[Posted 7:00 AM ET]
Wall Street…the mortgage crisis spreads
North Carolina Democratic Congressman Brad Miller on
Treasury Secretary Hank Paulson.
“I can’t help but notice that when middle-class homeowners were
losing their homes to foreclosure, he was pretty nonchalant about
it. But when Wall Street CEOs start seeing trouble in their
absurdly complicated financial instruments built on the
mortgages of middle-class homeowners, he feels their pain.”
[Bloomberg News]
Rep. Miller echoes a sentiment being felt increasingly across the
land. What he doesn’t say, though, but what is implied, is the
fact Wall Street and many of its banking brethren, both regulated
and unregulated, have been playing games with the rest of us,
reaping riches beyond their wildest dreams, until the music
stopped. But now it’s not just some investors and homeowners
who may have suffered, many of whom admittedly took risks
where they shouldn’t have, but also the reputation of the United
States is being damaged with untold consequences.
I myself nailed this crisis going back years with my first
observation ‘these guys don’t know what they own,’ on through
the whole real estate bubble that fed the need for the crack of the
day, mortgage securities and their derivatives kin. So I loved a
piece by Landon Thomas Jr. of the New York Times on the $3.7
billion charge that Morgan Stanley took this week as a result of
both its collateralized debt obligations and trading acumen.
“Mr. Kelleher said the large trading loss [that made up a majority
of the mega-writedown] was a result of a bet taken by several
traders that the subprime market would worsen.
“The traders were right in predicting that the market for
subprime securities would deteriorate, but they did not foresee
the severity of the decline in September and October. Because of
the complexity of the trade, what had been a money-making
short position turned quickly into a money-losing long trade, in
which the firm suddenly found itself holding billions of dollars
of illiquid C.D.O.’s that were plummeting in value.”
That’s comical, and typical of the loss suffered by the Nobel
Prize-winning geniuses at Long-Term Capital in 1998. They
were so right, they ended up being wrong.
Speaking of geniuses, I caught most of Federal Reserve
Chairman Ben Bernanke’s performance before a joint committee
of Congress on Thursday, as he updated us all on the state of the
economy, and it was truly embarrassing. Now I know Mr.
Bernanke’s grade average was double that of mine in college, but
he still doesn’t have a clue how bad the real estate debacle is,
saying at one point that it just had another six months to run.
Which leads me to remind everyone that when the bottom is hit,
whether it is 2008 or 2009, we don’t just head straight back up.
Housing will sit there, dead, for a lengthy spell thereafter.
Anyone doubting this thesis need only look at the huge
inventories around the country, ever growing inventories, that
need to be worked off first before there is any kind of sustainable
rally.
And let me interject, again, a fact few recognize when talking
about the terrific global economy. Much of it has been built on a
thriving real estate market at its core, as history will prove, and
with each passing week there are further signs the global bubble
is topping out.
In Japan, housing starts plummeted 44% in September, year over
year, though part of this is due to new construction regulations
following the building scandals there. Regardless, the Japanese
economy is back in recession, for all practical purposes.
And it’s official, housing has peaked in the U.K. with word from
all the major players there that prices have fallen two consecutive
months due to the Bank of England hiking interest rates five
times (though holding the line this past week) amidst record
household debt as I described last time. Incredibly, some in
Britain say home prices will soon resume their climb. See above.
On the other hand, real estate is still topping out in Australia,
where home prices keep rising, but housing starts are down, also,
as it turns out, because of rising interest rates. An economist told
the Sydney Morning Herald, “The acceleration in home price
appreciation suggests that housing affordability will continue to
deteriorate further from already record lows.”
Of course you should have noticed a pattern in these last two
examples; “rising interest rates.” As in the world is raising rates
to combat inflation, speculation, or both, but back here in the
good old U.S. of A., Wall Street is clamoring for further cuts in
rates that in turn would only exacerbate what is now a full-blown
dollar crisis, by most estimations.
As I set off for Europe again this afternoon, knowing I’ll be
paying $20 a beer, or more, it’s yet another reminder of what a
joke our currency has become. I know, a falling dollar has been
good for U.S. manufacturers and our exports, but this is
beginning to boomerang back on us, as it already is in terms of
foreign investors and governments abandoning the greenback for
other havens of perceived safety and investment.
This week a top China official said his government was looking
to put an increasing amount of its $1.43 trillion in foreign
exchange reserves into currencies other than the dollar, while the
oil-producing nations, reaping the rewards of record prices for
crude, want their largesse in anything but a bunch of Benjamins.
And with our European allies, in particular, seeing many of their
manufacturers being slaughtered due to higher prices for their
exports, it’s increasingly tension city on the trade front.
Back to our beleaguered Fed chairman, at least he now
recognizes the economy “will slow noticeably in the fourth
quarter,” and it will “remain sluggish during the first part of next
year.” But as I noted months ago he’s really irrelevant at this
point. The bears have decided hibernation can wait a few more
months and they are devouring financial stocks in particular,
slashing earnings as bankers and accountants, fearful for their
lives, are beginning to come clean.
“Don’t kill me, Mr. Grizzly! I’ll, I’ll show you where the crap is
buried. I have a wife and kids to care for.”
It hasn’t been pretty. Wachovia revealed it has another $1.1
billion of mortgage-related losses, the aforementioned Morgan
Stanley’s hit, IndyMac, the second-largest independent mortgage
lender, reported sizable losses and a cut in the dividend, Bank of
America late Friday said it didn’t have a clue what the heck was
going on; even General Motors’ world class charge of $39 billion
was partly due to mortgage losses emanating from its finance
unit.
Plus you still had the ongoing rumors of far more pain to come,
including from those such as Merrill Lynch that have already
seen their book values bludgeoned.
So this is going to play out for months and months, with two key
dates coming up fast; Nov. 15 and year end.
The former involves the Financial Accounting Standards Board’s
rule 157 which says that on this date the banks must put a value
on their opaque garbage that is lying on balance sheets around
the world, waiting to be uncovered.
These involve what are called Level 3 assets, the hardest to
value, or as we discussed back in August during the first
mortgage crisis, “mark to make believe.” [Level 1 is mark-to-
market and Level 2 is mark-to-model.]
Then at year end, or a month later depending on when various
Wall Street firms and banks close their books, they will have to
come clean concerning all assets for their SEC-mandated annual
reports. You can play some games quarter-to-quarter, but year
end is a different matter.
Lastly, it’s hard not to notice that retailers are already gearing up
for Christmas, but if October’s punk same store sales are any
indication, there won’t be a lot of mirth and merriment at the
malls. You really only need to know one thing; housing is no
longer the piggy-bank it once was. But if you require further
evidence it could be a rough stretch, look at gasoline prices,
which spiked on cue per my recent missives. From the “Today
Show” to the lead story in USA Today, forecasts of not $3, but
$4 gasoline were being echoed across the land, and at the worst
possible time. Plus it suddenly got a bit brisk across much of the
country this week, particularly in the Northeast and Midwest, and
that means the first heating oil bills reflecting this change will be
arriving just in time for you to have that sit down with Little
Bobby and Peggy Sue.
“Kids, Santa is having problems fueling his sleigh and there’s a
chance he might not make it to our home this year.”
OK, that’s a bit harsh, but then I’m not a parent. How about this
one?
“Kids, Santa had all his assets in dollars from last year’s trip, but
when he exchanged them for euros, the now accepted currency
on the North Pole, he was left with little money to buy supplies
for his workshop and kids all across the country are going to see
a cutback in the number of toys they receive. It’s called sharing
the pain.”
At least that would leave your kids scratching their heads and it
might buy you a few hours of peace until they figure out that, as
in the case of Hank Paulson and Wall Street, the fix is in.
Street Bytes
–It was a brutal week, with the Dow Jones dropping 550 points
or 4.1% to 13042, while the S&P 500 lost 3.7% to 1453 and
Nasdaq plummeted 6.5% to 2627. For Nasdaq it was its worst
week since April 2002. One of the culprits for the tech swoon
was Cisco Systems, which had been performing like a champ
until CEO John Chambers, in reporting earnings basically in line
with expectations, said capital spending in the U.S. was
slumping. That’s all traders needed to hear, plus the likes of
Google and Apple finally suffered major corrections after
skyrocketing all year.
Overall, earnings for the 4th quarter are being ratcheted down
faster than Marion Jones on steroids, with the expectation now
being just 6% growth vs. an estimate of 12% last month.
But after this week’s drubbing is it time to step up and buy? Are
you kidding me? If you want to take a chance that some of the
financials have seen the worst, be my guest. For starters, that
means you know more than anyone else in the world. No doubt,
though, some will make a killing in some shares or sectors when
looking back two years from now. I’m content to sit back with
my 80% cash position and let the others sort it out first.
–U.S. Treasury Yields
6-mo. 3.63% 2-yr. 3.42% 10-yr. 4.22% 30-yr. 4.60%
Bonds rallied in a flight to safety, even though Chairman
Bernanke warned inflation was still an issue.
–Josh P. passed along a comment from Goldman Sachs
concerning California, as in “California seems to be sliding into
recession. Together with the regional recessions already visible
in Florida and Nevada, a California recession would mean that
the housing bust has pushed an area responsible for 20% of U.S.
GDP into an outright downturn.” Goldman avers this is yet
another reason for the Fed to ease, but then you’ve got that nasty
dollar issue, sports fans.
–The International Energy Agency said energy consumption in
both China and India would double by 2030, which since their
use of coal is also expected to double over the same period spells
huge problems on the greenhouse emissions front. Of course this
means demand for crude oil will increase commensurately, while
for the first time the IEA is admitting “geology” is becoming a
problem on the production front (i.e., peak oil). Ergo, today’s
high prices aren’t solely due to the ‘terror premium’ and
speculation.
–The U.S. Energy Information Administration has raised its
forecast for 2008 oil prices to $80 from $73.50, citing demand
that will continue to grow faster than supply.
–General Motors posted one of the largest losses in the history of
the planet, $39 billion, as the automaker took a charge involving
unused tax credits. GM Chairman and CEO Rick Wagoner said
the accounting issue is not easy to explain, but don’t worry, be
happy. Of course the growing subprime mess is clearly going to
do a further number on car sales well into 2008.
–From a survey by the Pew Research Center, the question was
asked, “Is America divided into haves and have-nots?” Back in
1988, 26% responded ‘yes’ and 71% said ‘no.’ Today it’s split
48-48.
–A Washington Post/ABC News survey revealed 2/3s continue
to give the U.S. economy negative marks.
–Merck has decided to pack it in on the Vioxx front, agreeing to
pay almost $5 billion to settle 27,000 lawsuits where family
members claim injury (or death) after taking the pain medication.
The average plaintiff is expected to receive just $50,000 to
$70,000, though, after legal expenses. Wall Street once
estimated the pain to Merck would be in excess of $10 billion.
Shares in Merck rose on the news as investors saw the positives
in putting the issue behind it.
–Homebuilders continued to take it on the chin, as if I needed to
tell you this. Toll Brothers saw its revenues in the recent quarter
tumble 36%, with cancellations at 39%, while writing off another
$450 million in land costs. Beazer Homes said new sales were
off 53% and it was laying off a full quarter of its work force,
while for its part Beaver Brothers said the rising cost of kindling
was impacting its ability to ramp up construction ahead of winter
and frozen ponds.
–Fannie Mae announced it took a huge $2.2 billion hit in a
derivatives position. Now that’s a weapon of mass destruction,
as Warren Buffett first said of the instruments. Separately, CEO
Daniel Mudd said the housing market will worsen in ’08.
–This is a typical real estate story across the land these days.
The Star-Ledger in New Jersey reported that the developer of a
45-unit condo complex in the northwest corner of the state had
sold just “two or three” units, initially priced at $350,000 to
$400,000, and defaulted on a $9.5 million construction loan.
I’ve been writing of a similar project going up a few blocks from
where I live and no more than one or two of these have been
sold. This involves a loan well in excess of $10 million.
–So, do you think Saudi Prince Alwaleed, Citigroup’s largest
individual investor for years, is pleased? Talk about an example
of where ‘buy and hold’ wasn’t the appropriate strategy, the least
he wants to do, I imagine, is send a flock of falcons to Citi’s next
board meeting and let them have some fun…the falcons, that is.
As for Citigroup’s deposed leader, Charles Prince, unlike Merrill
Lynch’s Stanley O’Neal, Prince leaves with only $30 million in
cash and prizes, but he will receive a pro-rated bonus for 2007,
whereas O’Neal didn’t. Of course O’Neal had accumulated $161
million in benefits.
But I get a kick out of Prince’s package because aside from the
obligatory office and administrative assistant, he gets a car and
driver for at least five years (or until he finds a new employer).
I imagine a few Citi shareholders would like the car to be a
Yugo.
–Since it received so much publicity, and because this column is
a running history of the decade, I do have to note for the archives
that supermodel Gisele Bundchen is insisting she be paid in a
currency other than the U.S. dollar, in yet another sign America
is turning into a laughingstock.
–I follow the situation in Beirut closely and I feel for the tourism
business there. For the first 8 months of 2007, the hotel
occupancy rate is down to 38% after the war of 2006.
–Wal-Mart has begun mass layoffs at its mainland China
purchasing centers; a sign the retail giant is looking for lower-
cost countries. For China the worm has turned as they begin to
export inflation.
–Google, Google, Google….it’s all about Google. Last
Sunday’s New York Times, for example, had two separate
articles, titled:
“I, Robot: The Man Behind the Google Phone,” and “Why
Google Turned Into a Social Butterfly.”
Yes, the company is taking over the world….Planet Google.
–Yahoo shares tanked after a congressional committee blasted
CEO Jerry Yang for misleading Congress about its role in the
jailing of a Chinese dissident. Journalist Shi Tao is serving a 10-
year prison sentence after Yahoo’s now-defunct China arm
turned over information about his online activities to Chinese
authorities. He was then imprisoned for revealing “state secrets.”
Yahoo’s general counsel Michael Callahan had initially told
Congress in February 2006 that the company didn’t know the
facts of the case, but it turns out it did.
–An art auction by Sotheby’s fell 25% short of its goal and
shares in the company plunged about a third. One Van Gogh
painting failed to come close to its estimate and was pulled,
thereby confirming my long-held belief Van Gogh was
overrated, though Kirk Douglas did a nice job portraying him.
–My portfolio: The China biodiesel holding delivered a solid
earnings report and announced the plant expansion is proceeding,
though financing hasn’t been wrapped up as yet. The company
seems to have a handle on its raw materials costs, but I’m a little
leery in this regard as I see one article after another about soaring
costs for items such as palm oil. Nonetheless, those of you
involved in this stock (and I’m finding out there are more than I
thought) should be pretty pleased thus far.
–Be careful investing in mutual funds this time of year, even
those of the bond variety. More than a few are projecting large
capital gains; not an awful thing for existing shareholders, but a
real bummer for new ones in a taxable account. Check with the
fund company first.
–A new train line is opening up between London and Paris that
cuts the time between the two to 2 hours 15 minutes. Very cool.
Foreign Affairs
Pakistan: From “Week in Review,” 10/20/07.
“Last week I wrote how President Musharraf, waffling anew, did
not want former prime minister Benazir Bhuto to return from
exile. Well she did, and on her first day over 130 were killed in a
suicide attack on her convoy….
“The parliamentary elections, slated for January, are still on as
the government is saying all the right things, ‘terrorism will be
stopped, we will not surrender to it, etc.’ but at the same time, I
see this attack, and others that will follow, only further
consolidating Musharraf’s power yet again as he declares a state
of emergency.”
And so late last Saturday Musharraf did just that. Addressing the
nation, he said Pakistan is standing at a crossroads and it was
time to take hard decisions.
“If we don’t take these decisions then there is a grave danger to
the solidarity and security of the country….My guiding principal
has always been Pakistan first….These extremists were roaming
around freely in the country while the law enforcing agencies
have become demoralized creating concern among the general
public.”
At one point, speaking to his American allies, Musharraf
compared himself to Abraham Lincoln, saying “Lincoln usurped
rights to preserve the union.”
Opposition leader Bhutto replied, “He says that he is acting for
the good of Pakistan but he is acting for the good of General
Musharraf.”
Editorial / Washington Post:
“Pakistani President Pervez Musharraf claims that he suspended
the constitution and imposed de facto martial law Saturday to
save his country from Islamic extremists. But his crackdown has
been directed almost entirely at Pakistan’s moderate, secular and
pro-democracy opposition – the very people who could offer a
political alternative to the Taliban and al-Qaeda. At least 500
lawyers, judges, political party leaders, human rights activists
and journalists have been arrested. Independent television
stations have been shut. Lawyers who tried to demonstrate
against the repression in front of the Supreme Court yesterday
were attacked by security forces.
“Mr. Musharraf is waging war not against extremism but against
democracy. He acted because he feared the Supreme Court was
preparing to rule that his orchestrated reelection as president last
month was unconstitutional. He was seeking to escape from
commitments made to Pakistan’s secular political leaders and to
the Bush administration that he would step down as army
commander by Nov. 15 and hold free and fair parliamentary
elections early next year.”
Editorial / Wall Street Journal:
“Secretary of State Condoleezza Rice was quick to criticize Mr.
Musharraf’s move and said yesterday that the U.S. would review
its financial aid to Pakistan, which has amounted to more than
$10 billion over the past five years (most of it for the military).
Senator Joseph Biden, chairman of the Foreign Relations
Committee, issued a statement urging the Administration to
‘move from a Musharraf policy to a Pakistan policy.’ That
oversimplifies both current U.S. policy and the options going
forward, but it should indicate to General Musharraf how his
‘second coup,’ as some are calling it, will be received in
Washington….
“No one can dispute that Islamic violence is on the rise in
Pakistan…
“But the violence is not the product of democratic opponents of
Mr. Musharraf’s rule. It is the work of the same Islamist
extremists who have also tried to kill the General more than
once.”
As I go to post, Musharraf, after a tough call from President
Bush, agreed to hold elections before Feb. 15 and would give up
his military uniform at that time before taking the oath of office
for a new term as president. But on Friday, he blocked an
attempt by Bhutto to stage a rally against emergency rule.
What seems clear is that the odds of this crisis ending very badly
are rising, with Musharraf, Bhutto, or both becoming victims.
And while it would appear the nukes are secure, and there are
responsible officials in Pakistan’s military (as well as some scary
elements), the terrorists are watching this whole situation play
out with glee. You would be, too, if you knew at least for the
time being you weren’t being targeted.
Iran: Israeli intelligence and defense officials are now saying Iran
is just two years away from having the bomb, meaning were
Israel certain of this fact there would be a pre-emptive strike on
suspected facilities within 12 months. With diplomatic efforts
seemingly stalled out, despite some past success on the sanctions
front, time is rapidly running out.
This week, French President Nicolas Sarkozy reiterated “It is
unacceptable for Iran at any point to have a nuclear weapon,”
joining his new soul mate President Bush.
An editorial in the Nov. 5 edition of Defense News, though,
expresses my long-held feelings.
“The problem is Washington is divided. The State and Defense
Departments oppose a near-term attack. Better, they say, to
negotiate and build international consensus to diffuse the
situation [Ed. as opposed to the view of hardliners in the White
House.]
“They’re right. The United States won’t even talk to Iran, which
plays into the hands of factions in Tehran who seek confrontation
with America and want to reinforce the perception that America
is a unilateralist bully. But Iran’s rulers are as divided as
Washington over confrontation. More broadly, it’s unclear
whether the Iranian people and body politic share Ahmadinejad’s
zest for brinksmanship.
“Diplomacy and statesmanship are prerequisites to curbing Iran’s
influence and ambitions, nuclear and otherwise. If wide-ranging
and highly visible diplomatic efforts fail, that process will add
the needed legitimacy for future military action.
“Moreover, such diplomacy would help reassure allies left rattled
by the Iraq war that has eroded America’s credibility worldwide,
particularly in the Middle East. Precipitating another Middle
East war isn’t the way to do that.”
Israel: The Washington Post’s Jackson Diehl had a good
description of a troubling event this week concerning the rise of
Israel’s far right.
“In a bold speech broadcast on national television Sunday night,
Prime Minister Ehud Olmert explicitly overturned the judgments
that have guided Israeli governments for the past seven years.
Israel, he said, does have a worthy negotiating partner in the
Palestinian Authority. It cannot afford to postpone negotiations
or drag its feet in endless talks. ‘Real accomplishments’ are
possible before President Bush leaves office. ‘We will not avoid
fulfilling our own obligations’ – such as dismantling West Bank
settlements – ‘to the letter,’ Olmert said, ‘…no matter how
difficult it is.’
“For the next several days, Israel’s talk radio and op-ed pages
converged on a single subject – but it was not Olmert’s
groundbreaking speech. Instead, the buzz was all about
something that took place at a soccer game in Haifa while Olmert
was speaking. Before the game began, an announcer asked for a
moment of silence in honor of former prime minister Yitzhak
Rabin, who led Israel toward peace in the early 1990s before
being assassinated on Nov. 4, 1995. Hundreds in the crowd,
most of them supporters of the visiting Jerusalem team,
responded with boos; some began lustily singing songs in honor
of Yigal Amir, the man who murdered him.”
As Jackson Diehl concluded, “The message drawn…was grim.
The return Olmert signaled to an aggressive pursuit of a final
peace with Palestinians also will mean the comeback of the ugly
and potentially violent resistance from Israel’s far right.”
Posters showing President Shimon Peres wearing an Arab
headdress have also recently appeared on walls around
Jerusalem.
Iraq: Turkish President Erdogan met with President Bush over
the issue of the Kurdish terrorists, the PKK, and as I wrote last
week he received some worthless assurances from Bush that the
U.S. would do all it could against “their common enemy.”
Erdogan then flew back to Turkey and vowed he would launch
some kind of strike regardless of any agreement he had with the
White House.
And for the record, despite the success of the ‘surge’ in reducing
the level of casualties, particularly as it pertains to the U.S.
military, 2007 nonetheless became the deadliest one for
American forces.
Afghanistan: In a highly disturbing development, at least 75 (the
exact total is unknown) were killed in the worst suicide attack
since the war began in the normally peaceful north, including
over 50 children and six members of the Afghan parliament.
While on Saturday, six U.S. soldiers were killed in an ambush in
the worst such attack of the year.
North Korea: U.S. officials say they are satisfied with
Pyongyang’s initial steps to disable its nuclear weapons
capability at the Yongbyon facility. The North is to disable the
plants there in question by year end, but, just as importantly,
provide a full accounting of its existing weapons as well as all
fissile material in order to receive 1 million tons of heavy fuel oil
and other aid.
This is disablement, however, not ‘dismantling.’ It’s reversible,
though there would be a lengthy delay should the North Koreans
once again boot out inspectors and reset the program.
Separately, the Washington Post reports Saturday that the North
is “providing evidence to the United States aimed at proving that
it never intended to produce highly enriched uranium for nuclear
weapons, undermining a key U.S. intelligence finding, South
Korean and U.S. officials said this week.”
The North’s existing nuclear arsenal has come via the plutonium
route, solely, according to the report. This is yet another
potential huge embarrassment for the Bush administration.
China: U.S. Defense Secretary Robert Gates met with his
Chinese counterparts in Beijing in an attempt to get them to
toughen sanctions against Iran as well as address White House
concerns over China’s burgeoning military and its test of an
antisatellite weapon. It was largely a waste of time.
Russia: Former prime minister Mikhail Kasyanov, who was
sacked by President Vladimir Putin in 2004 and is now an
opposition figure, said “Russia is heading into a dark, totalitarian
state, and its citizens should understand that.” The campaign for
the Dec. 2 parliamentary vote kicked off last Sunday.
Georgia: In a blow to the United States, President Mikhail
Saakashvili, a long-time supporter of the administration, felt
compelled to declare a state of emergency and shut down
independent media after six days of anti-government protests.
Over 500 were injured in violent demonstrations that culminated
in the edict. Saakashvili’s handling of the crisis is an
embarrassment to Washington, though the Georgian president
blamed “high-ranking officials in Russian special services” for
fomenting unrest. Opposition leaders say the people are tired of
Saakashvili constantly blaming Russia for its own problems, and
it’s important to note the opposition is not anti-West, from what I
know. They claim their issues have more to do with corruption
and Saakashvili’s increasingly iron fist.
On Friday, parliament approved a 15-day state of emergency,
ignoring calls from the United States to suspend it, while
Saakashvili has called for a snap election to be held in early
January. The state of emergency is being presented to the people
as buying time to investigate the claims of interference by
Russia’s intelligence apparatus. Meanwhile, Putin is loving this.
More next week from Moscow, including how Putin can call a
state of emergency of his own, related to Georgia, to stay in
power.
France: President Nicolas Sarkozy received a rousing ovation
from a joint session of Congress with lines like these.
“Let me tell you solemnly today, France will remain engaged in
Afghanistan as long as it takes, because what’s at stake in that
country is the future of our values and that of the Atlantic
alliance.”
[In praising American values, spirit and culture….] “America
liberated us. This is an eternal debt. I want to tell you that
whenever an American soldier falls somewhere in the world, I
think of what the American army did for France. I think of them,
and I am sad, as one is sad to lose a member of one’s family.”
“In times of difficulty, in times of hardship, America and France
have always stood side by side, supported one another, helped
one another, fought for each other’s freedom.”
Yes, quite a change in tone from that of the last 50-60 years, I
think you’d agree. I didn’t go along with all the French bashing
of the past few years in particular because I kept saying one day
there will be a change in leadership, just as there was in Germany
in terms of a leader more to our liking.
Italy / Romania: Tensions between these two continue to rise,
despite the efforts by both prime ministers to defuse them, over
the issue of illegal immigrants flocking to Italy and some high-
profile criminal cases, which in turn led to Italy’s new rules
allowing swift deportation for those deemed to be a threat to
public safety.
Belgium: It is now 150 days and counting that Belgium has been
without a government because the parties can’t agree on a
coalition arrangement, with the country remaining deeply
divided between the Dutch-speaking Flemings and French-
speaking Walloons. There was a time when this would have
been cause for war.
The Vatican: Pope Benedict XVI met with Saudi King Abdullah
in the first official meeting between the Pope and so prominent a
Muslim leader from the Middle East, the king being the guardian
of the two holy cities of Mecca and Medina. The 30-minute
exchange was described as “cordial.”
Random Musings
–We just completed a major polling cycle for the 2008
presidential race.
Wall Street Journal/NBC News: Nationally, Hillary Clinton leads
Barack Obama 47-25, while Rudy Giuliani leads John McCain
33-16, with Fred Thompson polling at 15. Thompson was at 23
percent just six weeks ago, however. In a USA Today survey,
Hillary leads Obama 50-22, while Rudy leads McCain 34-18
(Thompson 17).
In three head-to-heads between Hillary and Rudy, including a
Washington Post/ABC News poll, the numbers are 51-45, 46-45,
and 50-46, all Hillary.
But Hillary’s negatives are still off the charts, and, more
importantly, you can’t ignore the impact of Iowa, where the Des
Moines Register has Hillary with just a slight lead over Obama
and John Edwards…29-23-22. [In New Hampshire, though,
Hillary leads the two 43-22-14. And in the mega states of
California and New York for Super Tuesday, Feb. 5, Hillary has
huge leads.]
On the Republican side, Mitt Romney is polling miserably in the
national surveys, but he continues to lead in both Iowa and New
Hampshire. Rudy Giuliani, though, has big leads in California
and New York. Bottom line, Iowa and New Hampshire are still
critical to the process.
Giuliani received a surprise endorsement from Pat Robertson, but
now has to deal with the indictment of one-time friend and
associate Bernard Kerik, a primo slimeball as described by the
U.S. attorney and IRS officials.
The WSJ/NBC poll had some interesting results concerning
Congress. ‘In the next election for Congress, do you feel that
your representative deserves to be reelected?’ 39% said yes,
51% said someone else. Also, in the same survey, only 19%
approve of the job Congress is doing vs. 68% who disapprove.
Back in January 2004, 46% approved vs. 41% who didn’t.
As for Democratic prospects, the Washington Post/ABC News
survey disclosed that by a 54-40 margin the people want
Democrats to control Congress after 2008.
–Meanwhile, various surveys continue to show President Bush
with an overall job approval rating of 31% to 35%.
–Newsweek had a glowing cover story on New York Mayor
Michael Bloomberg and prospects for a third party candidacy.
Bloomberg is of course fueling the rumors, though the consensus
is he won’t run unless he really believes he can win. It’s not
going to be a vanity candidacy to garner 10-15% of the popular
vote and zero in the Electoral College. He could really muck
things up, though, by winning split votes in California and New
York, which isn’t too far-fetched. Bloomberg basically has until
March or April to decide.
–In New Jersey, voters rejected a $450 million bond issue to
fund stem cell research, a surprise to some of us. The margin
was 53-47. [The proposal to replace the phrase “idiot or insane
person” in the state constitution was approved 60-40.] I voted
late and missed the bake sale.
–George Will gave a glowing review of the film “American
Gangster,” which I note since he’s not into film reviews
normally.
–Here’s a lovely story out of Los Angeles. From the L.A.
Times, “A brawl among about 30 women near a busy South Los
Angeles intersection turned deadly Monday when a woman
plowed her car into the crowd, killing a woman who was eight
months pregnant…
“Los Angeles police said that at least two other women were
hurt, one critically, when they were rammed by a gold
convertible.”
One witness said the brawl was over a man, and that word was
widespread in the neighborhood before the incident that there
would be a confrontation.
Now I’m no Inspector Clouseau, but something tells me the guy
wasn’t worth it.
–Nor is Tony Blair, as in the Financial Times reports he was
paid more than $500,000 for a 20-minute speech in China.
Previously, the record for such an appearance was Bill Clinton’s
$250,000 for one he gave in China back in 2002.
–From the AP’s Michael Casey, via the South China Morning
Post:
“It takes five to 10 days for the pollution from China’s coal-fired
plants to make its way to the U.S., like a slow-moving storm. It
shows up as mercury in the bass and trout caught in the
Willamette River in the western state of Oregon. The pollution
increases cloud cover and raises ozone levels. Along the way, it
contributes to acid rain in Japan and South Korea and health
problems everywhere from Taiyuan, in Shanxi province, to
North America.
“This is the dark side of the world’s growing use of coal.”
Don’t we know it. And as more and more Americans fully
understand the impact of China’s pollution on our own health
and environment, there is going to be a growing call to do
something about it. China will then tell us to take a hike…and
…voila! A little crisis, that best case may take the form of a full-
blown boycott of Chinese products. Worst case…use your
imagination.
–“60 Minutes” had a good piece on the wanton poaching of
elephants on the border of Chad and Sudan, despite the
worldwide ban against the ivory trade. The culprit? China.
China isn’t afraid to destroy its environment, it appears to use
lead paint as if it was a food staple, it has zero regard for
protecting a species that is being killed for nothing more than
freakin’ jewelry, it’s testing antisatellite missiles, and it has 700+
missiles pointed at peaceful Taiwan. Just keep all this in the
back of your mind when the China question comes up.
My eyes are wide open when it comes to this issue. As noted
above, I’m trying to make money on an investment there, a noble
investment if I may say so myself since the ‘net effect’ of
biodiesel would be good for the country (that is if it can rapidly
reduce its need for palm oil in the refinery process). But under
the existing communist government, there is a pattern here.
–Lastly, we note the 25th anniversary, Nov. 13, of the Vietnam
Memorial, one of the most moving in the world. For Veterans
Day we pause to reflect on the 58,256 names on the Wall and
think not only of their passing, but remember the glory of their
spirit.
—
Pray for the men and women of our armed forces around the
world today.
God bless America.
—
Gold closed at $834…$850 is the record, Jan. 1980
Oil, $96.33
Returns for the week 11/5-11/9
Dow Jones -4.1% [13042]
S&P 500 -3.7% [1453]
S&P MidCap -2.8%
Russell 2000 -3.2%
Nasdaq -6.5% [2627]
Returns for the period 1/1/07-11/9/07
Dow Jones +4.7%
S&P 500 +2.5%
S&P MidCap +7.1%
Russell 2000 -1.9%
Nasdaq +8.8%
Bulls 54.5
Bears 22.2 [Source: Chartcraft / Investors Intelligence]
Have a great week. Next time…from Russia, with love.
Brian Trumbore
