[Posted 7:00 AM ET]
What Do We Stand For? ….Wall Street and the Markets
Before I get into the Fed’s latest bailout of Wall Street, as well as
a proposal sweeping the markets and Washington to in essence
bailout some homebuyers by freezing “teaser” interest rates on
their adjustable mortgages, I want to readdress a topic I have
broached the past few months.
Such as in last week’s review I quoted former SEC director
Richard Breeden who said “Transparency is what makes the
markets.” To which I added that these days the U.S. capital
markets system is an utter embarrassment. We’re a
“laughingstock” around the globe.
If you thought “laughingstock” was too strong a word then, you
might be rethinking that today.
For years I’ve said the U.S. stock market was no more than a
casino, thanks to a large extent to program trading, which often
comprises 50% or more of overall trading volume. But now you
can expand that to a simple reality. To a great extent our markets
are rigged, or, more broadly speaking, you could say we live in
the United States of Goldman.
Over the past few decades, from time to time Asian markets have
experienced spectacular bubbles that have largely resulted from
shared holdings; as in Co. X holds shares in Co. Y, and Co. Y
holds shares in Co. X. A giant Ponzi scheme, in other words. It
was true in the 80s in Japan, later South Korea, and today China
to a lesser extent. It’s also a joke.
As is the U.S. today. Not in the sense of shared holdings, but in
the lack of transparency, coupled with the lack of a level playing
field.
You want an analogy? Look at President Bush and his
‘democracy agenda.’ Now that’s a joke. It’s one thing to want
to spread democracy in the Middle East, but then you can’t
ignore an autocrat/dictator like Egypt’s Hosni Mubarak, or you
can’t look the other way when a man we’ve handed $10 billion,
Pervez Musharraf of Pakistan, calls a state of emergency to
squash supporters of democracy. Or tiptoeing around the fact
Saudi Arabia is ruled by autocrats, while at the same time
encouraging a vote in Palestine and then condemning the result.
In other words, there’s no consistency in policy. As in there’s no
consistency in domestic, fiscal and monetary policy, as well as
foreign policy. That’s what the joke is these days in America.
And that’s what the 2008 presidential election should be about,
in actuality.
As Senator John McCain says on the issue of torture, for
example, it’s about our moral standing. America used to be the
guiding light, not just for the Free World, but for those in other
nations that were oppressed. Today, both on Wall Street and in
the international sphere, you can’t tell me what the United States
stands for. Free markets? Bull. Democracy? It’s in the eye of
the beholder.
Back to the mortgage issue and potential bailouts, I don’t ‘short’
the market and I have no interest in seeing anyone suffer. A
massive wave of foreclosures in no way helps me, so of course I
want what’s best for good, law-abiding people. Each week when
I write this column, in the back of my mind I try and remember
to be sensitive to those who may have made poor decisions and
are paying for them. There’s nothing worse in life than having
that gnawing feeling and not being able to sleep at night.
But if you’re not too familiar with the ways of Wall Street and
government, just understand that these days there is a ton of
manipulation taking place. Anyone who says we are better than
some of the emerging markets I myself used to poke fun at, in
terms of the rules of the game, isn’t looking in the mirror and
facing reality.
This is a great country, made up of good people. When was the
last time you saw the Chinese military send troops to Indonesia
for tsunami relief, or Bangladesh, as in the cyclone disaster? It’s
always the United States. We have as good a heart as any in the
world.
But there are very troubling signs, in so many areas, that we have
lost our way. I can say with certainty that is the case when it
comes to our financial markets and our government.
This used to be a society where you understood the rules of the
game and the contract was you played by them or were
penalized. In foreign policy, outsiders knew what the United
States stood for. We held the moral high ground.
But I need to digress even further to discuss another topic I need
to get off my chest.
When everyone began praising French President Nicolas
Sarkozy, I said this was a big reason why I didn’t want to play
the French-bashing game when it was popular to do so. I would
write we’ll need them one day, and we should have taken
advantage of the French when Lebanon’s Rafik Hariri was
assassinated, something I wrote extensively on at the time.
Jacques Chirac was not a real popular figure in America, and for
good reason, but he was a staunch ally and friend of Hariri.
There was an instance, I wrote, where Presidents Bush and
Chirac should have been hand in hand in Beirut, supporting the
democracy movement that sprang up before Syria and Hizbullah
could regain their footing. Alas, that wasn’t the case.
To a lesser extent, it’s popular in conservative circles in America
to bash the BBC, the British Broadcasting Corp., for being anti-
American in its coverage.
But I watch the BBC every morning because it’s one of the few
news outlets left in the world that has resources around the globe.
The BBC covers parts of the global scene that no American
network does, with the exception of CNN, while most of our
networks waste our time on the latest Stacey Peterson type case.
When I watch the BBC, I know when I’m being spun. I just
want some facts so I can form my own opinion.
And so it was that the other evening I stumbled on the BBC and
opted to watch its broadcast rather than the local news telecast I
normally do at that time. I wish every American could have seen
an extensive report it had from Baghdad that evening.
Last Sunday on “This Week,” in discussing the Iraq War and the
success of the ‘surge,’ Cokie Roberts said “it just breaks your
heart.” Her colleagues looked at her quizzically, but I knew
immediately where she was coming from as she went on to
explain, ‘if we had only done things right in the beginning, this
kind of success could have come far earlier.’ My exact
sentiments.
So the BBC report highlighted one of the many successes in and
around Baghdad. 600 Sunni fighters, who once fought against
the United States, have rallied around General David Petraeus
and their own charismatic leader, Abdul Abed. They are called
the Knights of Mesopotamia and since August, there has not
been a single attack or killing in the area under their control. It
had to be the most uplifting report I’ve seen on the entire war.
And to top it off, the BBC reporter said “the short-term payoff
has been nothing short of spectacular.”
This from the ‘hated’ BBC; a spectacularly positive report on
America and its much-criticized war. And it all started with Gen.
David Petraeus talking to our enemies. There are so many
lessons to be learned in just this one example, including, most
obviously, with regards to Iran.
Come home, David Petraeus, when your mission is complete.
We need you desperately. With perhaps one exception, you are
head and shoulders above all the prospects we have running for
president. We are also desperate for your moral leadership, in so
many different areas, including on Wall Street.
And I bet Gen. Petraeus is a hearty believer in my mantra “wait
24 hours.”
—
Former U.S. Treasury Secretary Lawrence Summers, 11/26
“Three months ago it was reasonable to expect that the subprime
credit crisis would be a financially significant event but not one
that would threaten the overall pattern of economic growth. This
is still a possible outcome but no longer the preponderant
probability.
“Even if necessary changes in policy are implemented, the odds
now favor a U.S. recession that slows growth significantly on a
global basis. Without stronger policy responses than have been
observed to date, moreover, there is the risk that the adverse
impacts will be felt for the rest of this decade and beyond.
“Several streams of data indicate how much more serious the
situation is than was clear a few months ago. First, forward-
looking indicators suggest that the housing sector may be in free-
fall from what felt like the basement levels of a few months ago.
Single family home construction may be down over the next year
by as much as half from previous peak levels. There are
forecasts implied by at least one property derivatives market
indicating that nationwide house prices could fall from their
previous peaks by as much as 25% over the next several years.
“We do not have comparable experiences on which to base
predictions about what this will mean for the overall economy,
but it is hard to believe declines of anything like this magnitude
will not lead to a dramatic slowing in the consumer spending that
has driven the economy in recent years.
“Second, it is now clear that only a small part of the financial
distress that must be worked through has yet been faced. On
even the most optimistic estimates, the rate of foreclosure will
more than double over the next year as rates reset on subprime
mortgages and home values fall….
“In such an environment, economic policy needs to be governed
by the clear and public recognition that restoring the normal
functioning of the financial system and containing any damage
its breakdown may do the real economy is the central macro-
economic and financial challenge facing the U.S. In the U.S.
today, as in many other countries in the past, confidence will
return the first day an official statement about the economy
proves to have been too pessimistic.”
Summers goes on to say that “fiscal policy needs to be on stand-
by to provide immediate temporary stimulus through spending or
tax benefits for low- and middle-income families if the situation
worsens.” [Financial Times]
Larry Summers is highly respected in all circles (well, except
women, but that’s a different story) and I can virtually guarantee
that Federal Reserve Vice Chairman Donald Kohn and Chairman
Ben Bernanke were thinking of Summers’ comments when they
made their own on Wednesday and Thursday that in turn fueled a
huge rally in stocks.
Kohn said, “Should the elevated turbulence persist, it would
increase the possibility of further tightening in financial
conditions for households and businesses.” The Fed must be
“flexible and pragmatic.” Kohn added, “Heightened concerns
about larger losses at financial institutions now reflected in
various markets have depressed equity prices and could induce
more intermediaries to adopt a more defensive posture in
granting credit, not only for house purchases, but for other uses
as well.”
Kohn also admitted that he was basically like Tweedledee
(Bernanke) and Tweedledum (Treasury Secretary Hank Paulson)
in that “The degree of deterioration that’s happened over the last
couple of weeks is not something I personally anticipated.”
The next day Bernanke said that the housing crisis and related
mortgage turmoil were adding “greater than usual” uncertainty in
the financial markets as well as the economic outlook. Bernanke
added that “the weak housing market, tighter credit conditions,
and declines in stock prices seem likely to create some
headwinds for the consumer in the months ahead.”
But here’s where many of us have problems. The chairman
noted:
“The effectiveness of monetary policy depends critically on
maintaining the public’s confidence that inflation will be well
controlled.”
Of course this is the tightrope the Fed will be walking when it
opts to lower interest rates further on Dec. 11. [If it doesn’t,
Katy bar the door.]
So here’s my bottom line, in keeping with the opening
commentary. Bernanke and Kohn’s remarks bailed out Wall
Street, which had just hit the 10% correction level from the
highs, in strongly hinting the Fed was prepared to continue to
lower interest rates.
Kohn and Bernanke were also trying to tell the credit markets
they are prepared, as they did in August, to do everything to keep
the spigots open.
Paulson’s proposal on mortgages is a bailout, too, yet in keeping
with Summers’ principle that, essentially, both the Fed and the
Treasury (read White House and Congress) have to do
everything necessary to keep the average American from
suffering unnecessarily.
There’s nothing wrong with this if policy is administered
consistently and on a level playing field. I just think these days it
smacks of a rigged market, because there has been zero
consistency in federal or Fed policy.
It was all fine and dandy when the banks and mortgage lenders
were promoting home ownership, even for feral cats with
fraudulent papers and zero income, just as it was all fine and
dandy when Wall Street’s analysts were in cahoots with their
investment banking divisions to tout Internet companies that had
no viable business plan, as long as it meant fee income.
It’s why, again, our system has become a joke.
—
Some final thoughts and facts. New and existing home sales
continued to fall short of already dour expectations, with the
median price on a new home now down 13% from its year ago
level, while the new benchmark, the S&P/Case-Shiller index of
metropolitan markets across the country, showed prices down
4.5% over the past 12 months.
Foreclosures have doubled in one year, though up only 2% in
October over September, if you’re looking for a shred of good
news, but inventories are at their highest level since 1985. This
last bit is critical. To repeat myself, when we do hit bottom in
the housing market in terms of prices, there is absolutely no way
we then begin to climb back up the price ladder until we work off
a substantial portion of the inventory.
And thus far we’ve been focused on residential real estate, yet
now we’re seeing increasing reports that the commercial end is
finally on the verge of rolling over as well. CB Richard Ellis,
the world’s biggest property consultant, said the commercial
property market is facing its worst year since it crashed in the
early 1990s.
From Bloomberg News:
“Real estate deals are coming apart at the fastest pace since
September 2001, when the U.S. economy was shrinking, because
banks are tightening standards for loans, said Robert White,
president of Real Capital Analytics, a New York-based research
firm.
“About $15 billion of commercial property transactions of $10
million or more are under contract in the U.S., compared with
about $70 billion at mid-year, White said. That’s unusual
because the number usually rises at year-end, he said.
“More than 75 have been withdrawn because banks aren’t
lending, and that estimate is ‘probably conservative, because not
all deals that blow up are well-publicized.’ White said.”
Back to residential, and across the pond, from the London Times:
“Lenders are cracking down on sub-prime borrowers across
Britain and could force tens of thousands of homeowners into
forced sales of their homes, property experts warned yesterday.
“The global credit crunch provoked by the crisis in American
sub-prime mortgages is creating a time bomb in Britain’s own
market for loans to borrowers with imperfect credit records.”
The British Bankers’ Association warned that house prices are in
for their sharpest correction in at least a decade, and as I noted a
while back, folks here have far more debt than even the average
American.
Street Bytes
–After plummeting 237 points to 12743 on Monday, and thus
crossing the 10% correction threshold from its high of 14164, the
Dow Jones and the other major indexes staged a spectacular rally
on the heels of talk of fresh rate cuts, as well as a cash infusion
from the Arabs into distressed Citigroup (more below). The
Dow finished the week up 3% to 13371, while the S&P 500
gained 2.8% to 1481 and Nasdaq picked up 2.5% to 2660.
But the Fed’s own beige book of regional economic activity said
we would see a “slow holiday season,” despite the silly talk of
Black Friday and Cyber Monday, as in attempting to extrapolate
out after one or two caffeine-fueled mornings and afternoons.
And it needs to be noted that if you believe stocks over the long
run trade off of earnings as much as anything else, well those
same earnings, as forecast, are plummeting. Thomson Financial
now estimates earnings growth of just 2% in the fourth quarter,
down from an earlier projection of 12%.
–U.S. Treasury Yields
6-mo. 3.35% 2-yr. 3.01% 10-yr. 3.95% 30-yr. 4.38%
Bonds rallied some on talk of further rate cuts, but much of the
move had already been priced in. On the economic data front,
personal consumption for October was up only 0.2%, the same
figure as personal income, but construction spending was down a
whopping 0.8%, double expectations.
And for the record, the first revision of third quarter GDP came
in at a strong 4.9%, but few believe the fourth quarter’s pace will
be higher than 1%.
–Good news! Oil plummeted back below $90 on concerns over
demand amidst a U.S. slowdown. And that all-important figure
on gasoline futures is back to $2.25, below my $2.30 target level.
If this were to hold, gasoline at the pump would fall back below
$3.00 in most portions of the country.
–Editorial / Wall Street Journal
“Investors seem delighted that Abu Dhabi is injecting $7.5
billion into Citigroup, bidding up stocks in general on new
confidence that the mortgage solvency crisis might ease. We
hate to spoil the party, but it strikes us as unfortunate, if not a
tragedy, that America’s largest bank had to go hat in hand to
Arab sheiks because of bad management and blundering U.S.
monetary policy.
“The Citi play is being spun as a masterstroke by Robert Rubin,
the chairman of the bank’s executive committee. The bank gets
a capital infusion without having to cut its dividend, and gives up
only a minority stake while Abu Dhabi gets no seat on the board.
Even better from a political point of view, Abu Dhabi will be
able to convert shares for no more than a 4.9% stake, which
comes in just below the 5% level that requires approval by the
Federal Reserve. Mr. Rubin even seems to have greased the
skids on Capitol Hill, with New York Senator Chuck Schumer
already forgetting his campaign against Dubai Ports World.
“Citigroup did have to shore up its balance sheet, and we
suppose petrodollars are a better source of capital than U.S.
taxpayers under a ‘too big to fail’ doctrine. On the other hand,
where were Mr. Rubin and the bank board when Citi was betting
so much on subprime? Given the 11% the bank is paying Abu
Dhabi, Citigroup’s other equity holders might also be better off
down the road had they taken a dividend cut instead….
“No one should doubt that [the Fed’s] monetary mistakes helped
to make possible Citi of Arabia. Its easy money policy this
decade created a subsidy for debt that led to the housing bubble
and Citi’s mistakes in the mortgage and [structured investment
vehicle] markets. It also fed a global commodity boom that has
enriched the oil producers and other countries that have a low
propensity for domestic consumption. Their petrodollar windfall
has to go somewhere, and so it is gobbling up U.S. assets. This
recycling may help Citigroup now, but it has also weakened
American influence more broadly as the dollar has continued to
decline. And it left Abu Dhabi better positioned than American
finance companies to rescue Citigroup.
“No one favors open capital markets more than we do, and
foreign investment is a crucial part of American economic
success. But since 9/11, commercial calculations must also
consider national security. We’d feel better if this deal were
inspected by U.S. officials, and we especially agree with
[Manhattan District Attorney Robert] Morgenthau when he says,
‘It’s a sad day for American financial markets when you’ve got
to turn to Abu Dhabi to get bailed out.’”
–As I note below, it will not be smooth sailing for Russian
President Vladimir Putin in the years to come, domestically,
because inflation is a rapidly growing issue. The government
now forecasts it is running over 11%.
–Under pressure from French President Nicolas Sarkozy and
other European leaders who had separate visits to Beijing this
week, China’s Prime Minister Wen Jiabao said “China will
continue to perfect the renminbi exchange rate in a gradual,
proactive and manageable manner, (while giving) a further role
to the market in determining the exchange rate.” The key here
is Wen’s mention of “the market,” a first and mildly
encouraging.
The EU is helping the U.S. in this matter because its own trade
deficit with China is forecast to hit $250 billion this year as
tensions rise sharply.
–My investment partner David P. and I were exchanging notes
on Goldman Sachs and with its rising power in the U.S. financial
markets, and governance in general [ex-CEOs Hank Paulson and
New Jersey Governor Jon Corzine being two examples], I think a
good description of Goldman these days is ‘chaebol,’ as in the
ruling conglomerates of South Korea. This isn’t a compliment.
Goldman has tremendous conflicts of interest throughout its
operation, far more so than others on the Street, and it is a master
of manipulating its book, or talking out of both sides of its mouth
depending on its positions. [Whether it’s a prediction on oil or
the U.S. dollar, for example, let alone individual stocks.]
–Morgan Stanley’s co-president Zoe Cruz was fired as a result
of the firm’s excessive losses in its mortgage securities holdings,
though as some reported this move had as much to do with her
leadership style as trading losses.
–Motorola’s Ed Zander was forced out. He said he looked
forward to spending more time with his family. His family said
they liked things the way they were and intended to fly to Guam.
–Speaking of the mortgage debacle, and related securities, such
as structured investment vehicles, the state of Florida was forced
to suspend withdrawals from an investment fund for schools and
local governments after a flat-out run on the bank, sparked by
downgrades of debt held in the portfolio. On Thursday alone, the
Local Government Investment Pool had $3.5 billion of
withdrawals before the governor was forced to step in. Expect
this story to be repeated increasingly around the country. The
issue is there are simply no bids for many of the instruments in
these portfolios, most of which serve as money-market type
alternatives.
–Headline in the Journal:
“Ethanol Craze Cools As Doubts Multiply”
“A recent study by the Organization for Economic Cooperation
and Development concluded that biofuels ‘offer a cure [for oil
dependence] that is worse than the disease.’ A National
Academy of Sciences study said corn-based ethanol could strain
water supplies. The American Lung Association expressed
concern about a form of air pollution from burning ethanol in
gasoline. Political cartoonists have taken to skewering the fuel
for raising the price of food to the world’s poor.”
And of course these days you have the growing battle between
livestock farmers and the ethanol producers because the former’s
profits are crumbling due to soaring feed costs, up over 50% on
average depending on the price for corn at any given time.
So it should also be no surprise that the ethanol industry is
consolidating furiously. The other day VeraSun Energy
announced it would acquire U.S. BioEnergy, creating what could
become the largest producer, surpassing Archer-Daniels-
Midland.
[Separately, in a story by James R. Healey of USA Today,
researcher John Graham concludes that “Compared to gasoline, a
driver could spend as much as $1,600 more on fuel over a
vehicle’s life burning E85, a mix of 85% ethanol and 15%
gasoline, (he) calculates, while a diesel could save as much as
$2,300.” Graham founded the Harvard Center for Risk
Analysis.]
–House and Senate negotiators agreed to hike fuel efficiency
standards to 35 miles per gallon by 2020. It’s absurd we have to
wait that long.
–A former senior Macau official has been accused of taking
$100 million in kickbacks related to the casino boom, in a big
blow to the territory’s efforts to rid Macau of its corrupt past.
–Some stats on Wall Street’s impact on New York City’s
finances.
“The securities sector accounted for 40% of all the new jobs in
the city in 2004, 05, and 06.
“The industry provided 20% of all state tax revenues and 9% of
city collections.
“Pay soared to levels never seen even in the Street’s gilded
history. Bonuses hit a record $23.9 billion last year. The
average wage rose to $340,000 – an increase of $50,000 in just
one year.” [Greg David / Crain’s New York Business]
–Last week I said “Dec. 10” was online retailing’s Black Friday,
and then all you heard this past Monday was that Nov. 26 was
“Cyber Monday.” So did I get it wrong? Not really. Despite all
the hoopla, Cyber Monday is not necessarily the biggest online
shopping day of the season, and the way the calendar plays out it
could be Dec. 10 as folks focus on ordering gifts that will arrive
on time. It’s yet another date the online community is pushing.
Of course, regardless, all of us are sick of these terms and the
excessive publicity paid to them.
But for the record, Cyber Monday sales were supposedly up
about 20%, exactly as I noted last week.
–Nice quarter for Sears Holdings, the fourth-largest U.S. retailer
…..NOT! Net income fell to $2 million from $196 million in the
same period a year ago as sales declined 3%. The next Warren
Buffett, Eddie Lampert, Sears Holdings’ leader through his 46%
ownership via his hedge fund, took a bath as shares in Sears
continue to plummet. And Lampert’s other stakes ranging from
AutoZone to Citigroup to Home Depot have also plunged. So he
may have to wait another year or so before his coronation.
–Dell continues to suck wind as orders from U.S. consumers fell.
I know from my own standpoint, while my first 11 or so
computers for the business were Dells, the last two haven’t been.
Hewlett-Packard continues to grab market share.
–Broadway settled the stagehands strike. The folks I felt sorry
for were restaurant owners in the area. But the key for the
strikers was work rules and now stagehands will receive double
compensation for the hour after a show. Classic.
–PNC gives us the cost of “The Twelve Days of Christmas” each
year as an inflation indicator. Such as the price for six geese-a-
laying has risen from $300 to $360 due to soaring feed costs.
However, I have exclusive research of my own. The cost of six
geese-a-laying Faberge eggs has risen from $9 million to over
$18 million.
Foreign Affairs
The Middle East: I cannot criticize President Bush for attempting
to put the parties together on the Israeli-Palestinian issue as he
did in Annapolis this past week, but that doesn’t mean I have to
be optimistic.
What we do know is that starting Dec. 12, formal negotiations
are to be held every two weeks between Israeli Prime Minister
Ehud Olmert and Palestinian Authority President Mahmoud
Abbas, but in terms of even thinking about any final two-state
solution, two simple things must occur. Israel must stop building
new settlements and the Palestinians have to stop firing rockets
into Israel. That’s it. You don’t even have to begin to discuss
how Hamas and Hizbullah, via a now totally ticked off Iran, will
look to derail any progress, nor how right-wing extremists in
Israel will look to do the same; Israel won’t stop building
settlements and the rockets will keep flying over the border.
And as the Jerusalem Post reported on Thursday, “Fatah will
fight alongside Hamas if and when the IDF (Israeli Defense
Force) launches a military operation in the Gaza Strip, a senior
Fatah official in Gaza City said Thursday.
“ ‘Fatah won’t remain idle in the face of an Israeli invasion,’ the
official said. ‘We will definitely fight together with Hamas
against the Israeli army. It’s our duty to defend our people
against the occupiers.’”
One positive from Annapolis is that Syria showed up, which the
United States hopes signals a future split from Iran, but before
anyone gets too excited, understand Syria only sent its deputy
foreign minister and it is demanding a return of the Golan
Heights, which just isn’t going to happen.
Also understand that when it comes to Syria’s participation and
that of Saudi Arabia and the 30-other Arab World nations and
organizations that were in attendance, no one is about to
recognize Israel as a Jewish state and Saudi Arabia still won’t
even shake hands with Israel, which is truly pitiful.
But you want something positive? This is an editorial from
Lebanon’s Daily Star.
“Surprising though it may seem, the much-maligned [President
Bush] has actually succeeded on a couple of key points. More
than three dozen countries and organizations agreed to take part
in the Annapolis conference, including all-important players
Syria and Saudi Arabia: Reviving the peace process without
them would have been a fool’s errand. In addition, the run-up to
the talks has enabled Palestinian and Israeli officials to build
something like a working relationship: Doors have been opened,
in other words, that were closed for years.”
Ah, but then there is Bret Stephens of the Wall Street Journal.
“Remember Nancy Pelosi’s spring break in Damascus?
Condoleezza Rice apparently does not. When the House Speaker
paid Syrian strongman Bashar Assad a call back in April,
President Bush denounced her for sending ‘mixed signals’ that
‘lead the Assad government to believe they are part of the
mainstream of the international community, when in fact they are
a state sponsor of terror.’ Today, said sponsor of terror will take
its place at the table Ms. Rice has set for the Middle Eastern
conference at the Naval Academy.
“Only at Foggy Bottom would Syria’s last-minute decision to go
to Annapolis be considered a diplomatic triumph.”
Ralph Peters / New York Post
“Short of intolerable carnage, there’s no durable solution to the
Israeli-Palestinian problem. None. The best all parties can hope
for is an occasional time-out.
“A respite between rounds isn’t worthless, of course – lives are
saved, Israel’s economy improves and the Arabs get one more
chance to get their act together. But we’re forever disappointed
because we’re convinced there’s a good, permanent solution, if
only we can figure it out.
“That’s the American way: a can-do spirit, the conviction that no
problem’s too tough for us. But, in the real world (and in the
bizarre fantasyland of Arab culture), some foreign problems
can’t be resolved equitably. They can only smolder on,
occasionally erupting in flames.
“In the Middle East, you can’t buy peace. You can only buy
time. If we want to help at all, the fundamental requirement is to
have realistic expectations….
“If you want a sober perspective on the Annapolis dog-and-pony
show, just ask yourself this: Who will leave disappointed, if
nothing much results?
“The Arabs won’t care. They came because we got on our knees
and begged.
“The Israelis will just be relieved that their latest trip to the
geostrategic dentist is over.
“Any Russians soiling the furniture at the Naval Academy will
be delighted if another American effort flops.
“And the Europeans just popped in to check the ‘we care’ box.
“The only unhappy campers will be us. We set ourselves up.
Again.
“Oh, and even if there’s some sort of agreement, only the Israelis
will honor it. Grudgingly.
“We’re dealing with people who are fighting for their lives and
homes. Our team’s fighting for poll numbers. Now that’s
asymmetrical warfare.”
Bernard Lewis / Op-ed Wall Street Journal
“There are signs of change in some Arab circles, of a willingness
to accept Israel and even to see the possibility of a positive
Israeli contribution to the public life of the region. But such
opinions are only furtively expressed. Sometimes, those who
dare to express them are jailed or worse. These opinions have as
yet little or no impact on the leadership.
“Which brings us back to the Annapolis summit. If the issue is
not the size of Israel, but its existence, negotiations are
foredoomed. And in light of the past record, it is clear that is and
will remain the issue, until the Arab leadership either achieves or
renounces its purpose – to destroy Israel. Both seem equally
unlikely for the time being.”
Iran: EU foreign policy chief Javier Solana met with Iran’s top
nuclear negotiator and said “I expected more and am therefore
disappointed.”
Who the heck knows where Iran stands with its nuclear weapons
program? The fact is it’s been defying the UN Security Council
for about a year now, refusing to halt its uranium enrichment
operation, sanctions haven’t worked with $90 oil as a monetary
buffer for Tehran, and Russia and China are showing no signs of
putting needed pressure on Iran to cut the crap.
For its own part the U.S. has jerked around for years, refusing to
even end-run President Ahmadinejad, and it doesn’t matter what
anyone says at this point, including the White House and Israel.
If we are in the same stalemate a year from now, there will be a
military conflict.
So as in Petraeus’ example up above, get on a plane, President
Bush, and meet with Ahmadinejad’s rival and leader of the all-
important Guardian Council, Hashemi Rafsanjani, somewhere in
the Middle East and play some dirty pool. Take Petraeus with
you. And just for spite, accept the invitation to speak at Tehran
University for the sole purpose of watching Ahmadinejad turn
purple and deny the request, thus making him out to be the bad
guy in the eyes of his own people.
Iraq: A Pew poll shows 48% of Americans now believe the surge
is going well, compared to 30% earlier in the year, but 54% still
want the troops to come home today.
Lebanon: The election for president was postponed yet again,
however, there is good news, potentially. A compromise
candidate, General Michel Suleiman, has been agreed upon.
Gen. Suleiman currently commands the Lebanese Army. Sounds
good to me.
Russia: Tsar Putin, or Vlad the Great, take your pick, will romp
in Sunday’s parliamentary election. Heading the United Russia
ticket, Putin will then have until March’s presidential vote to
decide just how he will remain the key figure in town. The
actual size of the vote for the party will probably determine
whether or not Putin allows parliament to come up with some
way to keep him in power, indefinitely. For now we have to
assume he’ll become prime minister next spring and work his
way back to president shortly thereafter, but a “state of
emergency” declaration keeping him in power is still a distinct
possibility. One thing is for sure, Putin will not be waiting until
2012, the next presidential vote after 2008, for his return.
This past week in campaign appearances, Putin thundered:
“We have done everything to safeguard Russia from internal
disturbances and to put it firmly on the track of evolutionary
development. And I am forced to repeat myself – we will not
allow this process to be changed from outside,” reiterating he
would not allow the United States to dictate its will to the world.
“A moment of truth is coming in global politics. We need to
give up the policy of dictatorship and deterrent. We will move
nowhere until we agree on new, clear and mutually acceptable
rules for cooperation in international affairs.”
This as Putin blocks all internal opposition, in true dictator
fashion, while failing to cooperate on issues such as Iran and
Kosovo.
Editorial / Washington Post
“Vladimir Putin’s propaganda machine likes to portray the
Russian president as serenely confident, basking in the adoration
of a grateful public that implores him to defy the constitution and
serve another term as national leader. And by all rights, Russians
should be cheerful. With oil prices booming, their economy is
growing and prosperity is spreading from Moscow and St.
Petersburg into the hinterland.
“Yet how to square that image of serenity with the behavior of a
petty and paranoid tyrant? Here are a few bulletins from the
weekend before scheduled parliamentary elections: In Moscow,
the chess genius turned opposition leader Garry Kasparov was
arrested during a peaceful political rally and sentenced to five
days in jail. A pro-Kremlin youth group supplied an amplified
soundtrack of taped, cackling laughter during the event, and
demonstrators were beaten by police. In Nazran, Oleg Orlov,
the head of Memorial, Russia’s leading human rights
organization, was kidnapped and beaten, along with three
television journalists, apparently by law enforcement agents of
some kind.”
It was pitiful this week when Kasparov’s fellow chess compatriot
and rival, Anatoly Karpov, attempted to visit Kasparov in prison
but was turned away. As Karpov put it, he doesn’t agree with
Kasparov, politically, but when “a person is in trouble, I’m not
indifferent to that.”
I saw firsthand the placid side of Putinism when I was in
Moscow. If I had been there a week later, I would have seen the
other side. Kasparov was jailed a few blocks from my hotel, for
example, and there were mild protests outside in support, until
the Nashi youth guard broke them up.
But I’m coming around to an opinion that all will not be well
under Putin, assuming he remains the paramount leader for years
to come. Do not discount the impact of soaring inflation here.
There have been an increasing number of strikes, for example,
because workers can’t make ends meet. Even the Ford plant in
St. Petersburg was struck on Nov. 21, as workers demanded a
30% wage increase and shorter shifts. [Ford said production was
starting up again by week’s end, with many having returned to
work.]
One union leader told Tai Adelaja of the Moscow Times:
“Month after month, workers see their monthly take-home pay
eaten away by high prices for goods and services. Workers
cannot be expected to resign themselves to their fate if the
reward of their daily toil is worth nothing in the market.”
Another expert on unions said:
“One reason (for the growing restlessness) is the complacency of
company directors who have not yet learned to share the huge
windfall with their workers. Workers see around them evidence
of the luxurious lifestyle of company directors and top managers,
while most of them can hardly afford three square meals.”
My last day in Moscow, I went to the Museum of Contemporary
Russian History, roughly mid-1800s to today, and I was struck
by the glowing portrayal of the Stalin era. I couldn’t read all the
text, but the pictures, the portraits, and the lighting of same all
told you that Stalinism is back in vogue. [Pictures of Putin were
of course all over the place as well.] Nothing about the Great
Terror or the Great Famine that I could see.
Speaking of the Great Famine, this is the 75th anniversary of the
start of it in Ukraine, an event that killed anywhere from three to
ten million as Stalin’s goons confiscated all the grain and food
they could find for themselves, leaving the people with literally
nothing. Russia is accusing Ukraine today of using the
anniversary for political purposes by highlighting it and some say
President Yushchenko “has set a time bomb under Ukrainian-
Russian relations.”
Pakistan: Former Prime Minister Nawaz Sharif, the man who in
1999 denied then General Musharraf’s plane landing rights, only
to be ousted by Musharraf in a bloodless coup, returned after
being in exile and said he would boycott the Jan. 8 parliamentary
elections; this after Musharraf stepped down from his army post
to take the oath of office as president following his reelection.
So now it’s about Sharif and Benazir Bhutto. Sharif is an
Islamist, while former Prime Minister Bhutto is seen as a secular
leader. But it does not appear the two will form an alliance to
oppose Musharraf in the parliamentary vote. For her part,
Bhutto’s popularity has already fallen from those first heady days
upon her own return a few weeks ago.
As for Pervez, Musharraf said he will lift the state of emergency
on Dec. 16, which is the reason given for Sharif boycotting the
vote, saying there is not enough time for the opposition to mount
a campaign. Both Sharif and Bhutto are also demanding the
reinstatement of the Supreme Court judges that were booted by
Musharraf, while the White House is concerned Sharif will align
himself too closely over time with Islamists.
Venezuela: Russia isn’t the only big election story on Sunday.
The other is here, as President Hugo Chavez seeks
unprecedented powers in officially turning his nation into a
socialist state, while keeping him in office for life.
But it has not been clear sailing for Chavez and the referendum is
suddenly too close to call. There have been massive protests in
the country against the move.
And not to be master of the obvious, but some of the proposed
changes are comical, such as the one that would cut the workday
from eight to six hours. Of course those in opposition are most
concerned that Chavez would have the power to take over all
business under the socialist banner.
Separately, a long-time fear has been that Chavez would do
something militarily against neighbor Colombia and this week he
said “I declare before the world that I’m putting relations with
Colombia in the freezer,” with Chavez calling President Alvaro
Uribe a “liar and a cynic.” Uribe told Chavez to butt out of
negotiations over the fate of some long-held hostages under the
control of the rebel group Farc.
North Korea: Not to pay this short shrift lately, but negotiations
over Pyongyang’s disclosure of all its nuclear activities appear to
be going well thus far. However, North and South Korean
defense leaders could not agree this week on a joint fishing area
around a disputed western sea border, which tells you Kim Jong-
il isn’t exactly about to roll over.
China: The diplomatic row over the recent denial of access to a
U.S. Navy aircraft group and two smaller ships to Hong Kong’s
port continues to fester. U.S. Navy Admiral Timothy Keating,
commander of the U.S. Pacific Command:
“(China’s conduct) is not in our view conduct that is indicative of
a country who understands its obligations as a responsible
nation,” he told reporters this week.
China has come clean and said the denial of access, despite the
fact hundreds of U.S. families had flown to Hong Kong to be
with loved ones over Thanksgiving, was because of an award
handed to the Dalai Lama by President Bush, as well as recent
arms sales to Taiwan.
But Keating said China’s decision to deny access to the two
smaller ships was more troubling because it involved sailors
seeking refuge from stormy seas.
“As someone who has been going to sea all my life, if there’s
one tenet that we observe it’s when somebody’s in need, you
provide and you sort it out later.”
Meanwhile, officials deny the Three Gorges Dam project is
unstable; this after a landslide killed more than 31 people. I
think many of us would feel more comfortable if the dam had
been built by incorruptible beavers.
Slovakia: Never was there a better example for supporting Sam
Nunn’s Nuclear Threat Initiative [co-founded by Ted Turner and
Sen. Richard Lugar] than this week’s arrest of three men who
allegedly tried to sell enough enriched uranium for a dirty bomb
on the black market. Slovak police say the material originated in
the former Soviet Union, the NTI’s focus. [One of the three was
arrested in Hungary in the joint Slovak-Hungarian operation.]
France: If I were living in Paris, I wouldn’t be a happy camper
these days, what with the recent transit strike and now a
recurrence of the ugly riots that swept the suburbs back in 2005.
The cause of the violence was the death of two boys, 15 and 16,
who died when police accidentally rammed their motorcycle. Of
course relatives of the victims say otherwise, but the fact is the
bike was going at top speed, was not registered for street use, the
kids were not wearing helmets and they were ignoring traffic
rules. The police were chasing the motorcycle when the accident
occurred.
So the African and Muslim neighborhoods rioted and this time,
instead of just using rocks, some had guns and over 100
policemen were injured, though no fatalities. President Sarkozy
vowed to punish the perpetrators severely, though these ghettos
will remain a tinderbox and they are obviously breeding grounds
for terrorists.
Australia: Boy, some of the reporting on the election of Kevin
Rudd to be Australia’s new prime minister was flat out stupid.
Sure, John Howard was a great ally of President Bush, and Rudd
is going to pull Australia’s 500 troops out of Iraq and sign the
Kyoto Protocol. Big deal. In all other respects Rudd will be a
friend of the United States. No one needn’t worry that the
relationship between the two countries will deteriorate. Most
importantly, Rudd has maintained he will continue to support the
campaign in Afghanistan. So while I liked Howard, myself, I
quaff a large can of Foster’s to Rudd’s health.
[On the issue of Afghanistan, the Washington Post reported that
the National Security Council has concluded the Bush
administration’s strategic goals set for 2007 have not been met,
despite the successes against the Taliban. At the same time, the
Taliban has been expanding into new territory and the
government of President Hamid Karzai is shaky. One survey
found only 42% are optimistic things are moving in the right
direction in the country.]
Northern Ireland: Troubling story from the BBC that sectarian
violence has returned as remnants of the IRA refuse to move on
and accept the new power-sharing arrangement.
Zimbabwe: The nation’s ‘chief statistician’ said it is impossible
to work out the country’s latest inflation rate because he’s run
out of zeroes. This isn’t a misprint, but the International
Monetary Fund has warned inflation could reach 100,000% by
year end. So, I recommend gold as an inflation hedge here.
Philippines: If you were staying at the exclusive Peninsula Hotel
in Manila on Thursday, you had a bit of excitement as an
armored personnel carrier plowed through the front entrance as
part of an operation to arrest about 30 officers and soldiers
planning a coup. All were arrested and no one was seriously
hurt. A former vice president led the mutineers who were
already on trial for previous coup attempts but had somehow
walked out of the courtroom and commandeered the hotel next
door. It’s not known if they pocketed any soap.
Random Musings
–So here’s my dream. It’s April, both political parties are a
mess with, incredibly, no clear winner and only a few primaries
left. At least one party then heads toward a brokered convention.
At the same time, Gen. Petraeus, his mission largely complete,
retires and returns home. Next summer, the parties gather at
their conventions and the one that is split and convulsed seeks
him out as a compromise candidate and he accepts. The election
would be over that second. And it doesn’t matter whether he is a
Democrat or a Republican.
Heck, we’re all entitled to dream, aren’t we?
[Sorry, folks. This scenario only works with a split convention.
He could not be a third party candidate, much as that would be
my ultimate dream.]
–Well, I had the unpleasant experience of being the victim of a
denial of service attack from the Middle East the other evening.
I have to admit I was a little surprised since my recent missives
on the region have been on the tame and balanced side. But my
tech guys identified a wave from the UAE and Pakistan…..And
here comes the next one…………………………………………
–According to research commissioned by the United Nations,
and carried out by both Republican and Democratic pollsters,
78% of U.S. voters believe that America’s reputation has
suffered in the world. 86% believe that working with major
allies, and through international organizations, is a wiser strategy
for achieving U.S. goals in international affairs.
But the poll also concludes, “The number one criteria, across
Republicans, Democrats and swing voters is ‘keep America
strong and secure in the world,” according to Republican pollster
Bill McInturff.
“At the same time they are also looking for a candidate where
there is a balance between toughness and diplomacy. There’s no
question there is in that a rebuke to this administration where
they feel they’ve been way too far on the toughness side and
not far enough on the diplomacy side.”
I nominate Gen. David Petraeus, or did I already say that?
On whether voters will vote Republican or Democratic in next
year’s presidential election, the Democrats had a 13% edge, the
largest such ‘generic’ advantage since 1979. [Of course after this
Jimmy Carter got swallowed up by the Iran hostage crisis, long
gas lines, and a sour economy. But I see zero reason for
Republicans to be optimistic they can turn it around by next fall.]
–My initial reaction to the news that Mississippi Republican
Senator Trent Lott was leaving at the end of the year to make
some money after 35 years in Congress was ‘good for him.’ But
I have to admit I didn’t realize this is just one year after his
reelection. That’s not right. Even just one more year would
have been more palatable, though we all recognize Lott is
making the move now to skirt new rules that would force him to
sit out an extra year before becoming a lobbyist if he left in 2008
instead of ‘07. I also didn’t know that Public Citizen found 43%
of 198 members of Congress leaving office since 1998 registered
as lobbyists.
–In the town of Plainfield, N.J., where I was born and close to
where I now live, a 9-year-old boy brought a loaded
semiautomatic handgun to school. If the kid’s friend hadn’t told
the derelict’s guardian, who just so happened to be in school at
the time, no telling what would have happened. Of course this
‘guardian’ was the kid’s grandmother. All you can do is shake
your head.
–Washington Post Editorial…on the murder of football player
Sean Taylor:
“A black man between the ages of 18 and 24 is more than eight
times as likely as a white man of the same age group to be
murdered. Nearly half of the nation’s murder victims in 2005
were black, and the number of black men who are slain is on the
rise. Isn’t it a matter of public health that the most likely cause
of death for an African American male between the ages of 15
and 35 is homicide? The grim fact of black vulnerability to
violence is well known in Washington, where last year’s
homicide total already has been surpassed this year. To date, 170
people have been killed in the District, and half-year data show
that nine out of 10 were black. Half were between 18 and 34
years old.”
[Four suspects in the Taylor case are in custody.]
–But let’s hear it for hip-hop mogul Russell Simmons.
According to Crain’s New York Business, Simmons and an
associate have produced a public service announcement against
dog fighting.
“The 30-second spot, which has already hit YouTube, opens with
a thug on a Manhattan street snagging a white Jack Russell
terrier from its leash and throwing it into a ring as bait for a
snarling pit bull. Mr. Simmons’ voice is heard saying, ‘There’s
nothing slick, cool or glamorous about dog fighting.’ He urges
people who are aware of such activity to report it.”
Good for you, Mr. Simmons. How desperately we need more of
this these days.
–Dick Morris, on prospects for Sen. Ted Kennedy’s
autobiography and whether he will tell the truth on
Chappaquiddick.
“I don’t think (Hachette Book will make its $8.5 million
advance) back because he won’t level about Chappaquiddick, or
William Kennedy Smith. They might as well just title it, ‘The
Collected Speeches of Ted Kennedy.’” [New York Post]
–The local Fox News affiliate had an undercover story on some
New York luxury hotels and how they treat the drinking
glasses. You may never use one of these again after what I’m
about to tell you. As in the hidden cameras showed cleaning
women using the washcloth to wipe the toilet, and then after
rinsing your glass they dry it with the same washcloth, before
putting a new cover on the glass to make you think (as I stupidly
have all these years) that you have received a clean one that’s
been through a dishwasher.
–After I blasted Japan for its latest whale hunt, the Sunday New
York Times had a story titled “Japan Hunts the Humpback. Now
Comes the Backlash.”
Japan’s Whaling Association, a private group representing the
industry, has described complaints as cultural imperialism:
“Asking Japan to abandon this part of its culture,” the association
says, “would compare to Australians being asked to stop eating
meat pies, Americans being asked to stop eating hamburgers and
the English being asked to go without fish and chips.”
Hardly. But you know what is needed? An international
conference; as in one where final judgments are made on each of
the more high-profile species. Of course I’m half-kidding (but
only half). I think 90% of the people in the world would be in
agreement that there are certain creatures that must be protected.
Oh well, this will never happen, so in the meantime I hope the
humpbacks ram the Japanese whaling boats and sink ‘em.
–Finally, the great television comedy writer Mel Tolkin [Sid
Caesar’s “Your Show of Shows”] died this week. Tolkin once
said:
“If you like what’s going on with the world, if you’re part of it,
you’ll find little comedy in life. Happy people are idiots.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $789
Oil, $88.71
Returns for the week 11/26-11/30
Dow Jones +3.0% [13371]
S&P 500 +2.8% [1481]
S&P MidCap +3.2%
Russell 2000 +1.7%
Nasdaq +2.5% [2660]
Returns for the period 1/1/07-11/30/07
Dow Jones +7.3%
S&P 500 +4.4%
S&P MidCap +7.0%
Russell 2000 -2.5%
Nasdaq +10.2%
Bulls 47.3
Bears 29.0 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
