[Posted 7:00 AM ET]
Wall Street
Exit polls in New Hampshire showed the economy as being the
#1 issue with voters these days, comfortably over Iraq and
terrorism, so as big players like Goldman Sachs jump on the
recession bandwagon is it any wonder that confidence is drying
up?
But just a reminder from your faithful editor. I have consistently
maintained that the big issue in terms of the economy is not the
credit crunch but rather the global real estate bust, and despite all
the stories on Countrywide Financial, further capital infusions for
the investment banks and massive writedowns, you can still
break it all down to the Average Joe’s number one asset, his
home, as being the root of all the doom and gloom.
The problem these days, though, is that in the example of our
three-legged stool – the consumer, capital spending and housing
– all three are slumping, when for a long spell it was just
housing, which is why there were so many bulls who insisted
the consumer will pull us through.
Well look at the weight of the evidence in just the past week.
Sales at the big chain stores in December were dreadful, with the
exception of Wal-Mart, up 2.4% on same-store sales. The
others, including Target (off 5%), Macy’s (off 7.9%), JC Penney
(off 7.5%), Kohl’s (off 11%) and Saks (off 2.5%), to name a few
recognizable names, took on gas.
Additionally, credit card king Capital One reported a surge in
delinquencies as it warned its fourth quarter and 2008 numbers
will miss current estimates by a mile. Ditto for another rather
familiar name, American Express, which on Thursday talked of
growing delinquencies and slowing spending trends with its
high-end clientele. Amex, too, reduced expectations for all of
’08.
The Federal Reserve released a study talking of soaring credit
card debt, as well, while AT&T spoke of rising delinquencies in
terms of customers’ phone and Internet bills.
The weakness in the retail sector is spreading around the world,
especially if you consider Britain a rather large player. It’s
leading retailer, Marks and Spencer, saw its shares tank 20% in
one day on word that same-store (called ‘like-store’ across the
pond) sales for the fourth quarter were down 2.2%, far worse
than expected, as “people are financially challenged.” Recall
that Britain is in the midst of a real estate bubble that has the
potential to be worse than ours.
On the cap-ex/business spending front, Xerox’s CEO said “the
financial services industry is tightening their belts,” not that you
wouldn’t already suspect that, while David P. passed on a
comment from a leading Street strategist who said he was at a
dinner with tech analysts and portfolio managers and never saw
it so bearish. Normally, as this fellow observed, you could view
the comments as a contrarian indicator but not this time.
On the real estate front, KB Home’s CEO said “2008 is going to
be another tough year” as his company recorded a $770 million
loss including further land writedowns, while Treasury Secretary
Hank Paulson said there was “no evidence” the housing market
was bottoming, a rather noteworthy comment coming from the
normally exceedingly cautious White House shill.
Then there is the case of the nation’s largest mortgage lender,
Countrywide Financial. Back in January 2007, the shares traded
at $45, but earlier in the week, as the company announced
soaring foreclosures, delinquencies and late payments on all
manner of loans, there were growing concerns it could declare
Chapter 11 as the stock plummeted to $5. Then Bank of
America, which had already sunk $2 billion in a then struggling
CFC last fall, at in essence $18 a share, decided to save the day,
with perhaps a little push from the Federal Reserve, and buy the
whole shooting match for a whopping $7. [$4 billion being the
reported full price.] It’s kind of like one of those Billy Mays
commercials for Mighty Putty. “But if you call now, we’ll not
only give you two sticks, we’ll also throw in America’s largest
mortgage company….all for just $19.95!”
What an embarrassment. Has Bank of America done the right
thing in doubling down? Way too many ‘experts’ said it was a
surefire home run. I’d say, ‘Who the heck knows? Do you know
what’s really under the hood?’ We keep hearing about the great
due diligence team at Bank of America, but it’s the same one that
stupidly paid $18. And late Friday, it hit the tape that economist
Robert Shiller offered, “There’s a tendency for people to
underappreciate the risk of the housing market. I might have a
lower valuation of Countrywide than Bank of America does.”
But wait…there’s more; as in the word out of California that
Gov. Schwarzenegger, in an attempt to close a $14 billion deficit,
is closing about 48 state parks, cutting back on school and
welfare spending, as well as care for the elderly, and releasing
tens of thousands of non-violent prisoners. Some say the
Governator is doing all this just to prepare the state for a
massive tax increase, as everyone begins to bitch over cutbacks
in their pet projects or services. Regardless, this story isn’t
conducive to economic growth, suffice it to say, and will be
repeated in countless other states and municipalities.
So, yes, we will have that recession, if we aren’t already in one,
and once again there is nothing the Federal Reserve can do to
stop it. Oh, you’ll see some days where the stock market soars as
the Fed lowers rates further, but any sustained rallies will be
limited by the reality of what will be sharply lower corporate
profits as 2008 rolls on and as the world begins to catch our cold.
Street Bytes
–Just another lousy week, as the markets have now registered the
worst start to a year since 1982, as measured by the S&P 500,
down 4.6%. The Nasdaq and Russell 2000 are both off 8%
already. For the week the Dow Jones lost 1.5%, the S&P 0.8%
and Nasdaq 2.6%. Even McDonald’s had its single worst day on
Friday in years over fears its business is slowing in line with the
overall economy.
And if you follow the theory that as the first five days of January
go, so goes the year, try record losses of 5.3% and 5.1%,
respectively, for the S&P 500 and Dow.
–U.S. Treasury Yields
6-mo. 3.07% 2-yr. 2.56% 10-yr. 3.79% 30-yr. 4.38%
This week Ben Bernanke said in a speech that economic activity
has worsened to the point that the “downside risks to growth
have become more pronounced.” Nice of you to catch on,
Clueless Ben. “We stand ready to take substantive additional
action as needed to support growth and to provide adequate
insurance.”
Golly gee, thanks Ben. What impact will that have on the dollar,
especially when the Bank of England and European Central Bank
are holding their own line on rates over inflation concerns, the
same ones we have here?
–For the archives, a survey of economists for the Wall Street
Journal calls for an economy expanding at a 2% clip for all of
2008, with the 10-year Treasury finishing at 4.40%.
–PIMCO’s Bill Gross is calling for a 3% Fed funds rate by mid-
year. Goldman Sachs, as part of its recession forecast, sees
2.5% in basically the same time period. The rate is 4.25% today.
–Moody’s is projecting that junk bond defaults will rise fivefold
in 2008, but this is off a 26-year low rate in 2007 of just 0.9%.
–Do you want some good news? DuPont raised guidance due to
its agriculture-related businesses. Speaking of which soybeans
hit a record, corn reached an 11-year high, and wheat rallied
amid government reports that production isn’t keeping pace with
rising global demand. Ergo, it’s all inflationary.
–Economist Alan S. Blinder, in an op-ed for the New York
Times on globalization.
“Many Americans are justifiably distressed about rising income
equality, but foreign competition gets far too much of the blame.
In fact, the best and most comprehensive studies of the inequality
question assign international trade only a bit part in the drama.
The main protagonists are all domestic, including changes in
technology, the decline of unions, failures of public policy and
changing social attitudes toward inequality.
“Americans who want to stop the world fear that the nation either
already is or is destined to become a victim of globalization.
Such pessimism seems downright un-American. It is also
fundamentally illogical. After all, much of globalization
amounts to Americanization – as numerous foreign critics have
ruefully observed. The United States has long been the biggest,
most open, most market-oriented and most competitive economy
on earth. Globalization is now spreading these practices to the
rest of the world, creating a huge, open, competitive global
marketplace. But Americans are past masters of this game. How
can we lose if the rest of the world decides to play on our field?”
Sorry, Alan. It’s going to be all about protectionism from here
on.
–A government survey in China revealed that the rising cost of
healthcare topped citizens’ concerns. But then I saw another one
that said inflation was number one, though they are obviously
related. And the government just announced another freeze on
energy prices, including oil products, natural gas and electricity,
as well as on public transportation. But this was tried last fall
and it was short-lived because China’s energy producers cut
production in protest. My contact in China says the current price
freeze will only carry through Chinese New Year, Feb. 7.
–Back on 7/7/07 I wrote the following:
“I saw this story in Friday’s South China Morning Post and I
believe it could be a real biggie once it’s better known.
“ ‘Mobile phone batteries labeled Motorola or Nokia exploded
during safety tests done by the Guangdong provincial
government.
“ ‘Only 60 percent of the 40 batteries tested passed, with three
types labeled ‘made by Motorola in China’ and one claiming to
have been made by ‘Sanyo Energy in Beijing’ exploding while
charging….
“ ‘A welder died in Gansu last month when his mobile phone
battery – which was labeled Motorola – exploded. It was
believed to be the first fatality on the mainland caused by such an
occurrence.
“ ‘Mainland media reports said that the battery was a fake.
Reports of the accident have sparked widespread concern among
mobile phone users.’”
But nothing ever came of this. So what happens this past week?
The Wall Street Journal had a headline:
“Laptop-Battery Fire Burns 2 South Korean Firms”
A battery fire in a South Korean notebook computer cast “new
light on the public’s perception of the industry’s struggles with
batteries and how to power mobile-communication products.”
Shares in LG Electronics Co. and LG Chem Ltd. tumbled on the
news.
“The fire occurred at a hospital…where reporters were covering
the aftermath of a warehouse fire that killed more than 40 people
Monday. Reporters noticed smoke coming from the computer
bag of a colleague. Several took the computer outside, where the
machine exploded in flames.”
LG Electronics’ biggest customers for batteries are Dell and
Hewlett-Packard. But I’m still amazed that the original story
involving Motorola seems to have just gone poof!
–Delta Air Lines announced it would pursue merger talks with
both Northwest and UAL, parent of United. In response shares
of Continental also rose as the industry heads towards another
round of consolidation.
–The Federal Aviation Administration is concerned the flight
system on the new Boeing 787 Dreamliner can be hacked into by
passengers.
–So I was looking at the mammoth townhouse development
going up near me the other day and I figure there are about 75
units, with still not one ‘sold’ sign that I could see. Plus, on a
Saturday, I saw only three or four men working vs. at least 20 on
previous Saturdays. I guarantee the developer doesn’t make it.
And a few days later I saw this headline in the Star-Ledger:
“Builder of Asbury (Park) luxury site sells to investment
company.”
It was all so predictable. The developer, an established one in
New Jersey, dumped a project planned for 750 townhouses,
condos and duplexes – at prices ranging from $400,000 to
$800,000 – but only 22 of the 91 constructed had been sold.
Kushner Companies was expected to shell out $150 million in
total and instead sold the project to a D.C.-based outfit. Just
three weeks earlier another developer stopped work on a luxury
project in Asbury Park; 224 units that were to range from
$400,000 to $2.3 million.
This is classic. Asbury Park (think Springsteen, if you’re not
familiar with the area) was supposed to be on the comeback trail
but with two huge, abandoned projects, who knows what the
future now holds. Similar stories are obviously being played out
all over America.
–India’s Tata is introducing a $2,500 automobile that is small
enough to fit in a mailbox and transport one across country for
the cost of a first-class stamp…………………….well, let’s just
say it’s small, only ten-feet long, and some are already calling it
an environmental nightmare as the price puts the Nano into the
reach of tens of millions, clogging India’s streets with choking
fumes.
Meanwhile, Japan’s domestic auto sales fell to a 35-year low in
2007, the fourth straight yearly decline. The reason? A
shrinking population and high gasoline prices.
–Howard Schultz, chairman and founder of Starbucks, booted
the CEO and retook the reins himself in response to anxieties
about the company’s growth prospects. The shares have fallen
about 50% over the past 12 months. Schultz’s decision was due
in no small part to McDonald’s announcement it is installing
coffee bars serving cappuccinos, lattes and mochas, similar to
Starbucks’ blends. As some analysts note, however, the move is
a little risky for McDonald’s in that it could slow service and tick
off customers.
–Bear Stearns CEO James Cayne was forced to step down from
his post in light of the firm’s disastrous performance. But he’s
staying as chairman, because he can. Alan Schwartz, president,
takes over the CEO slot.
–According to comScore data, Americans are spending less time
on the Web than one year ago.
–For the first time since casino gambling started in Atlantic City
in 1978, revenue declined year-over-year; a whopping 5.7%
decrease in 2007. The downturn was largely due to the opening
of slot parlors in Pennsylvania and New York State. Slot
revenues in A.C. fell 8.9%, with table games rising 3%.
–Russia’s extended New Year’s holiday, Dec. 30 through Jan. 8,
the day after Orthodox Christmas, cost the economy 2% of GDP
according to economists. Said one, “I think that 10 days of pure
holidays mean about 20 days of stress and hangovers.” I’m tired
just thinking about it.
–So I recently told you I’m beginning to hoard traditional
lightbulbs because I’m resistant to the new ones the government
is foisting on us. I figure I need about 50 to last the rest of my
life.
You see, I just believe we don’t know enough about the low-
energy ones we’re supposed to buy, including the mercury
contained therein, as in how to clean the bulbs up when you drop
them on your floor and all your detectors begin going off.
Well, it’s true. You can’t use a vacuum cleaner, for example,
and you have to pick up the bulb with rubber gloves and then put
the debris in a sealed plastic bag, which you really shouldn’t just
then put in the trash either.
Nope, you have to take the waste all the way to Nevada and
Yucca Mountain, and then wait in line for 3-4 months.
And that’s why I’m staying with traditional light bulbs, sports
fans, until the government comes to my home and brings me up
on charges.
–My portfolio: Talk about volatility, in the span of the first eight
trading days of the year, the solar holding I mentioned last week
went from $8 to $16.80 to below $10, before closing the week at
$11. I tried to sell some at $16 but didn’t get it. As for the
biodiesel outfit in China, finally the company announced it had
financing for the plant expansion that has always been a key to
the story. Unfortunately, the terms weren’t great, but for those of
you playing along, here’s what I plan to do. I do not see the
stock taking off until investors are sure the latest production
schedule will stick. Certainly there are major incentives for
management to hit its targets. But the stock could be dead in the
water for a while and the next few quarters will reflect lower
earnings per share due to the dilution. So I feel like I’m one year
behind on this one, though I’m holding. I will be rewarded.
Foreign Affairs
Israel: President George W. Bush paid his first visit to Israel and
proclaimed that a peace agreement would be signed with the
Palestinians by the end of his term in office. Bush added:
“The agreement must establish Palestine as a homeland for the
Palestinian people, just as Israel is a homeland for the Jewish
people. These negotiations must ensure that Israel has secure,
recognized and defensible borders. And they must ensure that
the state of Palestine is viable, contiguous, sovereign and
independent.”
Bush did say that Palestinians had no “right of return” to homes
taken in the formation of Israel, particularly as a result of the
lands seized in the 1967 war, but that Palestinians should be
compensated. Israel must in turn end its “occupation” of some
Arab territories taken 40 years ago.
Michael Oren / Wall Street Journal
“George W. Bush’s visit to Israel…has many Israelis confused.
Is he coming to advance the peace process begun six weeks ago
at the Annapolis summit, that 83% of Israelis see as fruitless? Or
is he aiming to fortify Israel against a mounting Iranian nuclear
threat that American intelligence services claim no longer exists?
The visit spotlights the blurring of the administration’s Middle
East policies, leaving many of its friends – Israel included –
confused.
“Israel’s bafflement is deepened by the fact that Mr. Bush’s
agenda departs from a more than 30-year tradition. Unlike
Richard Nixon, Jimmy Carter and Bill Clinton, all of whom
visited Israel, Mr. Bush will not address the government on the
grounds that that would obligate him to speak before the Hamas-
dominated Palestinian Parliament.
“Mr. Bush also abandoned the protocol of receiving the head of
the Israeli opposition, in this case Benjamin Netanyahu, who will
likely be Israel’s next prime minister. And while Mr. Bush’s
predecessors came to Israel following diplomatic achievements –
Nixon after the separation of forces in the Yom Kippur War, Mr.
Carter after the Camp David Accords, and Mr. Clinton after the
Wye River memorandum – Mr. Bush has none to his credit.”
Mr. Oren wrote his piece before Thursday’s working dinner at
Prime Minister Olmert’s residence, where Bush said, incredibly,
“Take care of Olmert, so he will stay in power. He’s a strong
leader. Israeli politics is like karate. You never know when
the next chop will come.”
Seeing as how Olmert could be forced out in weeks following a
report on the conduct of Israel’s 2006 war with Lebanon, what
the heck is Bush doing interfering in Israeli politics? Then again,
this is the same administration that endorsed Dmitry Medvedev
for president of Russia in upcoming elections when Condoleezza
Rice said she looked forward to working with him.
But with all the talk, and all the editorials of the past week, it’s
really pretty simple as the formula hasn’t changed in years.
Israel must stop building settlements and Palestinian President
Mahmoud Abbas needs to dismantle the terror network in his
land. For his part, Prime Minister Olmert said he recognized
some settlement building must cease, but Israel’s right wing
doesn’t want this and Olmert is trying to save his political skin,
while Abbas has no power whatsoever to shut down Hamas and
prevent it (or other groups) from launching attacks on Israel.
It’s also about how the U.S. is perceived in the Arab world
overall, as in is the U.S. an “honest broker”? No, it hasn’t been.
Any administration could have shut down the settlement process
anytime it wanted to by just withholding the money. Then say to
the Palestinians and leaders in Saudi Arabia and Egypt, in
particular, now do your part. Shut down the terror network. If
they then couldn’t, well, Israel could do whatever it so pleased
and with more support from the rest of the world, I imagine.
Look at the attitude right before Ariel Sharon’s stroke when he
was taking the heroic steps to dismantle some outposts. Opinion
of him in the Arab world rose.
But of course it hasn’t worked that way since, especially in the
case of the Lebanese war. It’s why you get statements such as
the following from Hizbullah’s Sheikh Nassrallah:
“When Hizbullah kidnapped two soldiers, Israel had the right to
destroy a whole country, but when a Palestinian defends his
home and shoots Kassam rockets, the entire world protests
vehemently.”
Lastly, all of the above pertaining to the Bush visit is nowhere
near as important as the conversations he had in Israel related to
Iran’s nuclear program and Israeli security officials’ ideas on
how it could be destroyed.
Iran: Speaking of which, there was a little confrontation in the
Gulf between three large U.S. Naval warships and five Iranian
dinghies.
Ralph Peters / New York Post
“Early Sunday morning, the U.S. Navy lost its nerve and
guaranteed that American sailors will die at Iranian hands in the
future.
“As three of our warships passed through the Straits of Hormuz,
five small Iranian patrol craft rushed them. As the Revolutionary
Guard boats neared our vessels, an Iranian officer broadcast a
threat to our ships, claiming they’d soon explode.
“The Iranians tossed boxes into the water. Mines? Just in case,
our ships took evasive action.
“The Iranians kept on coming, closing to a distance of 200
meters – about two football fields. Supposedly, our Navy was
ready to open fire but didn’t shoot because the Iranians turned
away at the moment the order was given.
“We should’ve sunk every one of them. Not because we’re
warmongers. But because the Iranians had made threats, verbal
and physical, that amounted to acts of war. When will we learn
that resolute action taken early saves vast amounts of blood and
treasure later?”
The U.S. Navy later released video and the dialogue with the
Iranians, much of it ominous from their side, and I saw the
Iranians own video version. Ralph Peters asks:
“Does an American commander have the courage to make a
decision on his own? When he doesn’t have time to deflect
responsibility onto his superiors?”
We don’t have all the information yet to know whether this was
indeed the case on Sunday, but I certainly suspect it is going
forward. There is also little doubt Iran’s action was a “careless,
reckless, dangerous and potentially hostile act that clearly
requires an explanation,” as the Pentagon said.
What frustrates me, though, is I can virtually guarantee that if the
White House had been conducting talks with opponents of
Iranian President Ahmadinejad, and if such an act occurred, there
would be an immediate explanation. As in, understand that
Ahmadinejad is under increasing pressure, internally, from
Ayatollah Khamenei and others over his handling of the
economy. It would have been nice to have had inside
information as to whether this kind of reckless action would have
been enough to push him over, because there is no way those in
opposition of Ahmadinejad, including both Khamenei and
Hashemi Rafsanjani, want war now.
Iraq: Opinion on the one-year anniversary of the surge.
Editorial / Washington Post
“At Saturday’s New Hampshire debate, Democratic candidates
were confronted with a question that they have been ducking for
some time: Can they concede that the ‘surge’ of U.S. troops in
Iraq has worked? All of them vehemently opposed the troop
increase when President Bush proposed it a year ago; both
Hillary Rodham Clinton and Barack Obama introduced
legislation to reverse it. Now it’s indisputable that the surge has
drastically reduced violence. Attacks have fallen by more than
60%, al Qaeda has been dealt a major blow, and the threat of
sectarian civil war that seemed imminent a year ago has receded.
The monthly total of U.S. fatalities in December was the second-
lowest of the war.
“A reasonable response to these facts might involve an
acknowledgment of the remarkable military progress, coupled
with a reminder that the final goal of the surge set out by
President Bush – political accords among Iraq’s competing
factions – has not been reached. It also would involve a
willingness by the candidates to reconsider their long-standing
plans to carry out a rapid withdrawal of remaining U.S. forces in
Iraq as soon as they become president – a step that would almost
certainly reverse the progress that has been made.
“What Ms. Clinton, Mr. Obama, John Edwards and Bill
Richardson instead offered was an exclusive focus on the Iraqi
political failures – coupled with a blizzard of assertions about the
war that were at best unfounded and in several cases simply
false. Mr. Obama led the way, claiming that Sunni tribes in
Anbar province joined forces with U.S. troops against al Qaeda
in response to the Democratic victory in the 2006 elections – a
far-fetched assertion for which he offered no evidence.”
Nor are the candidates adjusting their positions to reflect the
realities on the ground.
John McCain and Joe Lieberman / Wall Street Journal
“Every American should feel a debt of gratitude to Gen. (David)
Petraeus and the great American troops fighting under him for
us. This gratitude is due not simply for the extraordinary
progress they have accomplished in Iraq, but for what they have
taught us about ourselves.
“If the mismanagement of the Iraq war from 2003 to 2006
exposed our government’s capacity for incompetence, Gen.
Petraeus’ leadership this past year, and the conduct of the troops
under his command, have reminded us of our capacity for the
wisdom, the courage and the leadership that has always rallied
our nation to greatness.
“As Americans, we have repeatedly done what others said was
impossible. Gen. Petraeus and his troops are doing that again in
Iraq today.
“The war for Iraq is not over. The gains we have made can be
lost. But thanks to the courage of our troops, the skill and
intellect of their battlefield commander, and the steadfastness of
our commander in chief, we have at last begun to see the
contours of what must remain our objective in this long, hard and
absolutely necessary war – victory.”
But the reality on the ground also reveals that few, if any, of
President Bush’s benchmarks for Iraq, as spelled out on Jan. 10,
2007, have been met. And while Bush said Iraqi security forces
were to take over responsibility for all 18 provinces by now, the
number is nine.
At the same time, though, while there has been virtually zero
progress at the national level in meeting political goals, there has
been substantial progress at the local level, but at what cost?
Violence is down to a great extent because the neighborhoods
have been cleansed of sectarian strife.
Kenya: The situation continues to deteriorate as the main
opposition party of Raila Odinga called for mass rallies across
the country in the wake of President Kibaki’s failure to not only
resolve the election dispute, but also his move to put together a
new cabinet without a single member of Odinga’s party. All
attempts to mediate the crisis thus far have failed miserably and
now it’s up to former UN chief Kofi Annan to give it a try. Not
only have more than 600 been killed, but over 250,000 have been
displaced in what is rapidly becoming a humanitarian
catastrophe.
The Financial Times’ Africa editor William Wallis weighed in.
“(In) Kenya, as in much of the continent, (a) resurgence of
investor confidence has lived alongside grimmer realities too
easily ignored in the rush to erase Africa’s image as a repository
of man-made disaster. It is as if sleek new airports, homogenous
hotel luxury, internet access and BlackBerry networks that can
now be found in so many African capitals have blinded
development consultants, investment bankers and politicians to
the despair found outside the bubble.
“The headline statistics – Kenya’s economy grew 7% in 2007 –
often mask widening inequalities and an underclass with little to
lose by hurling stones and lighting flames when aspirations are
frustrated.
“Or take Angola. The champions of recent Africa optimism point
out that it, not China, is the world’s fastest growing economy –
yet its rapacious elite makes Congo’s look like mere pickpockets
and its billionaires, like Nigeria’s, live amid unemployment and
poverty so widespread there are no reliable statistics to describe
it.
“For every cosmopolitan university graduate living in a
comfortable suburb, there are dozens in slums and villages with
no access to electricity, clean water or education.
“There will be some who argue that the events in Kenya will
prove a rite of passage in the transition to greater prosperity and
more accountable government. There are still grounds to hope
that permanent damage to the social fabric can be avoided.
“But there is a danger that these signs of fresh disaster will stoke
belief among investors that the billions being raised in western
capital to meet African demand for infrastructure and corporate
growth are misplaced. Rather, the crisis in Kenya should serve
as a reminder that a continent so huge, complex and beset with
challenges will remain vulnerable to setbacks whenever
politicians have only their own interests at heart, and so long as
the majority live on barely a dollar a day.”
Pakistan: The New York Times floated the story that the White
House and senior military officials are itching to aggressively
pursue al Qaeda in Pakistan, more so than they already have
been, but President Musharraf said on Friday that any unilateral
action by U.S.-led coalition forces against terrorists in the border
region with Afghanistan would be considered an invasion.
“I challenge anybody coming into our mountains. They would
regret the day.”
Of course the above was for public consumption as there has
already been substantial cooperation (though not enough,
obviously) in terms of attempting to identify al Qaeda and
Taliban targets.
Meanwhile violence continued ahead of the now rescheduled
parliamentary vote in February, while the late Benazir Bhutto’s
Pakistan People’s Party put forward her 19-year-old son,
Bilawal, at a press conference in England that was aired on the
BBC. Recall that Bhutto’s will supposedly named her husband
Ali Zardari and Bilawal as co-chairmen upon her death, though
there are some questions as to whether this was truly the case,
and Bilawal said he wanted to be left alone while he finished his
studies at Oxford, after which he would assume control of the
family empire.
At which point a BBC reporter noted that not only had Bilawal
never stepped foot in Pakistan, but “What on earth do you have
to offer this country?” Bilawal just kept repeating that “in this
moment of crisis we needed to show a united front.”
For his part, Bhutto’s husband wrote in an op-ed for the
Washington Post:
“(It) is time to look forward. In profound sadness, the torch of
leadership in the Pakistan People’s Party has been passed to a
new generation, to our son, Bilawal Bhutto Zardari. I will work
with him and support him and protect him to the extent possible
in the trying times ahead. The Bhutto family has given more
than anyone can imagine to the service of our nation, and in these
difficult days it is critical that the party remain unified and
focused. My wife, always prescient and wise, understood that.
Knowing that the future was unpredictable, she recommended
that the family keep the party together for the sake of Pakistan.
This is what we aim to do.”
Understand the “family” itself is split on the future direction, and
understand that years ago Benazir’s own brother was killed after
he questioned her leadership…the ISI (intelligence service) was
implicated but just who ordered the hit can only be surmised.
Guess where I come down?
Also, back in 2003, a Swiss judge convicted both Zardari and
Benazir Bhutto of money laundering. But then an appeals court
set aside the judgment. The investigation was then reopened on
more serious charges which found that Zardari had accepted
bribes from Swiss companies looking to do business in Pakistan.
Benazir, in this case, was “acting in a criminally reprehensible
manner by abusing her role in order to obtain for herself or her
husband considerable sums…at the cost of the Islamic Republic
of Pakistan.”
So I stand by my initial reaction upon her assassination; that
being while no one deserves that kind of end, this was no ‘hero.’
And in death she continues to influence matters in nothing but a
negative way.
North Korea: The U.S. is now giving Pyongyang until the end of
February to come clean on its nuclear weapons program; this
after missing the Dec. 31 deadline. Envoy Christopher Hill also
said full dismantlement can be achieved in 2008.
But arms control expert Robert Einhorn, of the Center for
Strategic and International Studies, said:
“The declaration issue really could be a show stopper because
how can you proceed with a commitment to eliminate North
Korea’s nuclear program completely if they haven’t been
transparent about the whole program.”
Carolyn Leddy, who worked on counterproliferation strategy for
the National Security Council in 2006 and 2007, wrote in an op-
ed for the Washington Post:
“(Few) were surprised that the North Korea deal was reached so
easily by political and regional officials. But we were assured
that President Bush had a personal desire to seek, through the
six-party process, an end to North Korea’s nuclear weapons
program….
“Ultimately, it became clear that honest assessments of
intelligence on North Korea’s nuclear program were not of
interest to the administration’s ‘regional specialists.’ They
wanted a deal. They continue to keep the deal afloat even as
North Korean intransigence continues….
“Secretary of State Condoleezza Rice said last month that she
wasn’t ‘too concerned about whether [the deadline] is December
31 or not.’
“This view is misguided. As with all things regarding North
Korea, the devil is in the details. Deadlines matter. I took part in
a U.S. delegation’s trip to survey the Yongbyon nuclear facility
in September. Afterward, it was clear that North Korean
officials view all elements of the six-party agreement as
negotiable. If the deadline can be overlooked, so can the
‘disablement’ and the ‘disclosure.’ This is how the Clinton
administration’s agreed framework unraveled.”
As for the Chinese, who are supposed to be pressuring North
Korea to fulfill their obligations, the above mentioned Robert
Einhorn’s center issued a report detailing that China has
contingency plans to dispatch troops into North Korea and secure
nuclear weapons in the event of instability. China would
supposedly work with the UN but unilateral action was not ruled
out. Of course China’s other main priority would be to prevent a
flood of refugees, but the border is 1,400 km long.
Kosovo: Ethnic Albanian ex-guerilla Hasim Thaci was elected
prime minister and has vowed to declare independence from
Serbia within weeks, but he is expected to coordinate any
declaration closely with the EU and U.S. Then we’ll see what
Russia does.
Georgia: Russia will also have a lot to say with the future of
Georgia following President Mikhail Saakashvili’s success in an
election necessitated by his roundly denounced state of
emergency declaration back in November, on the heels of anti-
government protests. Saakashvili evidently picked up 52% of
the vote, thus avoiding a run-off, though the opposition says the
vote was rigged. International observers say it was largely clean.
Regardless, Saakashvili, once a favorite of the West and
President Bush, needs time to restore his reputation, even as
Russia, through its overt support of two breakaway republics,
threatens to roil the waters further.
France: We’ve been warning President Nicolas Sarkozy; Carla
Bruni is a man-eater! Alas, the guy isn’t listening and plowing
ahead with marriage number three, just months after his divorce
from wife number two. The French people aren’t that happy
about the whole situation, with Sarkozy’s approval rating
plummeting 7% in a month to 48%. Back in July it was 65%.
The French want him to focus on his real job.
Random Musings
–New Hampshire: Hillary 39, Obama 37; McCain 37, Romney
32.
So what happened? First, let’s go back to the days after Iowa
and look at two statements made by conservatives concerning
Barack Obama.
Peggy Noonan / Wall Street Journal
“He did it with a classy campaign, an unruffled manner, and an
appeal on the stump that said every day, through the lines: Look
at who I am and see me, the change that you desire is right here,
move on with me and we will bring it forward together.”
Editorial / Wall Street Journal
“Barack Obama’s convincing Democratic triumph, based on a
huge increase in Iowa voter turnout, is at least a historic cultural
moment and maybe a political one….
“Mr. Obama’s message of ‘change’ and a new national unity
clearly captured the imagination of Democrats, drawing in nearly
double the number of participants who have ever attended an
Iowa caucus. As a black man running in a nearly all-white state,
Mr. Obama’s triumph should also put to rest the canard that
Americans won’t vote for a black President….
“The Illinois Senator’s performance is also welcome as a sign
that most Democrats want to ‘move on,’ as some of them like to
say, from the Clinton era….
“(John) Edwards speaks of villains and victims, Mr. Obama of
aspiration and opportunity. The latter is what Americans want
from a President.”
The above are from Saturday’s edition of the Journal which I
peruse after I post this column in the morning. George Will later
added an observation in his Washington Post column:
“Voters are attracted to (Obama) as iron filings are to a magnet.
Mind hardly enters into this response to his nimbus of novelty,
and it is impossible to reason people out of affiliations they
haven’t been reasoned into.”
Last week in this space, post-Iowa, I observed “(Obama’s) not
ready and is woefully lacking,” but at the same time “he looks
and sounds good, though, and our history has shown sometimes
this is all that matters. Then we cross our fingers.”
So the circus came to New Hampshire and it was as if the entire
country was basking in a light from on high. Right before the
primary results began trickling in at 8:00 p.m., Tuesday, I had
finished Newsweek’s unbelievably glowing, and shallow,
portrayal of the man from Illinois. Then like you I was stunned
to see Hillary defeat him.
I had as many comments from readers the next day as I ever have
on an issue and they all were along the same lines, ‘Why do we
let the media manipulate us so?’ Daniel Henninger of the
Journal editorial board had some good comments concerning
today’s 24/7 world.
“Odds are that nothing will be learned from this because no one
has time to think about it….
“The truth is that all of us are feeling and stumbling our way
through the altered mental states being imposed on us by the
Internet….
“Voter behavior in the new age remains a mystery to be
explained….
“Lesson learned: In elections yet to come in the Internet Age, it
will be the habit of the media to overdo it. As is their wont, the
voters will undo it.”
John Podhoretz, in his New York Post op-ed, observed: “(This
was) the most blatant media effort I can remember to impose a
coronation on the body politic.”
But how did Hillary pull it off?
Karl Rove / Wall Street Journal op-ed
“Former President Bill Clinton hit a nerve by drawing attention
to Mr. Obama’s conflicting statements on Iraq. There’s more –
and more powerful – material available. Mr. Obama has failed to
rise to leadership on a single major issue in the Senate. In the
Illinois legislature, he had a habit of ducking major issues, voting
‘present’ on bills important to many Democratic interest groups,
like abortion-rights and gun-control advocates. He is often lazy,
given to misstatements and exaggerations and, when he doesn’t
know the answer, too ready to try to bluff his way through.”
Rove also noted what I saw as a key moment in Saturday’s
debate on ABC as well, ‘when WMUR-TV’s Scott Spradling
asked why voters were hesitating on the likeability issue, where
they seem to like Barack Obama more.’ “Mrs. Clinton’s self-
deprecating response, ‘Well, that hurts my feelings’ – was
followed by a playful ‘But I’ll try to go on.’”
I thought Hillary nailed that one. Charles Krauthammer of the
Washington Post agreed:
“Clinton offered an answer both artful and sweet….then
generously conceded that Obama is very likable and ‘I don’t
think I’m that bad.’
“At which point, Obama, yielding to some inexplicable impulse,
gave the other memorable unscripted moment of the New
Hampshire campaign [next to the tearing up] – the gratuitous
self-indicting aside: ‘You’re likable enough, Hillary.’ He said it
looking down and with not a smile but a smirk.
“Rising rock star puts down struggling diva – an unkind cut,
deeply ungracious, almost cruel, from a candidate who had the
country in a swoon over his campaign of grace and uplift. The
media gave that moment little play, but millions saw it live, and I
could surely not have been the only one who found it jarring….
“One does not have to be sympathetic to the Clintons to
understand their bewilderment at Obama’s pre-New Hampshire
canonization. The man comes from nowhere with a track record
as thin as Chauncey Gardiner’s. Yet, as Bill Clinton correctly, if
clumsily, complained, Obama gets a free pass from the press….
“The freest of all passes to Obama is the general neglect of the
obvious central contradiction of his candidacy: The bipartisan
uniter who would bring us together by transcending ideology is
at every turn on every policy an unwavering, down-the-line,
unreconstructed, uninteresting, liberal Democrat….
“Even if you believe that a Clinton restoration would be a
disaster, you should still be grateful for New Hampshire.
National swoons, like national hysterias, obliterate thought. The
New Hampshire surprise has at least temporarily broken the
spell. Maybe now someone will lift the curtain and subject our
newest man from hope to the scrutiny that every candidate
deserves.”
–Robert Samuelson / Washington Post
“The big lie of campaign 2008 – so far – is that the presidential
candidates, Democratic and Republican, will take care of our
children. Listening to these politicians, you might think they
will. Doing well by children has now passed motherhood and
apple pie as an idol that all candidates must worship.
“ ‘We will do whatever it takes to make America a better
country, to give our kids a better future,’ says Mike Huckabee….
“ ‘We will deliver for our children, our grandchildren and our
great-grandchildren,’ claims Sen. Barack Obama….
“ ‘We’re going to reclaim the future for our children,’ says
Democratic Sen. Hillary Clinton.
“Actually, these are throwaway lines, completely disconnected
from reality.
“Our children face a future of rising taxes, squeezed – and
perhaps falling – public services and aging – perhaps
deteriorating – public infrastructure (roads, sewers, transit
systems). Today’s young workers and children are about to be
engulfed by a massive income transfer from young to old that
will perversely make it harder for them to afford their own
children.
“No major candidate of either party proposes to do much about
this, even though the facts are well known….
“A moral cloud hangs over our candidates. Just how much
today’s federal policies, favoring the old over the young and the
past over the future, should be altered ought to be a central issue
of the campaign. But knowing the unpopular political
implications, our candidates have lapsed into calculated quiet.
“They pay lip service to children but ignore the actual programs
that will shape their future. The hypocrisy is especially striking
in Obama. He courts the young, promises ‘straight talk’ and
offers himself as the agent of ‘change.’ But his conspicuous
omissions constitute ‘crooked talk’ and silently endorse the
status quo.”
–Michael O’Hanlon / Wall Street Journal
“(There are) two problems with (Barack) Obama’s Iraq views
that call into doubt his ability to build a truly inclusive American
political movement. First, he seems contemptuous of the
motivations of those who supported the war. While showing
proper respect for the heroic efforts of our troops, he displays
little regard for the views of those many Americans who saw the
case for war in the first place – even as he has called for a more
civil and respectful political debate.
“This is unfortunate. Saddam Hussein was one of the worst and
most dangerous dictators of the late 20th century….
“Saddam’s worst may have been behind him by 2003 – but he
was grooming his sadistic sons Uday and Qusay as successors
with unknowable consequences….
“Yet Mr. Obama consistently accuses those who supported the
war of political motivations – and unsavory ones at that.”
–Fareed Zakaria / Newsweek
“The United States has often tried to impose its own narrative
onto events in foreign lands. But often this storyline – of a
struggle between Islamic radicals and secular democrats, for
instance – is a mask for these more basic battles. Whatever
Pakistani President Pervez Musharraf’s failings, his successor
will surely have to deal warily with the rise of Pashtun
nationalism, which is the underlying base of support for the
Taliban. Even without Iran’s support, Hizbullah’s appeal among
Lebanese Shiites ensures that that country will remain
precariously balanced. Even if violence continues to diminish,
the divide between Iraq’s three communities has become the
country’s core political problem. There are no good answers
other than the long, hard work of nation-building – political
bargains, compromises and institution-building, none of which is
easily affected by outsiders. All this makes for a world that is
becoming rich, empowered and unmanageable.”
–Sibel Edmonds, a 37-year-old former Turkish language
translator for the FBI and whistleblower, made some
extraordinary claims to the Sunday Times of London about
corrupt U.S. government officials and links to Pakistan’s and
other states’ nuclear weapons programs.
“Edmonds described how foreign intelligence agents had enlisted
the support of U.S. officials to acquire a network of moles in
sensitive military and nuclear institutions.
“Among the hours of covert tape recordings, she says she heard
evidence that one well-known senior official in the U.S. State
Department was being paid by Turkish agents in Washington
who were selling the information on to black market buyers,
including Pakistan.
“The name of the official – who has held a series of top
government posts – is known to the Sunday Times. He strongly
denies the claims.
“However, Edmonds said: ‘He was aiding foreign operatives
against U.S. interests by passing them highly classified
information, not only from the State Department but also from
the Pentagon, in exchange for money, position and political
objectives.’
“She claims that the FBI was also gathering evidence against
senior Pentagon officials – including household names – who
were aiding foreign agents.”
Edmonds also offers, according to the Times, that “The Turks
and Israelis had planted ‘moles’ in military and academic
institutions which handled nuclear technology. Edmonds says
there were several transactions of nuclear material every month,
with the Pakistanis being among the eventual buyers….
“The Turks, she says, often acted as a conduit for the Inter-
Services Intelligence, Pakistan’s spy agency, because they were
less likely to attract suspicion.”
The Sunday Times talked to two FBI officers (one serving) and
two former CIA sources who worked on nuclear proliferation.
They did provide overlapping corroboration of Edmonds’ story.
As for the Turks, they have no nuclear ambitions of their own but
rather are “traders.”
–Finally, Australia is monitoring Japan’s whaling fleet, making
sure it doesn’t kill any humpbacks, though it is pressuring Japan
to suspend the hunt altogether, seeing as Japan is still expected to
slaughter 935 minke whales and 50 endangered fin whales.
Aussie Aussie Aussie!……..not that I’m taking sides, you
understand.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $897
Oil, $92.70
Returns for the week 1/7-1/11
Dow Jones -1.5% [12606]
S&P 500 -0.8% [1401]
S&P MidCap -2.6%
Russell 2000 -2.4%
Nasdaq -2.6% [2439]
Returns for the period 1/1/08-1/11/08
Dow Jones -5.0%
S&P 500 -4.6%
S&P MidCap -7.2%
Russell 2000 -8.0%
Nasdaq -8.0%
Bulls 48.4
Bears 25.8 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
