[Posted 7:00 AM ET]
Wall Street
Nice start to 2008, eh? Goodness gracious. A few more of
these, coupled with continuing dreadful news on the economy,
worldwide, and I’ll quickly change my forecast of a “fairly
shallow” recession to Depression. I suspect that by the end of
next week you will see more than one or two stories buttressing
my global real estate bubble mess thanks to what should be an
abysmal start come Monday in Asia and Europe after the bath
Wall Street took on Friday. I also suspect a leading U.S.
homebuilder will be filing for Chapter 11 in just two or three
weeks, due to construction and land loan issues. All you have to
do is follow ‘the tape.’ I’ll go out on a limb and say Beazer
Homes or Hovnanian, both of which were down about 10% on
Friday alone.
Economist Robert Shiller of Yale, Mr. “Irrational Exuberance”
who called the Nasdaq Bubble and has been focusing on real
estate since, told the London Times:
“American real estate values have already lost around $1 trillion.
This could easily increase threefold over the next few years.
This is a much bigger issue than subprime. We are talking
trillions of dollars’ worth of losses.”
Shiller feels that the U.S. faces a Japan-style slump, with house
prices declining for years, adding:
“Over the next five years, the futures contracts are pointing to
losses of around 35% in some areas, such as Florida, California
and Las Vegas….
“This is a classic bubble scenario. A few years ago house prices
got very high, pushed up because of investor expectations.
Americans have fuelled the myth that prices would never fall,
that values could only go up. People believed the story. Now
there is a very real chance of a big recession.”
The latest reading on housing inventories is a 10.3 month supply.
Nothing of a positive nature can begin to happen until you put a
dent in that figure, but with a slowing economy and an
increasingly tight credit market, who are the buyers, especially
when you have banks like National City Corp., Ohio’s largest,
halving their dividend and eliminating another 900 jobs (for a
total of 3,400 in the past year)? Not a lot of mortgage referral
business with the tellers there, if you catch my drift.
Plus I haven’t even touched on the two big economic indicators
of the week, the ISM reading on the state of manufacturing in
America, 47.7, just awful, and recessionary, and the absolutely
pitiful December employment report, up just 18,000, with the
unemployment rate rising from 4.7% to 5.0%, an increase that is
almost unheard of when it comes to this measurement.
And I was reading the New Jersey paper Friday morning and the
message from the mayor of Summit, N.J. (where I hang my hat
and grew up), was typical of what both towns and states are
increasingly facing. We have a true fiscal crisis from the bottom
up, a budget squeeze, with declining tax revenues at a time when
demands on the pension and healthcare front continue to rise.
It’s unsettling, to say the least.
But wait…there’s more! Gold and oil hit new all-time highs
(forget the inflation-adjusted garbage…a new high is a new
high), while wheat, soybeans, and corn were all at or near new
records of their own. I think you and I would agree these last
three are rather important when it comes to something essential
in life, eating. Forget America, rising food prices are destroying
what had been a burgeoning middle class all over the world. I’ve
been warning of big time potential problems in Russia this year
and you can obviously add China to that mix when it comes to
political combustibility and hot spots.
You also had a Journal story titled “ ‘Celtic Tiger’ Ends
Prosperous Era with a Whimper.” Ireland. Where have you seen
that before? South Korea, Singapore, Spain, Canada…the stories
are all the same. The economies might be technically ‘growing,’
but the pace of same is sliding faster than many anticipated and
that means one thing…reduced earnings expectations.
And once again I haven’t mentioned the Federal Reserve until
now because, all at once, it is irrelevant. In fact, the Fed remains
not just irrelevant, it is also clearly totally clueless. In releasing
the minutes from the December meeting, we learn “participants
agreed that the housing correction was likely to be both deeper
and more prolonged than (previously) anticipated.” Correction?
I wonder what they’ll call it when one or two of the top five
builders go under?
Yes, the Fed is indeed in a box. The inflation genie is out of the
bottle and the economy is grinding to a halt. Stagflation.
And what of those foreigners who have been providing needed
capital, particularly to the financial services industry? Do you
think they like the return on their investment thus far? Like
Joseph Lewis, the billionaire whose net worth is losing zeroes
faster than a mechanic rolling back an odometer. He’s the one,
after all, who’s been investing in Bear Stearns, now under a
serious cloud as a federal investigation into its activities gears up.
But I want to close with a favorite topic of mine the past six
months or so, transparency. Legendary economist Henry
Kaufman, in an op-ed for the Wall Street Journal on Thursday,
had some extensive thoughts. Following are mere excerpts.
“Transparency is a hallmark of modern capitalism, and Federal
Reserve Chairman Ben Bernanke has made transparency a
hallmark of his new regime. Yet among our leading financial
institutions, opacity, not financial transparency, has been on the
rise.
“The combination – increasingly opaque financial markets and
increasingly transparent monetary policy – has created a
dangerous brew of financial excesses. Unless both trends are
reversed, financial stability will remain elusive….
“As financial markets have become opaque and risk-laden, the
Federal Reserve has touted its own growing transparency. Yet
the central bank has made no real effort to compel financial
institutions to follow suit.
“When the Fed failed to put into place new disclosure
requirements or otherwise penetrate market opacity, market
participants took note and devised new ways to camouflage risk
and create additional excessive credit.
“Some of the Special Investment Vehicles (SIVs) that
contributed to the recent hemorrhaging of the money markets
were an off-balance-sheet activity of bank holding companies –
and therefore subject to Federal Reserve supervision. But the
Fed seemed satisfied to allow them, as long as it determined that
the value-at-risk procedure employed by these holding
companies fell within generally accepted parameters.
“Rather than focus on the threat posed by the lack of
transparency, the Fed has focused on mechanical deficiencies in
the market. For instance, regulators tried to insure that the huge
volume of trades would be cleared quickly and with correct
documentation. This is worthwhile, but by itself cannot forestall
credit abuses. By failing to acknowledge and attack risks posed
by opaque financial practices, the Fed encouraged them….
“At the heart of the Federal Reserve’s diminished influence as a
positive economic influence is its ambivalent core philosophy.
During his long tenure as Fed chairman, Alan Greenspan
ostensibly was an economic libertarian. This means not only that
the market knows best, but that the market should decide winners
and losers.
“I say ‘ostensibly,’ because, like Mr. Greenspan and the central
bank that continues in the shadow of his legacy, most Americans
applaud competition while being uncomfortable with certain
kinds of personal and institutional failure. There is no better
example than our attitudes about the failure of large financial
institutions.
“With huge liabilities resting on a thin capital base, they are
vulnerable giants. Yet they are the custodians of the public’s
temporary funds, savings and investments. They cannot be
allowed to fail. The costs – financially and economically,
socially and politically, domestically and internationally – are
unacceptable.
“So many economic libertarians such as Alan Greenspan live
uncomfortably with the doctrine of too-big-to-fail. Nevertheless,
one cannot be a true advocate of the philosophy by adhering to it
when monetary ease is the order of the day, and abandoning it
when market discipline punishes those who have committed
financial excesses.
“Even out of office, Mr. Greenspan continues to want it both
ways. His best-selling memoir reasserts his laissez-faire
philosophy, but in a recent pronouncement he advocated giving
funds directly to needy subprime mortgage borrowers to permit
them to meet their contractual mortgage obligations.
“This would have three consequences. It would alleviate the
immediate pain of the borrowers (who should not have been
allowed to borrow in the first place). It would keep the façade of
the financial system in place without disciplining excessive
lending practices. And it would socialize the cost of the problem
by raising the government’s budget deficit.
“Today, a shrinking number of huge, integrated financial
conglomerates dominate markets. They offer a full range of
financial services – commercial banking, investment banking,
insurance, credit cards, asset management, mutual funds, pension
funds and so on. But annual reports, 10-K reports and other
currently required reporting tools give us little idea of the true
extent of their risk-taking activities.
“My own preliminary efforts to calculate the proportion of risk
exposure to tangible financial assets within these institutions
suggests a ratio of dozens of dollars at risk for each one in hand.
Our economy would be better off if the Federal Reserve focused
its campaign for greater transparency on those leveraged giants,
rather than making the kinds of pronouncements that encourage
them to take on even more risk.”
Boo-yah!
Street Bytes
–Ughh. The Dow Jones lost 4.2% to close at 12800, while the
S&P 500 tanked 4.5% and Nasdaq plunged a sickening 6.4% to
2504. For the Dow, the loss to start the year was its worst since
1904. So I just opened up my “Encyclopedia of American Facts
and Dates” and I see that on May 5, 1904, Cy Young pitched the
first perfect baseball game as the Boston Americans defeated
Philadelphia 3-0. And a steamship fire swept through the
General Slocum in New York harbor on June 16 of that year,
killing 900. But I digress. For its part Nasdaq’s pummeling was
due to fears the slowing global economy will do a number on
tech giants such as Intel, which was also downgraded on Friday.
–U.S. Treasury Yields
12/31/06
6-mo. 5.08% 2-yr. 4.82% 10-yr. 4.72% 30-yr. 4.80%
12/31/07
6-mo. 3.39% 2-yr. 3.05% 10-yr. 4.03% 30-yr. 4.45%
1/4/08
6-mo. 3.21% 2-yr. 2.74% 10-yr. 3.87% 30-yr. 4.38%
Treasuries staged an astounding rally the first three days of the
year on the economic news and the belief the Fed would have to
aggressively slash rates further, beginning with the end of Jan.
meeting, if not sooner. Look at the figures above. Essentially in
one year the 2-year has plunged over 2%.
–Various equity benchmarks for 2007 [local currencies]
Shanghai +97%
Jakarta +52%
Bombay +47%
Karachi +40%
Hong Kong +39%
Tokyo -11%
Frankfurt +22%
London +4%
MSCI Europe, Australia, Far East +8.6%
–Various currency levels, 12/31/07 [for the archives]
Euro 1.459 in U.S. $
Canada / loonie .993 per U.S. $
China / yuan 7.30 per U.S. $
Japan / yen 111.45 per U.S. $
Russia / ruble 24.57 per U.S. $
–Examples of the destruction in money center banks, brokerage,
homebuilders and mortgage insurance shares in ’07.
Citigroup…29.44 (12/31/07)…[29.03 – 56.28] 52-week range
Wachovia…38.03…[36.69 – 58.80]
Morgan Stanley…53.11…[47.25 – 90.95]
Merrill Lynch…53.68…[50.50 – 98.68]
Bear Stearns…88.25…[86.33 – 172.61]
Goldman Sachs…215.05…[157.38 – 250.70]…an exception
DR Horton…13.17…[10.15 – 31.13]
Centex…25.26…[17.77 – 56.48]
Lennar…17.89…[14.00 – 56.54]
Hovnanian…7.17…[6.60 – 37.58]
Beazer Homes…7.43…[7.00 – 47.52]
Countrywide Financial…8.94…[8.21 – 45.26]
Thornburg Mortgage…9.24…[7.49 – 28.40]
MBIA…18.70…[18.40 – 76.00]
–Oil hit $100 a few times this week before profit-taking took it
back to below $98. As much of a Peak Oil adherent as I am,
crude is obviously vulnerable to a global slowdown.
–U.S. auto sales in 2007 were the worst since 1998, 16.1 million
new cars and trucks, with December sales abysmal as well.
GM’s for the month were off 4.4%, Ford’s 9.2%, and Toyota’s
1.7%. Chrysler’s rose 0.5%, while Honda literally had a gain of
14 vehicles.
But for the full year, Toyota moved up to second in sales,
pushing Ford to third for the first time since 1931. [Or 1905,
depending on how you look at it.]
The best-selling car model for ’07 was the Toyota Camry for the
sixth straight year.
–China issued its first white paper on energy and stated:
“China did not, does not and will not pose any threat to the
world’s energy security,” it reads.
Between 1980 and 2006, energy consumption has risen 5.6% per
year and the paper says the mainland will seek to increase its use
of domestic energy sources, including an increase in its own
exploration for oil and gas. But China will still need to rely on
imported crude for more than half its supplies by 2010.
And then there is coal. The paper reads, “The energy structure
with coal playing the main role will remain unchanged for a long
time to come,” recognizing this is particularly harmful to the
environment. Of course the pollution catches the jetstream and is
dumped on us. Thank you, Beijing. [Cary Huang / South China
Morning Post]
–China is also increasing taxes on foreign companies doing
business on the mainland, with the goal of evening out the
difference between foreign and domestic rates at 25% by 2012.
The foreign rate in 2008 is going from 15% to 18%, initially,
while the domestic rate is being reduced in stages from the 33%
level. This could have a particularly devastating effect on Hong
Kong manufacturers, some say. [I have to admit I need to find
out the impact on my own China holding.]
–China has recently been letting its currency rise steeply against
the dollar as Beijing yields to international pressure, but those in
opposition are concerned about the potential for civil unrest if
mainland manufacturers are in turn forced to layoff workers due
to what could be slowing exports…at least in theory. In practice,
though, exports continue to surge, up 23% in November over the
year earlier period.
–And our last bit from China concerns another study, this one
from the Chinese Academy of Social Sciences, which speaks to
the growing income gap on the mainland. For example, the
average disposable income of urban residents, ex-inflation, rose
13.2% the first three quarters of 2007 to 10,346 yuan, compared
to 3,321 yuan for the average farmer. The biggest immediate
issue, though, is reining in soaring food prices, called “the
foundation of social stability” by the author of the report.
–Venezuela’s Hugo Chavez introduced a new coin, the “locha,”
based on the old Spanish “pieces of eight,” in an attempt to
restore confidence in the economy with the inflation rate here
running at a whopping 21% in November. Consumers are also
dealing with shortages in staples such as milk, eggs and sugar.
Venezuela is yet another example of the failure of price controls,
in place since 2003, which have discouraged investment.
–Zimbabwe is also having problems with its currency, thanks to
inflation; as in an 8,000% inflation rate. 8,000. So imagine the
chaos when the central bank suddenly said you must exchange
your $Z200,000 bills ($9 or $10U.S.) for new notes. The
government had to extend the deadline, though the central bank
feels the introduction of new notes will help fight inflation,
which as one economist on the scene noted, “Under
hyperinflation, any introduction of a new currency will not make
a difference as the new denomination loses value within days.”
[Agence France Presse]
–David Streitfeld of the New York Times had a good piece on
how homebuyers need to be very careful when moving into
developments under construction. It may seem obvious to most
these days, but as I’ve been writing about the complex going up
down the road from me, if the developer goes under, as is
increasingly likely, either your deposit is going to be in limbo or
you could be one of just a handful living in a very unattractive
place, with quoted amenities nowhere to be found.
–A giant of the advertising industry died, Philip Dusenberry. He
oversaw the teams at BBDO that coined taglines such as “The
choice of a new generation” for Pepsi, “We bring good things to
life” for General Electric and “It’s everywhere you want to be”
for Visa. He also co-wrote the screenplay for the baseball movie
“The Natural.”
–Barron’s Jim McTague had an extensive piece in the 12/31
issue on farmland prices and whether or not it’s a bubble. It’s
correctly titled “Don’t Bet the Farm.” Of course it’s a bubble,
with Ground Zero being Iowa. I saw that firsthand this past
August in my travels there.
–We wish the parent of the Weather Channel, Landmark
Communications, luck in selling the network. Some say it could
fetch as much as $5 billion. The Weather Channel rocks!
–Estimates by the International Air Transport Association show
that air travel in 2007 was the safest it’s been in 44 years, despite
all the close calls you hear about. On a related issue, for the third
year in a row Atlanta International is the nation’s busiest, with
O’Hare number two.
–The New York Times reports that Intel has pulled out of the
consortium making the $100 laptops for the developing world,
championed by Nicholas Negroponte. “One Laptop Per Child”
was evidently seen as a future competitor for both Intel and
Microsoft. Intel said there were “philosophical” differences. I
saw the headline and was hoping Intel had said “It’s all about
safe drinking water…not computers…you idiots!”
–Eugene Plotkin, a former Goldman Sachs associate, was
sentenced to almost five years in prison for masterminding an
insider-trading conspiracy that reaped about $6.5 million, most
of which developed from tips from a former Merrill Lynch
analyst, as well as a scheme involving stories from
BusinessWeek before they went to print.
–I was going to congratulate PIMCO’s Bill Gross this week for
his superb performance with the core Total Return Bond Fund,
up 8.6% on the A shares in ’07, thus slaughtering its benchmark
and the competition, but then Morningstar named him (and the
PIMCO team) ‘Fixed Income Manager of the Year’ for a third
time. I just know my friends at PIMCO will rock and roll with
this news on the sales side as the marketing staff is undoubtedly
a beehive of activity, putting the sales pieces together. This is
when going to work should be fun, mused the former national
sales manager.
–And congratulations to Fidelity Magellan. I have to admit I
wasn’t following it all year but the ship has been righted, up a
stupendous 18.8% for ’07 vs. the S&P’s total return of 5.5%.
–Excluding digital singles, album sales were down 15% in 2007
from a year earlier. Josh Groban had the best-selling disc,
“Noel,” while Disney’s “High School Musical” was second and
the Eagles’ comeback album, “Long Road Out of Eden,” was
third.
–Unreal ratings news…CNBC vs. Fox Business Network.
CNBC averaged 254,000 viewers in 2007, up 21%, while
“upstart” Fox had an average of about 6,300. You’re reading
that right. [Crain’s New York Business]
–My portfolio: Ironically, I had one of my better weeks ever as
one of my major holdings, a California-based solar play, received
an endorsement of its technology from Suntech, in the form of a
joint venture. Suntech is a stock I rode from $31 to $47 last year,
sold, then watched it continue on to $90! [The other stock went
from $8 to $15 in the past three days.]
As for my 2007 recommended mix of 80% cash and 20%
equities, the latter as represented by the S&P, it finished up 4.3%
vs. a 3.5% increase for the S&P. [To be fair, I have to mention
the total return on the S&P was 5.5%.] Anyway, I’m sticking
with the 80/20 split, at least the first quarter of 2008. My own
portfolio, though, is a little more heavily weighted to equities
thanks to the solar position.
Finally, last year I said the major indices would finish up or
down 3%. I admitted at the time this was a rather wide range and
I’ve rectified that for ’08….down 3% to 5%. I didn’t do all that
bad, though.
Foreign Affairs
Pakistan: President Pervez Musharraf postponed the election to
Feb. 18 and for now the two main opposition parties have agreed,
grudgingly, to go along with the timetable. Benazir Bhutto was
replaced at the top of the Pakistan People’s Party by co-chairmen
Asif Ali Zardari, her husband, and her 19-year-old son Bilawal,
as requested in her will. Nice democracy, eh? Yes, it’s all about
family with the PPP.
The corrupt Zardari (who served 8 years in prison between 1990
and 2005, though was never convicted) is not running in the
election, rather he will play the role of kingmaker (while the boy
finishes his studies at Oxford) in selecting a new prime minister
should the PPP win the vote. The other opposition party, that of
former prime minister Nawaz Sharif, may beg to differ.
For his part Musharraf agreed to outside assistance from
Scotland Yard on the assassination investigation, while correctly
calling Bhutto’s actions reckless.
So you no doubt noted last week I wasn’t as sympathetic to the
whole situation here as everyone else seemed to be, particularly
in the first 48 hours after the killing. Following is some further
opinion that has emerged since then.
Bernard-Henri Levy / Wall Street Journal
“They have killed a woman. A beautiful woman. A visible,
indeed conspicuously, spectacularly visible woman.
“A woman who made a point not only of holding rallies in one of
the world’s most dangerous countries, but did so with her face
uncovered, unveiled – the exact opposite of the shameful, hidden
women, the condemned creatures of Satan, who are the only
women tolerated by these apostles of a world without women.
“They killed a Jew, Daniel Pearl. They killed Ahmed Shah
Massoud, the great guerilla leader against the Taliban, a
moderate Muslim, a cultivated man and free spirit. They tried
for years to kill a man, Salman Rushdie, who dared say that to be
a man is also sometimes to choose your own destiny….
“From now on Benazir Bhutto will be much more than a chief of
state. She has become a symbol. She has become, as did Ahmed
Shah Massoud and Daniel Pearl, a standard bearer.
“All those who have not yet given up on freedom in the land of
Islam must gather behind that standard. Her name must become
another password, bloody but beautiful, for those who still
believe that the good genius of Enlightenment will win out over
the evil genius of fanaticism and crime.
“It is for us, citizens of Europe and the United States, to mourn,
to display the grief that our leaders have, at least for the moment,
shamefully avoided.”
The above was for Bhutto supporters. Now here’s the rest of the
story.
Anne Applebaum / Washington Post
“But there are other reasons why there might be a division in
Western and domestic feelings about certain politicians,
particularly when that politician is associated with domestic
issues that we either don’t know about, don’t care about or don’t
understand. Bhutto, despite her eloquent and sincere defense of
democracy on the pages of The Post, was just as well known in
Pakistan for the longstanding corruption charges against her and
her husband, as well as for encouraging the birth and growth of
the Taliban itself during her years as prime minister: Allegedly,
she had hoped to make use of the fanatical group’s military
success in Afghanistan as a tool in Pakistan’s long struggle with
India for regional dominance. To many Pakistanis, even those
who didn’t want to see her murdered, these were not insignificant
political errors but horrendous, unforgivable, disqualifying
blunders.”
Charles Krauthammer / Washington Post
Referring to Bilawal’s statement: “My mother always said,
democracy is the best revenge”….
“Of all the understandings of the democratic idea, none could be
more wrong than this one. Democracy at its very core is an
antidote to the kind of dynastic revenge young Bhutto was
suggesting.
“For the Bhuttos, elections are a means for the family to regain
power. Benazir was always avenging the death of her father, the
former prime minister hanged two years after a coup. Bilawal is
now pledged to do the same for his mother’s martyrdom. The
Pakistan People’s Party has always been a wholly owned family
subsidiary. Hence the almost unseemly haste with which
Bhutto’s husband and son were given control upon her death.
“Democracy was meant to be the antithesis of feudalism.
Popular sovereignty was to supplant divine right; free elections
to supplant dynastic succession (a progression Americans have
not completely mastered either). It is clear that Bilawal meant to
put the best gloss on his mother’s dictum. He, like she, would
avenge the political murder of a parent not with violence but
through the ballot box. Nonetheless, his unmistakable
assumption of aristocratic entitlement clangs against his
professed fealty to democratic means.
“His mother was the same. In more than one journalistic profile,
she was characterized as ‘a democrat who appeals to feudal
loyalties.’ Part of the reason for the precariousness of Pakistan’s
democracy is precisely that it remains a largely feudal society
practicing democratic forms.”
William Dalrymple / New York Times
“When, in May 1991, former Prime Minister Rajiv Ghandi of
India was killed by a suicide bomber, there was an international
outpouring of grief. Recent days have seen the same with the
death of Benazir Bhutto: another glamorous, Western-educated
scion of a great South Asian political dynasty tragically
assassinated at an election rally.
“There is, however, an important difference between the two
deaths: while Mr. Gandhi was assassinated by Sri Lankan Hindu
extremists because of his policy of confronting them, Ms. Bhutto
was apparently the victim of Islamist militant groups that she
allowed to flourish under her administrations in the 1980s and
1990s.
“It was under Ms. Bhutto’s watch that the Pakistani intelligence
agency, Inter-Services Intelligence, first installed the Taliban in
Afghanistan. It was also at that time that hundreds of young
Islamic militants were recruited from the madrassas to do the
agency’s dirty work in Indian Kashmir. It seems that, like some
terrorist equivalent of Frankenstein’s monster, the extremists
turned on both the person and the state that had helped bring
them into being….
“Benazir Bhutto’s death is, of course, a calamity, particularly as
she embodied the hopes of so many liberal Pakistanis. But,
contrary to the commentary we’ve seen in the last week, she was
not comparable to Myanmar’s Daw Aung San Suu Kyi. Ms.
Bhutto’s governments were widely criticized by Amnesty
International and other groups for their use of death squads and
terrible record on deaths in police custody, abductions and
torture. As for her democratic bona fides, she had no qualms
about banning rallies by opposing political parties while in
power.
“Within her own party, she declared herself the president for life
and controlled all decisions. She rejected her brother Murtaza’s
bid to challenge her for its leadership and when he persisted, he
was shot dead in highly suspicious circumstances during a police
ambush outside the Bhutto family home.
“Benazir Bhutto was certainly a brave and secular-minded
woman. But the obituaries painting her as dying to save
democracy distort history. Instead, she was a natural autocrat
who did little for human rights, a calculating politician who was
complicit in Pakistan’s becoming the region’s principal jihadi
paymaster while she also ramped up an insurgency in Kashmir
that has brought two nuclear powers to the brink of war.”
Lastly, on the issue of nuclear security, I have a piece from the
Nuclear Threat Initiative on the threat posed by Pakistan today
on my “Hot Spots” link. In addition, Harvard University
weapons expert Graham Allison noted:
“A witch’s brew that includes political instability, a burgeoning
Islamic insurgency, a demoralized army and an intensely anti-
American population, puts Pakistan’s nuclear weapons at risk.”
And while Pakistan’s nuclear security measures include
dispersing weapons components at multiple sites, “these
arrangements by necessity increase the likelihood that corrupt
officials could successfully divert weapons or material.”
Others, such as Leonard Spector of the Monterey Institute, are
more hopeful. “This is not a reassuring set of changes that we’re
experiencing, but on the other hand I think the military for the
moment has a lot of coherence and solidarity.”
Kenya: So what happened? Here I was writing last week about
the prospects for turmoil in ’08 in South Africa and I didn’t
mention this one. Well, it was simply the timetable.
Kenya held its presidential election on Thursday, Dec. 27, but by
Saturday morning the final results weren’t in so there was
nothing to report on. Then by Saturday evening, word was that
the opposition candidate, Raila Odinga, was ahead in 159 of 210
constituencies with 3.7 million votes to 3.4 million. This wasn’t
unexpected, Odinga having been ahead in the polls prior to the
vote.
The next morning, though, Sunday, it was announced President
Kibaki won the election…and by 231,700 votes. Kibaki took the
oath for a second term and all hell broke loose, with hundreds
dying thus far in extensive rioting that threatens to rip Kenya
apart.
What is so disturbing is how it has turned into tribal warfare.
Kibaki, who replaced the despot Daniel arap Moi in 2002, is a
Kikuyu, while Odinga, a former political prisoner under Moi, is a
Luo.
The Luo, who comprise much of Africa’s largest slum in Nairobi
(Kibera) have long complained state aid didn’t flow to them and
instead went to the ruling Kikuyu faction. This is why the Luo
were excited by the election prospects, and it’s also why the
intensity of the clearly rigged outcome is as violent as it’s
become.
Senegal’s president said the election threatens to provoke “unrest
and violence” throughout the continent. Kenya had been one of
the shining models for development, with an economy growing
strongly at 5% a year, but we’ve seen one glaring example of
how tribalism still thrives in Africa; see also Rwanda, Congo,
and Uganda, as well as Nigeria.
I do have to add on South Africa that Jacob Zuma’s new trial on
corruption charges isn’t until August, but with Zuma vowing to
fight, while accusing current president Thabo Mbeki of
drumming up the indictment, unrest here could come much
sooner.
Lastly, before violence erupted in Kenya, the International
Energy Agency pointed out that the high price of oil has wiped
out the benefits of increased western aid and debt relief to Africa.
And an American diplomat was killed in Sudan in an apparent
terror attack.
Israel: What a mess, and just as President Bush is heading to the
region this coming week. So here’s what has happened the past
few days.
The Palestinians fired a Katyusha rocket more than 10 miles,
from Gaza into an Israeli city of 120,000; the farthest one of
these has ever traveled. In response Israeli operations in Gaza
killed at least 14 in two days.
Separately, Israeli Prime Minister Olmert barred new
construction in some controversial settlements prior to Bush’s
arrival as a way of saying Israel is following the roadmap, while
the Palestinian Authority is concerned that Israel will demand its
defense forces be allowed to operate inside a future Palestinian
state to foil terror attacks.
The bottom line is the situation is as close to totally spiraling out
of control as it’s ever been.
And then there is the Iran nuke issue. As Peter Brookes of the
Heritage Foundation and the New York Post observes:
“(Why would Israel) strike (Iran’s facilities) now?
“Well, within about a year of Bushehr becoming operational,
some of its spent nuclear fuel could be stripped of enough
plutonium to produce a handful of nuclear weapons if the rods
aren’t returned to their owner/provider, Russia.
“Because the production of fissile material is the long pole in the
nuclear-weapons tent, the diversion of material at Bushehr is
potentially as big a problem as the 3,000 centrifuges that Iran has
whirring at supersonic speeds, enriching uranium….
“(Of course) a strike would bring Iranian retaliation, including
terrorist attacks by Tehran’s allies, such as Hizbullah, as well as
missile strikes against large Israeli cities. By association, U.S.
interests could come into Iran’s crosshairs.
“The new year will likely bring more unwelcome news about
Iran’s nuclear program as it cascades toward a weapons option.
It will also be a fateful year for Israel, one that may require
action – no matter what the latest NIE (National Intelligence
Estimate) says.”
I couldn’t agree more.
Meanwhile, Michael McFaul and Abbas Milani conclude the
following on negotiating with Iran for an op-ed in the
Washington Post.
“Greater contact between Iranian and American societies will
further undermine the regime’s legitimacy, strengthen the
independence of Iranian economic and political groups, and
perhaps even compel some regime leaders to cash out and
exchange their diminishing political power for enduring property
rights. Over the past four decades, autocratic regimes have
rarely crumbled as a result of isolation but more often have
collapsed when seeking to engage with the West. Even the
collapse of the Soviet Union occurred not when tensions between
Moscow and Washington were high but during a period of
engagement.
“Will Iran follow a similar path? We will never know if we do
not try. Of course, the mullahs might reject our overtures, but
their refusal would embolden the opposition inside Iran. And a
serious attempt to engage the Islamic republic now would
strengthen the American case for more coercive diplomatic and
economic pressure, should they be necessary in the future.”
Lebanon: Hizbullah leader Nasrallah has threatened blockades of
key roads and Beirut’s airport unless the opposition is granted
veto power in the next government, blaming the United States in
the process. The latest attempt at a vote for president (an office
vacant since Nov. 23) is slated to take place January 12.
For their part, Syria and France are in the midst of a diplomatic
crisis, with France accusing Syria of not backing a deal in
Lebanon that would allow for a vote, while Syria is saying
France just wants to blame them for their own failures.
Iraq: For the record, despite the success of the surge the last few
months, 2007 was still the deadliest of the war for U.S. forces
with 900 killed compared to 850 in 2004.
But the fact is casualties peaked at 126 in May and were down to
20 in December, while Iraqi civilian deaths went from 2,155 in
May to 710 in December, according to the AP, and from 1,930 to
480 by the Iraqi government’s count. These are the facts. Next
week I need to clear the table on a topic that bugs me concerning
the war, that being the still ongoing battle in reporting it between
the right and the left, as well as the direction of the war in terror
in general.
For now, though, I have to note that the latest terror attack in
Turkey, targeting a busload of Turkish soldiers that killed five
and wounded 68, is of dire importance when it comes to the
hoped for eventual success in attaining stability in Iraq. Turkey
can not and will not just sit back and as I wrote last time, when
looking at the tensions between the Turks and Kurds, watch how
the U.S. treats Kurdish President Barzani, the terror enabler.
Afghanistan: 2007 saw the highest number of U.S. deaths here,
110, while Britain lost 41 and Canada 30.
North Korea: What a joke…Bush administration policy, that is.
Not only did Pyongyang blow off the Dec. 31 deadline for
revealing all the details on its nuclear weapons program, as the
White House dithers, but on Friday the North said it would boost
its war deterrent “in response to U.S. attempts to initiate nuclear
war,” according to a state newspaper commentary. So once
again Lil’ Kim is thumbing his nose at the United States and gets
away with it.
Separately, after my comments last week on the generals that
stand behind Kim, the Wall Street Journal had a story that the
U.S. was courting these same folks as the administration focuses
on an issue I raised long ago. Who are these people? There has
been zero senior level contact with one of the commies’ leading
generals since 2000, and today one can’t help but wonder just
what influence they have? For example would they even let Kim
turn over his nukes because the weapons provide leverage over
the U.S., South Korea and Japan? Without the nukes North
Korea seems powerless, so is this fact what is behind the latest
stalling tactics in revealing all their assets and programs?
China/Japan/Taiwan: In a trip to China, Japanese Prime Minister
Fukuda said his nation had the responsibility and obligation to
face up to historical mistakes. “(We) should reflect on our
mistakes, and be humble and sympathetic to the victims. Only
when (we) can treat our past seriously, bravely and wisely make
self-examinations in areas that should be examined, can we
prevent making the same mistakes,” he said.
Fukuda added that “The future of China and Japan is not to
choose between cooperation and confrontation, but to search for
effective and responsible means to establish cooperation.”
But then he added, “Because mutual understandings and trust are
not deep enough, many people in Japan and China will still
wonder why people from the other side do not understand their
feelings. Japan has not prepared for how to deal with a China
that has achieved so much in such a short space of time. And,
for China, it has a complicated attitude towards a Japan that has
greater international political power.”
But while Fukuda’s trip was hailed as a success, key disputes
remain, such as over competing claims to lucrative gas fields in
the East China Sea.
Meanwhile, China arrested a leading human rights dissident as
part of its pre-Olympics crackdown, it seems, while announcing
it was limiting video content across the Internet.
And then China’s Standing Committee of the National People’s
Congress (parliament) said Hong Kong could directly elect their
leader by 2017 and their legislators by 2020. This is such a
freakin’ joke. Recall that Hong Hong became part of China in
1997 under the principle of “one country, two systems,” for
which China was to have given Hong Kong more autonomy. I’ll
be writing about Hong Kong not having the vote in 2027, I
imagine, barring a cataclysmic revolution.
Back to Japanese Prime Minister Fukuda, and the issue of
Taiwan, he told Chinese Premier Wen Jiabao that “We fully
understand China’s position that the Taiwan issue relates to
China’s core interests (and) we don’t desire tensions stemming
from Taiwan’s (proposed) referendum (on UN membership).”
Thailand: The party backing former prime minister Thaksin is
claiming a dirty tricks campaign by the ruling military and the
royalist establishment, following the parliamentary elections that
gave Thaksin’s party close to a majority of the seats. Now fraud
complaints are being lodged against some of the winning
candidates in what is seen as a last-ditch effort to ensure a pro-
Thaksin administration doesn’t emerge. Eventually the situation
could deteriorate into massive protests and violence.
Venezuela/Colombia: Well whaddya know. President Hugo
Chavez wasn’t able to rescue the three hostages held by FARC
after all. FARC blamed Colombia’s military for not telling
where in the eastern Colombian jungles Chavez could land two
helicopters to pick up the captives. Colombian President Uribe
dismissed the accusations. Regardless, FARC got cold feet.
Random Musings
–Iowa Caucus results
Republicans: Huckabee 34, Romney 25, Thompson 13, McCain
13
Democrats: Obama 38, Edwards 30, Clinton 29
David Brooks / New York Times
“I’ve been through election nights that brought a political
earthquake to the country. I’ve never been through an election
night that brought two.
“Barack Obama has won the Iowa caucuses. You’d have to have
a heart of stone not to feel moved by this. An African-American
man wins a closely fought campaign in a pivotal state. He beats
two strong opponents, including the mighty Clinton machine. He
does it in a system that favors rural voters. He does it by getting
young voters to come out to the caucuses.
“This is a huge moment. It’s one of those times when a
movement that seemed ethereal and idealistic became a reality
and took on political substance.
“Iowa won’t settle the race, but the rest of the primary season is
going to be colored by the glow of this result. Whatever their
political affiliations, Americans are going to feel good about the
Obama victory, which is a story of youth, possibility and unity
through diversity – the primordial themes of the American
experience.
“And Americans are not going to want to see this stopped. When
an African-American man is leading a juggernaut to the White
House, do you want to be the one to stand up and say No?”
I will. Heck, I wanted Colin Powell years ago, when he was a
shoo-in, but his wife was afraid for his safety and the rest is
history; though we’re left wondering how he would have
changed it.
As for Obama, again, I thought he was smart to run, now, rather
than wait, but he’s not ready and is woefully lacking by my
observations.
But the vast majority of Americans don’t follow politics like you
or I do, and might not care that this man’s legislative record
in the Illinois senate is an embarrassment, let alone his lack
of accomplishment in Washington. He looks and sounds good,
though, and our history has shown sometimes this is all that
matters. Then we cross our fingers.
Now it’s on to New Hampshire. One thing is for sure, it’s going
to be exciting. I was there four years ago and saw the first
appearances of John Edwards and John Kerry, hot off their
respective Iowa performances, and it was a lot of fun. It’s why I
went to Iowa for a week this past summer, to get a little better
flavor of the situation there.
As for Mike Huckabee, a fellow I originally thought made for a
super Veep candidate, I still feel that way. John McCain, on the
other hand, is suddenly right back in it and should win New
Hampshire, making it wide open beyond Super Tuesday, Feb. 5.
A McCain victory this coming Tuesday would indeed be the real
comeback story of the campaign. About ten months ago when I
saw him give an uninspiring performance in New York at a
fundraiser, I thought it was over.
But a word or two on the presidential campaign in general. Fred
Barnes had a great op-ed in the Wall Street Journal this week, the
gist of which was the voters aren’t getting a sense of how the
next president would perform, unlike Bill Clinton and George W.
Bush during their campaigns. Instead, the candidates are
“making frivolous distinctions among themselves and their
rivals.”
Barnes adds, re the populist angle, that it is “an old-fashioned
populist pitch that emphasizes class sentiment rather than a
realistic political agenda.” To him, the race is about just three
issues, the ones that will occupy the new president’s time; Iraq,
immigration and entitlements, and, of course, with one or two
slight exceptions no one is offering any real policy agenda.
Along these lines, the Journal had an editorial on renewed
prospects for a Michael Bloomberg candidacy. If he chooses to
run, what does he run on? Competence? Offering a solution to
hyper-partisanship? That’s not enough.
–Peggy Noonan, in her Journal op-ed before Iowa.
“Hillary Clinton? No, not reasonable. I concede her sturdy mind,
deep sophistication, and seriousness of intent. I see her as a
triangulator like her husband, not a radical but a maneuverer in
the direction of a vague, half-forgotten but always remembered,
leftism. It is also true that she has a command-and-control
mentality, an urgent, insistent and grating sense of destiny, and
she appears to believe that any act that benefits Clintons is a
virtuous act, because Clintons are good and deserve to be
benefited.
“But this is not, actually, my central problem with her candidacy.
My central problem is that the next American president will very
likely face another big bad thing, a terrible day, or days, and in
that time it will be crucial – crucial – that our nation be led by a
man or woman who can be, at least for the moment and at least
in general, trusted. Mrs. Clinton is the most dramatically
polarizing, the most instinctively distrusted, political figure of
my lifetime. Yes, I include Nixon. Would she be able to speak
the nation through the trauma? I do not think so. And if I am
right, that simple fact would do as much damage to America as
the terrible thing itself.”
–It was disturbing that Huckabee not only totally botched his
response to the Bhutto assassination (for which I gave him a pass
last time), but also didn’t know he was crossing a picket line in
appearing on Jay Leno’s show. As Chris Matthews noted, we all
know these guys are busy but for crying out loud that doesn’t
excuse them from picking up a newspaper!
–President Bush’s trip to the Middle East this week is getting
totally lost in the other news of the day but it’s historic. The
centerpiece, aside from his diplomatic effort in Israel and
Palestine, will be a speech in Abu Dhabi as he attempts to
showcase what has worked in the region. [‘Historic’ doesn’t
necessarily spell ‘success.’]
–Thomas Kean and Lee Hamilton, co-chairmen of the 9/11
commission, in an op-ed for the New York Times.
[Regarding the CIA tapes controversy]
“Not satisfied with (the response we were getting), we decided
that we needed to question the detainees directly, including Abu
Zubaydah and a few other key captives.
“In a lunch meeting on Dec. 23, 2003, George Tenet, the CIA
director, told us point blank that we would have no such access.
During the meeting, we emphasized to him that the CIA should
provide any documents responsive to our requests, even if the
commission had not specifically asked for them. Mr. Tenet
replied by alluding to several documents he thought would be
helpful to us, but neither he, nor anyone else in the meeting,
mentioned videotapes.
“A meeting on Jan. 21, 2004, with Mr. Tenet, the White House
counsel, the secretary of defense and a representative from the
Justice Department also resulted in the denial of commission
access to the detainees. Once again, videotapes were not
mentioned.
“As a result of this January meeting, the CIA agreed to pose
some of our questions to detainees and report back to us. The
commission concluded this was all the administration could give
us. But the commission never felt that its earlier questions had
been satisfactorily answered. So the public would be aware of
our concerns, we highlighted our caveats on page 146 in the
commission report.
“As a legal matter, it is not up to us to examine the CIA’s failure
to disclose the existence of these tapes. That is for others. What
we do know is that government officials decided not to inform a
lawfully constituted body, created by Congress and the president,
to investigate one of the greatest tragedies to confront this
country. We call that obstruction.”
–So I’m reading my farmer/rancher magazine, High Plains
Journal, and I see that Panda Ethanol Inc. announced that the
Texas Commission on Environmental Quality has granted an air
permit for the company’s planned 115 million gallon-per-year
ethanol refinery in Sherman County, Texas.
Air permit? “Unlike other ethanol facilities which burn natural
gas to generate the steam used in the ethanol manufacturing
process, the Sherman facility will be engineered to gasify up to 1
billion pounds of cattle manure per year.” Yikes. I’d hate to be
downwind of that one, know what I’m sayin’?
–Back in November when I was in Moscow, I couldn’t help but
comment on Russian women there…as in on a scale of 1 to 10,
they were an 18. So I got a kick out of an article by Nicola
Smith and Anna Voutsen in the London Times titled “Putin’s
babes sex up Duma.”
“Vladimir Putin has resorted to an age-old trick to capture the
voters’ imagination: sexing up the Duma, the lower house of the
Russian parliament, with an array of glamorous new female
recruits.
“Ahead of this month’s rigged parliamentary elections, Putin was
reported to have complained that there were not enough beautiful
women in his United Russia party. The error was soon corrected
with a platform of stunning ladies, including four former athletes
who have starred in topless photoshoots and Svetlana Zakharova,
the elegant principal ballerina of the Bolshoi.
“Top debutante among the new Duma intake (already being
described as ‘Putin’s babes’) is Svetlana Khorkina, 28, a leggy
blonde who was a seven-time Olympic medal-winning gymnast.
She caused a scandal when she appeared nude in Playboy
magazine with her unashamed ‘If you’ve got it, flaunt it’
approach.
“ ‘I changed people’s attitudes,’ she said. ‘It’s very good to be
sexy.’
“Svetlana Zhurova, 35, a former Olympic speed-skating
champion, also stripped for a men’s magazine, hiding her breasts
modestly behind her skating boots. She said she chose to go into
politics to promote sport and youth. ‘Youth is our future,’ she
gushed.
“Alina Kabayeva, 24, a curvaceous rhythmic gymnast, has been
pictured semi-naked in a fur rug. Natalia Karpovich, 35, a boxer
and bodyguard before she entered politics, has also appeared in a
magazine wearing only her boxing gloves.”
Huh. Now discuss amongst yourselves. [It’s “Web Sweeps
Week.”]
–Lastly, and back to Mike Huckabee, I’m ticked at how he is
trying to convince us that when Ronald Reagan was running for
president, people had doubts about his experience, particularly
on the foreign policy front, just as with Huckabee today.
But unlike Huckabee, Ronald Reagan was thinking about foreign
policy years before he ever ran for governor of California. He
wrote editorials on the topic, and had his own stump speech
when he spoke to corporate audiences. And so I leave you with
Ronald Reagan’s concluding thoughts from the speech that
formally launched his political career, Oct. 27, 1964. Then
Republican presidential candidate Barry Goldwater liked it so
much he gave Reagan airtime himself just one week before the
election.
“They say the world has become too complex for simple
answers. They are wrong. There are no easy answers, but there
are simple answers. We must have the courage to do what we
know is morally right. Winston Churchill said that, ‘the destiny
of man is not measured by material computation. When great
forces are on the move in the world, we learn we are spirits, not
animals.’ And he said, ‘There is something going on in time and
space, and beyond time and space, which, whether we like it or
not, spells duty.’
”You and I have a rendezvous with destiny. We will preserve for
our children this, the last best hope of man on earth, or we will
sentence them to take the first step into a thousand years of
darkness. If we fail, at least let our children and our children’s
children say of us we justified our brief moment here. We did all
that could be done.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $865…$838 [12/31/07]
Oil, $97.79…$95.98 [12/31/07]
Returns for the week 12/31-1/4
Dow Jones -4.2% [12800]…13264 (12/31/07)
S&P 500 -4.5% [1411]…1468
S&P MidCap -5.3%
Russell 2000 -6.5%
Nasdaq -6.4% [2504]…2652
Returns for the period 1/1/08-1/4/08
Dow Jones -3.5%
S&P 500 -3.9%
S&P MidCap -4.7%
Russell 2000 -5.8%
Nasdaq -5.6%
Bulls 52.2
Bears 24.5 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
