the former being Dutch-speaking, the latter favoring
French. Three months after a general election, a government has
yet to be formed.
Now ordinarily this really wouldn’t be something I gave a damn
about, given Belgium’s minimal importance, but the separatist
Flemish Bloc is an extremist party that bears watching, as it’s
indicative of broader trends across the continent.
Africa: Historic flooding in the west, in countries such as Ghana,
is taking a horrible toll and disease will spread. These areas
aren’t used to the record rains and are totally unprepared for the
growing humanitarian crisis.
Random Musings
–I got a kick out of Vice President Dick Cheney’s Wall Street
Journal op-ed refuting some of Alan Greenspan’s claims in his
book “The Age of Turbulence” that the administration has been
fiscally irresponsible. [Of course us Republicans know that
when it comes to spending this has indeed been the case. As
Greenspan notes it was truly pitiful how Bush refused to use the
veto pen.]
But Cheney adds, “It’s worth noting…that President Bush has
committed significant resources to rebuilding our military after
the drawdowns of the 1990s.”
The fact is our military is in a shambles, and it’s not necessarily
about Iraq and funds diverted there. It’s once again about
leadership and vision. George Will, for example, wrote a column
this week on the pitiful state of our long-range bomber force,
including the critical air tankers fueling them, the average
age of which is 45!
And Robert Kaplan, a supporter of the Iraq War and a visiting
professor at the U.S. Naval Academy [as well as a noted author]
had an op-ed in the New York Times on Friday talking about
how the United States is allowing Asia to take over the defense
initiative in the Pacific while we seem to be clueless at what
speed change is occurring. As Kaplan writes, “Asian dynamism
is now military as well as economic.”
“The military trend that is hiding in plain sight is the loss of the
Pacific Ocean as an American lake after 60 years of near-total
dominance. A few years down the road, according to the
security analysts at the private policy group Strategic
Forecasting, Americans will not be the prime deliverers of
disaster relief in a place like the Indonesian archipelago, as we
were in 2005. Our ships will share the waters (and the prestige)
with new ‘big decks’ from Australia, Japan and South Korea.
“Then there is China, whose production and acquisition of
submarines is now five times that of America’s. Many military
analysts feel it is mounting a quantitative advantage in naval
technology that could erode our qualitative one. Yet the Chinese
have been buying smart rather than across the board.” [Such as in
focusing on naval mines and ballistic missiles that can hit
moving objects at sea, and technology that blocks G.P.S.
satellites.]
“The goal is ‘sea denial’: dissuading American carrier strike
groups from closing in on the Asian mainland wherever and
whenever we like.”
India’s navy, Kaplan writes, could be the third-largest in the
world in a few years, while at the same time the U.S. remains
allied with a Europe that increasingly appears to want its
militaries to be nothing more than “civil servants in uniform:
there for soft peacekeeping and humanitarian missions.”
Kaplan also makes this comment concerning the nuclear front.
“As the Yale political scientist Paul Bracken notes in his book
‘Fire in the East: The Rise of Asian Military Power and the
Second Nuclear Age,’ the Indians, Pakistanis and Chinese have
great pride in possessing nuclear weapons, unlike the Western
powers that seem almost ashamed of needing them. Likewise,
the right to produce nuclear arms is something that unites
Iranians, regardless of their views of the clerical regime.”
Bottom line, “indispensability, rather than dominance,” must be
Washington’s goal.
–Hillary Clinton unveiled her $110-billion a year plan that
would require every American to have health insurance, offering
generous subsidies to help pay for the policies. But she said half
of the cost would come from savings she said she hoped to
squeeze out of the existing healthcare system, which is totally
unrealistic. The rest would come from tax hikes. [A rollback is
a hike.]
Of course Hillary has a big problem on her hands with fundraiser
Norman Hsu, who was charged with defrauding investors of $60
million in a massive Ponzi scheme, as well as violating the
federal campaign-finance law. Part of the fraud was in forcing
clients in his hedge fund to contribute “tens of thousands of
dollars” to U.S. presidential and congressional candidates.
–Scott P. pointed out to me it was “Constitution Week,” so he
suggested it was a good excuse to repeal the 17th Amendment
and have senators appointed by state legislators, instead of by the
people, and for a period not to exceed two terms. I have no
problem with that. It might also get voters to pay more attention
to who they elect at the state level.
–I have to be honest. I do not know all the facts about the “Jena
Six” to comment further. But I did hear the Rev. Jesse Jackson’s
speech on Thursday in Louisiana and it may surprise some of
you that I couldn’t agree with him more on reforming our
criminal justice system when it comes to penalties handed down
to drug users. Some of the sentences for simple possession are
absurd. Of course the reverend, and my own church, would not
agree with my call to increase the number of crimes for which
capital punishment could be applied.
–I tried to watch some talk shows this week and I didn’t make it
more than five minutes. Anyone talking over another guest
should be given one warning and if they do it again, 5-10 years
without parole.
–I normally don’t comment on accidents or natural disasters, but
I can’t help but note the awful tourist bus crash in Mexico last
weekend that claimed at least 17 lives, including some
Americans. There have been quite a few of these worldwide just
this summer, far more than I can remember in past years. But
what captured my attention was the fact that the passengers had
earlier been on a flight from Phoenix to Guadalajara, that was
then rerouted to Puerto Vallarta at the last minute due to a fire at
Guadalajara airport. In other words, this was doomed from the
start.
–A 30-year-old Chinese man died after playing video games for
three straight days at an Internet café in Guangzhou. Police said
exhaustion was the probable cause of death. The local media
didn’t say which game he was playing. This year, China,
concerned over content on the Web, has banned the opening of
new cybercafés and ordered existing ones to limit the time users
can spend playing online.
–Goodness gracious. I had no idea what a dirtball Detroit Mayor
Kwame Kilpatrick was until I saw a blurb in U.S. News & World
Report. Among the scandals during his five years in office are a
$25,000 bill to the city for his wife’s SUV and a whistle-blower
suit against Kilpatrick and Detroit involving “rumors of a wild
bash with naked dancers at the mayor’s residence.” Two cops,
working internal affairs and investigating the allegations, were
then let go but were just awarded $6.5 million by a jury.
–I’ve always said it’s important to get your children to read
baseball box scores as a way of improving math skills, so if you
needed further proof look no further than Alan Greenspan, who
notes in his book that he was a fanatic in following baseball
statistics and that “To this day, I can recite the lineup of Yankees
starting players (from the 1936 World Series), complete with
their positions and batting averages.” Say what you will about
the man, but he did pretty well for himself.
–I’ve never met filmmaker Ken Burns but it seems the two of us
would get along pretty well. In an interview with Newsweek’s
David Gates, Burns says “The thing that really got me mad (in
making ‘The War’) was finding out that a huge number of our
high-school graduates think that we fought with the Germans
against the Russians in the second world war. It’s so
unbelievable.”
And in keeping with my recent statements that this nation can’t
do anything great anymore (unless you think minting money, like
at Goldman Sachs, is on this level), Burns notes along the same
lines, and in relation to a new film he is working on about
America’s national parks:
“Roosevelt thought up the Civilian Conservation Corps, and
within three months…it was employing 300,000 young men,
sending back money and helping millions of people. And we
couldn’t get a f—ing trailer to New Orleans in three months.
That’s what it’s like right now….
“We’ve outsourced our intelligence. Our ability to do things.
It’s terrifying.”
As reader Chris C. brings up, though, at least we have the likes
of Google encouraging private space initiatives. I know I strike a
nerve with some when I promote space exploration, but don’t
you see that we have to?
–Alan Greenspan on Ronald Reagan:
“He brought a sunniness and benevolence to the presidency that
never wavered, even when he had to deal with a dysfunctional
economy and the global danger of nuclear war….Under Reagan,
Americans went from believing they were a former great power
to regaining their self-confidence.”
To quote Reagan himself, “Not bad…not bad at all.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $738…time to hock that class ring!
Oil, $81.62…time to drill a hole in your backyard!
Returns for the week 9/17-9/21
Dow Jones +2.8% [13820]
S&P 500 +2.8% [1525]
S&P MidCap +2.3%
Russell 2000 +3.8%
Nasdaq +2.7% [2671]
Returns for the period 1/1/07-9/21/07
Dow Jones +10.9%
S&P 500 +7.6%
S&P MidCap +9.6%
Russell 2000 +3.2%
Nasdaq +10.6%
Bulls 53.9
Bears 27.0 [Source: Chartcraft / Investors Intelligence]
Have a great week. I’m off to Ireland for a few days but where
I’m staying is the one place in the world where the Internet
service is non-existent. So…I won’t be answering your e-mails
until I return.
Brian Trumbore
