[Posted 7:00 AM ET]
Wall Street…Thar She Blows!
The economy, that is. Here’s a little ditty from BusinessWeek’s
Michael Mandel.
“The past 10 years will go down as one of the greatest consumer-
lending sprees ever. Adjusted for inflation, consumer debt –
including mortgages – rose an average 7.5% per year since 1997,
far faster than the 4.2% rate of the previous 10 years. The last
time debt rose so fast was the 1960s, as the postwar generation
bought homes and autos….
“The extra debt also represents a formidable obstacle for banks
and other financial institutions that might want to lend more to
consumers. ‘Going forward, we’re not going to see this credit-
driven growth,’ says Alistair Milne, a professor and banking
expert at City University in London. ‘Banks are saying, ‘we
have to be more careful here.’’”
That’s a nice, succinct explanation, I think you’d agree. But you
deserve more…more evidence of our current predicament.
If ever there was a week where it was important to sit back in
your easy chair with the drink of your choice and the lab at your
feet it was this one. You talk about a lot of noise. Try waiting
24 hours instead and focusing on the Big Picture.
And what does that picture reveal? Try the first reading on
fourth quarter GDP, up a meager, and less than expected, 0.6%, a
level putting it at recession’s door. Or try the weekly reading on
jobless claims, up a stupendous 69,000 to 375,000. This was
totally out of left field. Or try Friday’s figure on January
employment, minus 17,000. Coupled with revisions to November
and December’s numbers, you have a three-month average of
less than 42,000 jobs created a month when by most
measurements you need at least 125,000 just to take care of an
increasing labor pool.
The big culprits remained construction and manufacturing, both
of which continue to bleed, and the numbers for construction
spending itself have been dismal recently. And the figures for
consumer spending in December were putrid, up only 0.2%.
Other data showed the housing sector to be on life support, as
new home sales dropped 41% in December over the prior year
(down 26% for all of 2007), which came on top of last week’s
equally poor data on existing home sales. Inventories remain
near multi-year highs, the median home price is declining, 7.7%
in the latest Case-Shiller reading of 20 major markets in
November, and RealtyTrac says foreclosures were up 79% in
2007 over 2006, and 97% higher for December alone.
There were also headlines such as the following in the Journal:
“Projects Stall in Orange County”
“Bleak Prospects Delay Shopping-Center Project”
“Florida Condo Bust….”
Even a bullish one was laughable to some of us.
“In Vietnam, Real Estate Is New Hit Bet”
Just another bubble to follow, sports fans, as the article went on
to talk of Vietnamese flipping condo units before they were even
built. I think most of you are familiar with that one and you
know how it ends.
Economist Robert Shiller of the aforementioned index told
Bloomberg, “We are in a historic housing bust right now,
comparable to that of the Great Depression. The unraveling of
that has unpredictable consequences.”
But housing stocks continued to rally, including shares in Pulte
Homes, whose CEO said “The challenging market conditions
that plagued the homebuilding industry for the first nine months
of 2007 worsened in the fourth quarter. Levels of new and
existing home inventory remain elevated, buyer demand for new
homes continues to be weak, and mortgage availability is still a
problem for many prospective homebuyers.”
So what gives? Well, it certainly helped that the Federal Reserve
lowered rates further this week, another 50 basis points on top of
the 75 it slashed the funds rate on Jan. 22. The 1.25% reduction
from 4.25% to 3.00% signals the fastest easing of monetary
policy since 1990. Those worried about their adjustable rates
resetting not only won’t have as high an interest rate now, but if
they qualify they can refinance into an attractive fixed rate
mortgage. And if the 10-year Treasury were to continue to fall,
another group of mortgage holders would be able to refinance
from their already low rates as well, like moi. This is good. A
major step in helping not only the housing industry, but also the
average American.
Yet in watching how aggressively the Fed moved, it simply adds
further proof to those such as yours truly who have criticized
Chairman Ben Bernanke. As in the handwriting was on the wall
last spring (at the latest) that we were heading towards a housing
Depression and Bernanke and crew were totally clueless. What’s
sickening is that if they had acted sooner, there is no doubt
hundreds of thousands may have found a remedy before being
forced into foreclosure. And notice I haven’t said anything about
federal bailouts or raising conforming loan limits.
But I’ll tell you exactly what is going to happen in the housing
market the next five months. There are going to be all manner of
folks calling for the bottom by March. And then you’ll see a
slight uptick in activity in April that will add further weight to
the argument.
Then, however, we take a final leg down in the summer and
when we next bottom we just sit there, for a lengthy spell. To
repeat a theme of mine for the last 15 months in particular, if you
believe housing prices are just going to shoot back up, you are
absolutely nuts. And if you also believe you can have a full-
fledged recovery without significantly working off existing
inventories (unless homes that have been foreclosed on are
bulldozed as part of some jobs program), then you need to join
Britney Spears in the psych ward.
James Grant / New York Times, on the overall environment.
“Over the past decade, household indebtedness, expressed as a
percentage of the value of household assets, has shot up into
record territory. Watching house prices levitate, people did what
they could have been expected to do. They borrowed heavily
against the accretion in value they had already seen as well as the
gains they hopefully anticipated.
“There was a rub, however, and this, too, our seers and experts
failed to predict. The truth was that house prices were soaring
beyond the reach of the average home buyer. Bridging this
widening gap brought out the worst in just about everyone who
had anything to do with money from 2003 to 2007.
“Striving so mightily to make one and one add up to three or four
or five, Wall Street, Main Street and Washington collectively
brought us to the impasse of 2008, in which a debt crisis is
superimposed on a downturn in the economy, which is overlaid
on a bear market in real estate, which is conjoined with a
persistent and worrying weakness in the overseas value of the
dollar. As for the crackup in complex mortgage-backed
securities, now at the center of the debt predicament, the global
bank UBS has justly called it ‘the biggest failure of ratings and
risk management ever.’”
As for the global economy the IMF lowered the projected rate of
growth in the U.S. for 2008 to 1.5% from 1.9%, while it pegs the
euro zone at 1.6% and Japan at 1.5%. Even when you include
still surging China, India and all the nations that produce oil, you
still just have an estimated 4.1% growth rate in ‘08, down from
4.9% in 2007. Don’t be fooled by this last one. 2.5%-3.0% is
recession by this measurement. [Think of it like with China,
where the government needs 8% growth just to find jobs for all
those flooding into the cities.]
But what of all those multi-nationals such as GE, Microsoft,
IBM, or Caterpillar that speak of softness in their U.S. numbers
but because they receive a majority of their orders from overseas,
are telling us talk of a global slowdown is bunk?
Here’s my take. GE will be among those missing expectations at
some point in 2008. The global economy, beset not just by the
bursting of my global real estate bubble, but also ever-rising food
prices, and stubbornly high energy costs, will continue to slow.
Armageddon? No. A worldwide recession? Yes. Admittedly,
though, there will be more than a few times when I’ll look
foolish with this forecast but I’ll be sitting back in my easy chair,
musing about the Big Picture while the stock and bond markets
play ‘helter-skelter.’
Lastly, I just have to comment on Ben Stein’s New York Times
piece, where he says of those moving the markets on a daily
basis, such as hedge funds:
“These traders, not economists or securities analysts, can turn the
world upside down, make governments tremble, give central
bankers colitis and ruin the lives of ordinary men and women
saving for their children’s college education or their own
retirement. In America today, it is the traders, not the politicians
or the generals or the corporate bosses, who have the power.
“This is what has become of the America of Thomas Jefferson.
Lucky for the traders. Sad for the rest of us.
“And one thing’s for sure: With the traders running things, it
won’t be a good time for amateurs until the traders cry ‘Switch!’
and the market starts to rise.”
Well Mr. Stein wrote this last Sunday, so I’m not sure if he’d say
the trader community had called ‘Switch!’ as the markets rose
smartly this past week, but I have a question for him.
You’re just getting this? Some of us have known all along Wall
Street was little more than a casino, especially over any short to
intermediate period. In fact I don’t know why Mr. Stein had to
give a long dissertation when all you need to know is that
program trading overwhelms the retail variety every day. It’s
done so for years, nay, decades! I do agree with him, though,
when he talks of it not being a time for amateurs, adult swim
time, as my buddy Trader George is fond of saying. Or since it’s
Super Bowl weekend, at least make sure you’ve got that
inflatable football attached when you head into the pool. Better
yet, take a spear gun with you to combat the sharks you’ll come
across.
Street Bytes
–Thanks to a strong rally on Thursday, Jan. 31, equities didn’t
suffer their worst starting month ever, but the S&P 500’s decline
of 6.1% was still its worst since 1990 and the sixth-worst ever.
So if you believe in the January barometer, the rest of 2008
won’t be great, but it also doesn’t mean there is necessarily a lot
of downside from here, witness my own forecast of 3% to 5%
declines in the major averages for the full year.
Overall, though, the week was a good one, with Nasdaq finally
breaking its dreadful five-week losing streak and rallying back
over 2400 (2413), up 3.8%, thanks to a general feeling that too
much damage had been done to the tech sector and that the
global economy was still in good shape. [They didn’t ask me, in
other words.]
And I guess you want to hear about Microsoft’s hostile offer for
Yahoo. There’s really little to say except it makes perfect sense
for Microsoft if it is to ever be a player in search, for starters,
while Yahoo stock was simply dead in the water. In fact while
everyone was singing ‘Zip-pi-ty-do-daaa,’ I just have to note that
Microsoft’s $31 offer is hardly anything to write home about,
seeing as Yahoo was $34 as recently as last Oct. 29 and $40+ in
January ’06. But it’s better than $10, which is where Yahoo was
headed. Just this week, CEO Jerry Yang said the company was
facing further “headwinds” this year.
I think the more interesting story this week was Google’s
earnings report. The company saw earnings rise 17%, $1.21
billion, on $4.83 billion in revenues ($3.39bn retained after
paying fees to its partners), yet the shares tanked because both
decelerated more than analysts expected. But there was
something else. As Michael Liedtke wrote for the AP:
“Google executives said a revision in the company’s formula for
showing advertising links crimped the fourth-quarter results by
reducing the number of revenue-generating clicks. Without
providing details, the executives said Google made the change to
decrease the frequency of ‘accidental’ clicks on ads.”
“Accidental clicks on ads.” Or click fraud. Long-time readers
recognize this as a theme of mine years ago. I was a victim
myself of click fraud, as I wrote. Are advertisers finally waking
up and demanding the truth? Looks like it.
And Kevin Delaney had a blurb in the Journal the other day,
prior to Google’s report, talking of the latest data from comScore
that “reported a 7% decline in the number of times U.S.
consumers clicked on ads appearing alongside Google’s search
results in December compared to November.”
Delaney quotes John Aiken, managing director at Majestic
Research Corp. in New York.
“This whole idea of the Internet not being as impacted and
Google not being as impacted was really holding up well until
December. Then we started to see a rate of deterioration that was
faster than what you’d normally expect.”
Is the bloom off the rose when it comes to advertising on the
Net? Or is any decline in use just because of the economy?
–U.S. Treasury Yields
6-mo. 2.13% 2-yr. 2.05% 10-yr. 3.58% 30-yr. 4.30%
[So much for 4.50% money market rates, fellow savers.]
For the record, in lowering the funds rate another ½ percent the
Fed said:
“Financial markets remain under considerable stress, and credit
has tightened further for some businesses and households.
Moreover, recent information indicates a deepening of the
housing contraction as well as some softening in labor markets.”
–I commented the other week in depth on the bond insurers,
companies such as MBIA and Ambac, so I won’t repeat my
dissertation, but there were all manner of rumors that private
bailouts were being worked out (not a big government one) and
were this to be true, it’s a definite positive. But this is more a
market event than an economic one, outside of those companies
that would have had further writedowns. At the same time S&P
said subprime-related losses may now exceed $265 billion when
the ratings of all these securities are reduced to their essence….
crapola.
–Inflation in the 15-nation euro zone is now running at an
average 3.2% annualized rate, the fastest in over ten years, which
means the European Central Bank won’t be cutting rates any
time soon to follow the Fed’s lead, even as the euro economy
slows. Eventually, though, the ECB will be forced to follow suit,
I suspect.
–In an op-ed for the New York Times, economist Robert Shiller
had some interesting points on the U.S. banking system and
investors/savers.
“In the United States, the very least we can do is to raise the
F.D.I.C.’s limits on insured deposits. The limit of $5,000 in
1934 was 12 years’ worth of per capita personal income at the
time. The limit was last raised in 1980, to $100,000, which was
then 10 years’ income. But because of inflation and economic
growth, that limit is less than three years’ income today.
“The Federal Deposit Insurance Reform Act of 2005 did not
raise that ceiling, though it will start indexing the limit to
inflation in 2010. We have allowed deposit insurance to go
three-quarters of the way to extinction.
“The insurance limits of the Securities Investor Protection
Corporation, which protects customers when brokerage firms
fail, were also last raised in 1980 – to $100,000 in cash accounts
and $500,000 in securities – and thus have suffered an equally
drastic erosion in real value. Such erosion could suddenly matter
if the crisis, or even just the psychology of the crisis, were to
worsen.”
–OPEC announced it will keep production at present levels out
of fears soft world economies will weaken demand. This will be
the official position at least until the next meeting, March 5.
–My friends at Strategic Energy Research & Capital passed
along further evidence Mexico’s giant Cantarell oil field will see
production decline by a further 200,000 barrels a day this year,
for those of you in the Peak Oil camp. Cantarell accounts for
43% of Mexico’s production. It’s up to Mexico and state-owned
Pemex to find new reserves and this takes time.
–Exxon Mobil posted the largest profit in the history of mankind
(save Cleopatra Inc.’s inflation-adjusted 2nd quarter, 48 B.C.,
when she overthrew her husband, brother, and co-ruler Ptolemy
XIII with the aid of Julius Caesar), a cool $11.7 billion, besting
its previous record of $10.7 billion in the fourth quarter of 2005.
Exxon also registered a record full-year profit of $40.6 billion.
By the way, Exxon paid $29 billion in federal income taxes in
’07. [Total taxes paid, including for sales taxes, were $105
billion on revenues of $404.5 billion.] Chevron also reported
Friday and earned $4.88 billion. Good for them. Those two
employ a lot of people, after all. Good, high-paying jobs, as
our president is fond of saying.
–In a move that surprised no one, Gazprom, the natural gas
monopoly and one of the world’s 10 largest companies by
market cap, announced that Russian Prime Minister Viktor
Zubkov will replace current Deputy Prime Minster Dmitry
Medvedev after the latter wins the presidential election in March.
As a presidential adviser to Vladimir Putin told Bloomberg, “It is
important for the state to oversee the country’s largest company.”
Of course.
–In Australia, “The new home building sector is in danger of
enduring a fifth straight year of weakness in 2008 given
continued upward pressure on domestic interest rates,” according
to economist Harley Dale of the Housing Industry Association.
“Another year where there is no catch up made in the yawning
gap between housing supply and demand will only serve to
extend the existing problems of very tight rental markets and
deteriorating housing affordability.” Ah yes, that key word…
affordability. [Sydney Morning Herald]
As for the U.K., the London Times’ Grainne Gilmore:
“Many lenders (in Britain) have also tightened their lending
criteria, becoming much less generous with the sums that they
are prepared to lend to prospective buyers. A couple of years
ago there were plenty of home loan deals that offered borrowers
the chance to access 100 percent of the asking price.”
I had to throw this in because I know there have been skeptics
when I’ve written the U.S. wasn’t the only one with ‘no money
down’ housing purchases. So, again, remember there are far
larger real estate bubbles than in America; Spain, Britain and
Ireland being among them.
–For the record, Countrywide Financial Corp. Chairman and
CEO Angelo Mozilo predicted last October that the company he
founded would return to profitability in the fourth quarter after
posting a loss of $1.2 billion in the third. Not quite.
Countrywide instead lost $422 million in the fourth. It thus
makes sense that Mr. Mozilo is giving up $37.5 million in
severance pay, especially after taking down $387 million in pay
and stock option gains from 2002 to 2006.
–In another sign of an anemic economy, McDonald’s announced
its same-store sales were flat for the first time in four years.
–Merrill Lynch agreed to pay the city of Springfield, Mass.,
$13.9 million to settle a dispute that Merrill improperly sold
Springfield a collateralized debt obligation that plunged in value.
Then on Friday, Massachusetts’ Secretary of State announced he
was bringing fraud charges against Merrill related to sales of
similar securities.
–The Wall Street Journal is reporting on Saturday that federal
criminal prosecutors “are investigating whether UBS misled
investors by booking inflated prices of mortgage bonds it held
despite knowledge that the valuations had dropped, according to
people familiar with the matter.”
It is assumed the U.S. attorney is working closely with the SEC,
the latter having upgraded investigations of its own into both
UBS and Merrill Lynch involving similar material. But such
fraud cases are very difficult to prove.
–Shares in Amazon declined following its earnings report that
showed a drop in gross margins, even as sales rose 42% from the
prior year’s fourth quarter.
–Starbucks announced it was closing a number of
underperforming U.S. stores as it finally recognized it was
cannibalizing its own operations when you have two on the same
block. And I got a kick out of the company’s decision to pull its
hot breakfast sandwiches because customers complained that the
smell was overwhelming the aroma of coffee, which is why I go
to Dunkin’ Donuts. Founder/CEO Howard Schultz added
“There’s a macroeconomic headwind that we’re all facing that
strongly suggests that the (U.S.) consumer is in a recession.”
–The UN World Tourism Organization said that global tourism
soared to a record in 2007, with arrivals reaching 898 million, up
6.2% from 2006. The Middle East recorded the largest increase,
up 13%. [Turkey saw a 17.6% increase in ’07.]
–But when it comes to the Middle East it wasn’t a great week
because two communications cables crossing the Mediterranean
were cut, leading to severe Internet outages in much of the
region. At least some terrorists must have been hampered in
their efforts.
–I’ve been writing about the huge endowments some colleges
have and how little of it is trickling down to students to reduce
tuition, and then Geraldine Fabrikant had a piece in the New
York Times on some of the endowments held by elite prep
schools. Phillips Exeter Academy in Exeter, N.H., for example,
has an endowment of $1 billion. Goodness gracious. Tuition is
$36,500 here, though the school says it spends $63,500 annually
to house and educate its students. In fact Exeter is among the
richest 25 private schools, including universities and colleges.
–Last week I blasted the editorial page of the Wall Street Journal
for not acknowledging the gigantic sums Big Oil is shelling out
in federal taxes when touting any success the Bush
administration has had in reducing the deficit (fleeting as this
may have been).
So this week the Journal writes the following in discussing the
difference a 15% capital gains rate meant.
“In 2002, the year before the tax cut, the capital gains
realizations that filers report on their tax returns were $269
billion. Realizations grew smartly in each succeeding year, and
CBO is now projecting that the total for 2007 will be $863
billion.
“Yes, the stock market rose during that period along with the
larger economy. But the lower rate also gave investors more of
an incentive to ‘unlock’ their gains, taking profits and reinvesting
the net proceeds.”
Earth to Journal. Show a little intellectual honesty in
discussions such as this. Like try rewriting the above.
“Yes, the market tumbled in 2002, as well as 2000 and 2001, and
thus there were few capital gains to be found, while the stock
market then rose from 2003-2007.”
Personally, I would lower the cap gains rate to zero, but don’t
treat your readers, WSJ, like a bunch of morons.
–Josh P. passed along a sign of the times, ‘youwalkaway.com’
….as in walk away from your home.
–The annual inflation rate in Zimbabwe accelerated sharply in
November to a new peak of 26,470 percent, from 7,892 percent
in September. The central bank raised interest rates to 1,200
percent from 975 percent. [Reuters] I’m thinking similar
interest rates in the U.S. probably wouldn’t be good for those
holding adjustable rate mortgages.
–Japanese scientists believe they have a solution to a major issue
on the global warming front, a way to neutralize the world’s 1.5
billion belching cows. The key is adding a blend of nitrates and
an amino acid to suppress the methane that is thought to account
for 5% of all greenhouse gas emissions.
From Leo Lewis of the London Times: “Methane is about 22
times more potent than carbon dioxide at capturing atmospheric
heat. Cows produce astonishing quantities of methane gas as the
bacteria in their stomachs breaks down plant fibers. Their near-
constant cud-chewing allows a small quantity of the gas to
escape with nearly every breath each animal takes.”
–My portfolio: I attended an investor lunch for my China
biodiesel play this week, though I was the only one there who
had actually visited the original plant in Fuzhou. My CFO friend
gave a terrific update, so for those of you playing along here’s
what you need to know.
With the $15 million in financing that they recently obtained, the
production ramp-up at the new facility being built is on schedule
for October and by next January should be running at full
capacity. Without getting into a lot of specifics, my questions on
feedstocks have also been answered. As in I’m not concerned
about some of the negative press involving biodiesel in recent
months. They also have further expansion plans, having
identified another three locations in China, including one in the
western part of the country where they would use cotton waste.
I started investing in this outfit about one year ago and I’m
essentially flat. I did expect a higher share price by now but
recognize I may need up to another year before the market begins
to appreciate the growth story here. If they stick to their
schedule the revenue figures will explode in the first quarter of
2009 (with a little kick in Q4 ’08).
The company’s underrated specialty chemical division is making
noise because it is the only one in China that is qualified for use
in the semiconductor industry there.
Also, the company obtained a line of credit from a Chinese bank,
something a few of us have been waiting for. When questioned
about this, “I thought China’s lenders were told by the
government to tighten up,” CFO Gary immediately said, “Oh,
that’s for real estate and infrastructure. Real estate (lending) is a
no-no. Infrastructure is a no-no. But when you say energy, it’s a
yes-yes.”
Additionally, the biodiesel operation is breakeven at $35 oil. So
the preceding is the last update I’ll be providing for a while.
Suffice it to say I’m hanging in there for 2008 and am not
worried about the dilution resulting from the recent financing of
the expansion.
Finally, I made a small purchase this week in a large cement
company you all would be familiar with. Not because I see a big
recovery in the economy, but rather this outfit can pick off those
operators going under, while perhaps participating in what I see
as a coming infrastructure boom, perhaps a result of legislation
currently being pushed by Senators Chris Dodd and Chuck
Hagel, as noted in a New York Times column by Bob Herbert.
And I also picked up a small amount in a certain beer company
that makes Dos Equis, which had the best commercial of 2007:
“Stay thirsty, my friends.”
Foreign Affairs
China: The head of disaster relief for the country said China is
experiencing its worst natural disaster since the founding of the
People’s Republic in 1949 as a series of rare winter storms
totally crippled vast parts of the nation, and at the worst possible
time, the traditional Chinese New Year holiday.
Officially, the holiday runs from Feb. 6 to Feb. 12, with New
Year’s being Feb. 7, but hundreds of millions of migrants use the
time to make an extended trip back home as it’s the only real
opportunity they get to do so, so the actual travel period is from
about Jan. 19 to March 2. As I wrote a few weeks ago, the
government estimated the people would take 2.2 billion trips
during these six weeks.
Aside from the fact up to 800,000 were stranded at one point at
the Guangzhou rail station, much of the winter crop (vegetables
and fruits) has been destroyed and due to transportation issues
some regions are already experiencing food shortages.
Chenzhou, a city of four million, is as of this writing out of both
food and fuel. Coal shipments have been severely hampered and
power outages are widespread. Just last Saturday morning,
before the full extent of the crisis was known, I wrote:
“China is also dealing with record snows, which has interrupted
the delivery of not just coal, but could also hamper the delivery
of food stocks in some regions. In other words, President Hu
may have to play the nationalism card earlier than I thought.”
I met a fellow at a lunch in New York City this week who agreed
with my thesis on China going after Taiwan when it needs to
rally the people as a result of internal dissent, and he said all his
sources tell him the Beijing government is deathly afraid of the
next failed harvest, which in turn could send the country spinning
out of control. The severe weather only compounds matters as
the winter crop failure leads to further inflation at a time when
price pressures were already impacting many other sectors.
On a separate matter, Japanese food companies faced a crisis of
their own after many there fell sick from eating contaminated
Chinese-made food they were importing, including dumplings
containing pesticides. The Japanese government openly
questioned China’s commitment to food safety only weeks after
the country said it had improved standards. Restaurants and
schools took Chinese-made food off their menus. I recently
wrote in a separate column for this site that it’s no wonder at
least 17 nations (including the U.S.) are training in Japan and
South Korea, ahead of the Olympics, instead of having to deal
with Chinese food more than they’ll have to, let alone pollution
prior to the Games.
Speaking of the Olympics, the government arrested a leading
dissident, one of 51 online journalists jailed the past few years.
In a strongly worded editorial from the Communist Party
mouthpiece, the People’s Daily, China said it would not submit
to taunting or political pressure from groups or governments
wishing to use the Beijing Olympics as a forum.
“(The activists) believe they can exert enough pressure on the
Chinese government to force China into a situation where it
cannot but do their bidding,” the paper said. “These people have
made the wrong calculation.”
The editorial added that governments would be mistaken to think
Beijing will pay attention to any pressure regarding Taiwan.
“There is no country in the world hosting an Olympics which
would compromise on their own core interests….
“If at each subsequent Olympics people stand up and use politics
to maliciously attack the host nation, and use ideology to draw
up boycotts, where does that leave the Olympic spirit?”
Afghanistan: Some good news, before the bad. One of Osama
bin Laden’s top lieutenants in Afghanistan was killed in a
suspected U.S. airstrike (probably a drone) in Pakistan. Abu
Laith al-Libi was said to have directed a number of terrorist
attacks in Afghanistan.
But there have been a slew of reports in the past week that warn
Afghanistan is rapidly approaching “failed state” status thanks to
a lackluster reconstruction effort amidst worsening security. And
now Canada is threatening to pull its critical contribution unless
NATO steps up aggressively to add more forces.
Remember that Taliban assault on Kabul’s only luxury hotel? It
has had its intended devastating impact as Westerners are
disappearing from the capital at the very time when they are
needed most.
Republican Senator Richard Lugar, a senior member of the
Foreign Relations Committee, said “I’m not sure we have a plan
for Afghanistan,” in response to Democratic Senator Joe Biden’s
quip that “We need a significant change in policy now.” Rep.
Sen. Chuck Hagel added, “If we are making so much progress
why are we putting in 3,200 more marines?” The State
Department says they are seeking to leverage our added
commitment into further contributions from NATO but this is
exceedingly unlikely. Or as the Wall Street Journal opined:
“The Continentals fill up lots of air space at policy conferences
talking about Europe’s readiness to play a prominent role in
global affairs. The Canadians are now usefully calling their
bluff.”
[On Friday, Germany rebuffed our request for their troops to
move into the violent south.]
Iraq: Two horrific bombings in Baghdad on Friday, killing
nearly 100, were yet another stark reminder we have a ways to
go. What was particularly sickening was the story the terrorists
supposedly strapped bombs on two mentally ill women, with the
devices then exploded by remote control (cellphones). I also
saw a piece by Matt Kelley in USA Today that should tick off all
Americans.
“Nearly five years after the U.S.-led invasion of Iraq, allied
countries have paid 16% of what they pledged to help rebuild the
war-torn country…Foreign countries have spent about $2.5
billion of the more than $15.8 billion they pledged during and
after an October 2003 conference in Madrid, according to a new
report by the Special Inspector General for Iraq Reconstruction.”
The biggest shortfalls among 41 donor countries are from Iraq’s
oil-rich neighbors. For example, Saudi Arabia and Kuwait each
pledged $500 million and have only spent $87 million and $135
million, respectively. Spain, on the other hand, has spent $213
million of $248 million pledged. The United States has spent
$29 billion to help rebuild Iraq.
Democratic Congressman Gary Ackerman, who heads the House
Foreign Affairs subcommittee on the Middle East, commented
on the Saudis:
“They’re charging $100 per barrel of oil, making record fortunes,
lecturing everyone else, and then they stiff everybody, including
their cousins who they contend to be so very concerned about.”
Good point. From 2003 to 2006, the Saudis exported $95 billion
in crude to the U.S.
Israel: The Gaza border crisis took a backseat to release of the
Winograd Report on the Second Lebanese War that surprisingly
(to most) stopped short of blaming Israeli Prime Minister Ehud
Olmert directly, saying Olmert launched the war out of concern
for the country’s national interest, not political reasons. The
report was, however, highly critical of the IDF (the armed forces)
for its lack of preparation and decision-making. Hizbullah used
it to say it proved they had won.
But the last poll I saw still said 56% of Israelis want Olmert to
resign and Likud leader Benjamin Netanyahu is putting the heat
on.
“Olmert refuses to take responsibility, to demonstrate personal
honesty and leadership and to do what most of the public expect
him to do. The prime minister is emptying of content the
concept of responsibility. The people of Israel know today that
they are led by a prime minister who is not qualified or fit to lead
them.”
Historian Michael Oren, who also fought in the war, wrote in an
op-ed for the Wall Street Journal:
“Israel lacks a constitution but is bound by an unwritten social
contract. Israelis defend their country with their lives and their
leaders’ pledge not to send them to war heedlessly. Prime
Ministers Golda Meir and Menachem Begin resigned in the
aftermath of disappointing wars, though both were exonerated of
incompetence. By ignoring these precedents, Mr. Olmert, whose
culpability began before the war, when he appointed a defense
minister devoid of military experience, threatens to break the
contract. Israelis will think twice before following his orders –
and perhaps those of future prime ministers – into battle. The
cohesiveness that enabled Israel to survive 60 years of conflict
will unwind.
“Thousands of Israelis are calling for Mr. Olmert’s resignation.
Rightists convinced that the prime minister cannot safeguard the
country’s security have joined with leftists who understand that
leaders who fail at war will never succeed at peacemaking. All
are united by a willingness to shoulder the burden of Israel’s
defense. This was the commitment that united us that last night
in Lebanon, as we took up the stretchers bearing the remains of
somebody’s son, somebody’s husband, and brought them home
for burial.”
Lebanon: In a very worrisome development, a demonstration
over power cuts in Beirut led to a riot where 8 were killed, all
either Hizbullah or opposition Shiite players. It was the worst
mass violence (non-car bombing) in Beirut since the 1975-90
civil war, but as of this writing there has been no follow through.
Iran: President Mahmoud Ahmadinejad said his country would
be producing nuclear energy by 2009, while a senior official told
reporters the Bushehr plant was expected to be operational in
October. Russia, which is helping Iran to build the plant and has
been providing nuclear fuel, said the plant could be operational
by December. Separately, Ahmadinejad called Israel a “filthy
entity,” adding “(Israel) has lost its reason to be and will sooner
or later fall.” So who could blame Israel for acting preemptively,
as I’m convinced they will this year?
North Korea: According to Kyodo News, Pyongyang has slowed
the removal of nuclear fuel rods from its Yongbyon nuclear
facility to less than half the rate needed to disable the site by a
deadline agreed to under the six-party denuclearization deal.
North Korea has removed only about one-eighth of the total
supply. The White House, particularly President Bush and
Secretary of State Condoleezza Rice, is looking more than a bit
foolish.
Russia: The latest opinion poll ahead of the March 2
presidential election shows Dmitry Medvedev at 71%,
Communist leader Gennady Zyuganov 13%, and Nationalist
(pro-Kremlin) Vladimir Zhirinovsky 12%. The Election
Commission formally disqualified ex-prime minister Mikhail
Kasyanov, who while he wouldn’t have picked up more than a
percent or two of the vote was going to raise hell. “The
authorities are afraid of any discussion, any risk,” he said after
the Stalin-like move to take him off the ballot for allegedly
having too many fake signatures on his petitions.
Even Mikhail Gorbachev sharply criticized the Kremlin for the
pre-election shenanigans. “Something is wrong with our
elections, and our electoral system needs a major adjustment.”
Remember, it’s not just the farcical maneuvering of Medvedev
and Putin in swapping offices these days, it’s the fact Putin gets
to handpick all the governors. Gorbachev said this must be
changed back to direct elections for the position.
Well here’s what I think will happen. Even Putin doesn’t want
Medvedev attaining over 80% of the vote, though this is
undoubtedly what he will receive, so I’m thinking Dmitry wins
close to the above poll number, for appearance sake, with the
other two winning similar totals. Then Putin can attempt to
claim it was free and fair. I suspect each polling station already
has its marching orders on how the vote is to be divvied up.
Kenya: Two opposition legislators were killed, while tourists
fled the Rift Valley, the staging point for many safaris, amidst an
“orgy of violence.” Talk about a failed state. Former UN
Secretary General Kofi Annan put the two sides together and
there is talk of an agreement of some sort, but we have a long,
long way to go before peace returns. The genie is out of the
bottle.
South Africa: And this nation threatens to confirm my prediction
for 2008 that it is a sleeper hot spot as South Africa now grapples
with severe power shortages that some say will last at least five
years. There will be a political crisis in the not too distant future.
Random Musings
–First off, to take care of earlier results, Barack Obama scored a
big win in South Carolina last weekend, defeating Hillary 55-27.
Then on Tuesday, John McCain captured a big one of his own in
besting Mitt Romney in Florida, 36-31. [Hillary won a beauty
contest there, 50-33, as the delegates had been pulled by the
national Democratic Party for holding the primary too early.]
Following Florida, both Rudy Giuliani and John Edwards quit
the race; Giuliani having run the worst campaign since, err, Fred
Thompson”s.
After South Carolina, though, Bill Clinton once again showed his
true colors in comparing Barack Obama to a certain figure from
20 years ago.
“Jesse Jackson won South Carolina in ’84 and ’88. Jackson ran a
good campaign. And Obama ran a good campaign here.”
As Geoff Earle of the New York Post observed, “The message:
that Obama might peel off a few Southern states with sizable
black populations, as Jackson did, but can’t forge a successful
nationwide candidacy.”
Frankly, President Clinton’s remarks were disgraceful. I’m no
supporter of Obama’s candidacy, but he’s done a terrific job of
presenting himself as one who is running for president, period,
race be damned.
David Brooks / New York Times
“Something fundamental has shifted in the Democratic Party.
Last week there was the widespread revulsion at the Clintons’
toxic attempts to ghettoize Barack Obama. In private and
occasionally in public, leading Democrats lost patience with the
hyperpartisan style of politics – the distortion of facts, the
demonizing of foes, the secret admiration for brass-knuckle
brawling and the ever-present assumption that it’s necessary to
pollute the public sphere to win. All the suppressed suspicions
of Clintonian narcissism came back to the fore. Are these people
really serving the larger cause of the Democratic Party, or are
they using the party as a vehicle for themselves?
“And then Monday, something equally astonishing happened. A
throng of Kennedys came to the Bender Arena at American
University to endorse Obama. Caroline Kennedy evoked her
father. Senator Edward Kennedy’s slightly hunched form carried
with it the recent history of the Democratic Party….
“ ‘With Barack Obama, we will turn the page on the old politics
of misrepresentation and distortion,’ Senator Kennedy declared.
‘With Barack Obama, there is a new national leader who has
given America a different kind of campaign – a campaign not
just about himself, but about all of us,’ he said.”
Caroline Kennedy / New York Times
“Over the years, I’ve been deeply moved by the people who’ve
told me they wished they could feel inspired and hopeful about
America the way people did when my father was president. This
sense is even more profound today. That is why I am supporting
a presidential candidate in the Democratic primaries, Barack
Obama….
“Sometimes it takes a while to recognize that someone has a
special ability to get us to believe in ourselves, to tie that belief
to our highest ideals and imagine that together we can do great
things. In those rare moments, when such a person comes along,
we need to put aside our plans and reach for what we know is
possible.
“We have that kind of opportunity with Senator Obama….
“I have never had a president who inspired me the way people
tell me that my father inspired them. But for the first time, I
believe I have found the man who could be that president – not
just for me, but for a new generation of Americans.”
William Rees-Mogg / London Times
“If the Obama surge continues, we shall feel the effect of it in
British politics. JFK changed British politics as well as
American. I remember discussing this impact with Harold
Macmillan. Kennedy had created a cult of youth. Experience,
which had been an asset to a leader, became synonymous with
being an old fuddy-duddy….
“Youth, idealism, style are powerful political weapons. On
February 5, we shall see whether they have captivated America.
If they do, we shall find that they have captivated Britain as well.
Barack Obama could have a message for us all.”
Now for the reality check. As we come up to Super Tuesday,
Hillary has huge leads in the three biggest states that day,
according to the latest polls; New York, New Jersey and
California. Obama has leads in Illinois and Georgia. The full
impact of Edwards dropping out has yet to be calculated. So
even with the excitement generated by the South Carolina result
and the resultant crowds as Obama criss-crossed the country
these last few days, the reality is it could still be largely over
after Tuesday.
Which leads one back to the obvious. Do we really want two
Clintons in the White House?
Author/historian Garry Wills / New York Times
“Senator Hillary Clinton has based her campaign on experience –
35 years of it by her count. That must include her eight years in
the White House.
“Some may debate whether those years count as executive
experience. But there can be no doubt that her husband had the
presidential experience, fully. He has shown during his wife’s
campaign that he is a person of initiative and energy. Does
anyone expect him not to use his experience in an energetic way
if he re-enters the White House as the first spouse?
“Mrs. Clinton claims that her time in that role was an active one.
He can hardly be expected to show less involvement when he
returns to the scene of his time in power as the resident expert.
He is not the kind to be a potted plant in the White House.
“Which raises an important matter. Do we really want a plural
presidency?….
“One problem with the George W. Bush administration is that it
has brought a kind of plural presidency in through the back door.
Vice President Dick Cheney has run his own executive
department, with its own intelligence and military operations, not
open to scrutiny, as he hides behind the putative president.
“No other vice president in our history has taken on so many
presidential prerogatives, with so few checks. He is an example
of the very thing James Wilson was trying to prevent by having
one locus of authority in the executive. The attempt to escape
single responsibility was perfectly exemplified when his counsel
argued that Mr. Cheney was not subject to executive rules
because he was also part of the legislature.
“We have seen in this campaign how former President Clinton
rushes to the defense of presidential candidate Clinton. Will that
pattern of protection be continued into the new presidency, with
not only his defending her but also her defending whatever he
might do in his energetic way while she’s in office? It seems
likely. And at a time when we should be trying to return to the
single-executive system the Constitution prescribes, it does not
seem to be a good idea to put another co-president in the White
House.”
–Longtime New York Daily News Washington reporter Thomas
DeFrank had some thoughts on President Bush, his State of the
Union address, and his final year.
“His handlers have been saying for months that President Bush
intends to ‘sprint to the finish.’ Deep down, even those same
true believers know the only honest verb is ‘limp.’ That doesn’t
mean Bush is irrelevant in the final year of a turbulent
presidency. Far from it.
“While the national conversation is fixated on the nasty fight to
succeed him, Bush positioned himself last night as America’s
temporary steward, determined to deal with soaring energy
prices, the Middle East, economic jitters, border security and
terror threats he believes can’t be kicked down the road for
another 51 weeks.
“Bush thinks it’s precisely because he’s not a player in 2008 –
except for the drag his presidency may prove for GOP candidates
– that he can be more of an honest broker than at any time in his
tenure…..
“(But) unlike Ronald Reagan, whose final year was bathed in a
glow of personal affection and sense of national well-being,
Bush entered the House chamber last night amid dramatically
reduced circumstances.
“Some Presidents are gone but not forgotten; Bush isn’t gone,
but in a political sense is already forgotten.
“His approval ratings are roughly half what they were at his first
State of the Union address, about one-third of their post-9/11
peak. Republicans love his fund-raising prowess, but most
candidates seldom mention him. ‘Nobody’s paying attention to
him anymore,’ said a veteran of his 2000 presidential campaign.
“His ambitious laundry list of policy initiatives, mostly
repackaged old standards, is an illusion.
“ ‘I don’t think much is doable,’ one Bush political ally ventures.
‘He’ll win on Iraq and spending, but I don’t see anything else he
can get done.’
“The real purpose of this valedictory was legacy, not legislation.
The success of the surge in Iraq – which Bush has told friends is
now the point of departure for history’s more benign assessment
of an enormously unpopular war – has already stabilized his
presidency.
“The economic crisis, moreover, is an opportunity to rehab his
standing. Unlike Iraq or Hurricane Katrina, this mess can’t be
blamed on Bush. But he can help create a recovery, which could
be an important piece of Bush’s last campaign launched last
night – legacy-building.”
–Speaking of the State of the Union, I said the president
wouldn’t even mention Russia and China, which proved to be the
case, but I was a little surprised he didn’t say a word about North
Korea. Of course I’m most proud of my statement “As for
Laura, I’m guessing she wears red.” Bingo!
–Max Boot / New York Post
[On the latest ‘cut and run’ positions of Hillary and Obama in
Iraq, after being more realistic just last fall.]
“Imagine what would have happened in the Korean peninsula if
the U.S. and its allies had withdrawn all combat troops in 1955.
What are the odds that South Korea would have remained
independent? Probably no higher than the odds in South
Vietnam, where we did withdraw all combat troops in 1973.
Within two years the war was lost.
“A pell-mell rush out of Iraq would be likely to produce equally
catastrophic consequences. Obama and Clinton are both smart
people who have talked to enough hard-headed military officers
and security experts to realize that. But their ability to prevent a
disastrous outcome once in office will be greatly curtailed by the
ill-advised pledges they are now making.”
–John McCain has been aided by the fact the issue of illegal
immigration has taken a back seat to the economy. As opposed
to the 45 percent of Florida voters who had the economy as the
primary concern, only 16 percent now see illegal immigration as
being the top priority.
[For the record, I filed my absentee ballot in New Jersey for
McCain as I’ll miss the primary on Tuesday.]
–Ron Paul did make a trenchant point in the California debate
the other day…the president doesn’t control the economy.
–Chicago developer Antoin Rezko, responsible directly or
indirectly for $150,000 in campaign contributions to Barack
Obama, as well as a real estate investment partner, was jailed
after a judge revoked his $2 million bond due to concerns he was
a flight risk. Rezko is under indictment for extortion. Obama
has never been implicated in any wrongdoing.
–Scott P. and I want a McCain-Lieberman ticket, but not only
will this never happen, Rush would have a coronary if you even
breathed this in his company.
–Update: Detroit Mayor Kwame Kilpatrick’s chief of staff
resigned on Monday amid allegations she and the mayor lied
under oath about an affair, while the mayor, accompanied by his
wife, addressed the people of the city and the text messages that
implicated him on Wednesday. As the Detroit Free Press
reported, Kilpatrick “apologized repeatedly to residents,
supporters, opponents, his wife and his sons,” but he said
emphatically he will not resign.
“I would never quit on you, ever.” Oh brother. What a fraud.
–Senator Richard Lugar on combating WMD proliferation.
“The United States lacks even minimal confidence about many
foreign weapons programs. In most cases, there is little or no
information regarding the number of weapons or amounts of
materials a country may have produced, the storage procedures
they employ to safeguard their weapons or plans regarding
further production or destruction programs. We must pay much
more attention to making certain that all weapons and materials
of mass destruction are identified, continuously guarded and
systematically destroyed.
“As contradictions in American policy have emerged, confidence
in U.S. leadership on nonproliferation and arms control has
eroded and U.S. commitment is being questioned in foreign
capitals.” [Source: Global Security Newswire]
–On a related topic, “60 Minutes” had a terrific interview with
FBI agent George Piro, the man responsible for the interrogation
of Saddam Hussein. As the Wall Street Journal opined on
Friday, Saddam clearly admitted “He wanted to pursue all
WMD. So he wanted to reconstitute his entire WMD program.”
“In another telling moment in the ’60 Minutes’ interview, Mr.
Piro relates that when he asked Saddam about his use of
chemical weapons against Kurdish civilians, the dictator
acknowledged that he had given the orders personally and
explained himself in a word: ‘Necessary.’ The same still goes
for getting rid of Saddam.”
–“60 Minutes” reporter Lesley Stahl was the victim of a robbery
as a burglar posing as a construction worker broke into her Upper
West Side penthouse and made off with more than $100,000 in
jewelry and electronics. Ms. Stahl had several diamond watches
among her hoard.
Stahl wasn’t at home and I’m assuming the burglar acted during
the long commercial break after the second segment on the
program, which is also when I normally get some chores done.
–Ripped from the pages of Runner’s World, the fungus in
mushrooms is the best source of ergothioneine, an antioxidant
that fends off Alzheimer’s and diabetes. All mushrooms are also
high in selenium, which protects cells from UV light and air
pollution.
–Physicians suggest that if you have a history of heart trouble,
you need to take extra care of yourself during the Super Bowl.
Let’s say you have the Giants and 12 and New England is up 27-
10, late, and in the final minute the Giants are driving for a
meaningless touchdown, but have a fourth down on the 8 and
New England bats the last pass away, ensuring you’ve lost your
bet. Your chances of survival are slim.
–If the mailman appears to be late with your cocaine shipment,
it may have something to do with a seizure off the coast of
Liberia, 2.5 million tons of the stuff favored by Hollywood and the
single largest drug haul in the country’s history. As they used to
say on “Hee-Haw,” Saa-luute!
–Lastly, according to supercomputer simulations by Sandia
National Laboratory physicist Mark Boslough, “the asteroid that
destroyed the forest at Tunguska in Siberia in June 1908 had a
blast force equivalent to one-quarter to one-third of the 10- to 20-
megaton range scientists previously estimated.”
Ergo, the rock that hit and scorched 2,000 square kilometers was
not nearly as large as we had been told.
You should know that smaller asteroids approach the Earth three
times more frequently than large ones. So, according to Alan
Harris, a planetary scientist at Space Science Institute in Boulder,
Co., “The bottom line is it takes a lot less energy, a small
explosion, to create ground damage” such as that at Tunguska.
I’m sleeping with one eye open from here on.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $909
Oil, $89.03
Returns for the week 1/28-2/1
Dow Jones +4.4% [12743]
S&P 500 +4.9% [1395]
S&P MidCap +6.7%…not too shabby
Russell 2000 +6.1%…ditto
Nasdaq +3.8% [2413]
Returns for the period 1/1/08-2/1/08
Dow Jones -3.9%
S&P 500 -5.0%
S&P MidCap -4.1%
Russell 2000 -4.6%
Nasdaq -9.0%
Bulls 40.2
Bears 32.3 [Source: Chartcraft / Investors Intelligence]
I am off to Vegas for the entire week and will have something
next time from there, but it will be abbreviated. Put a bunch of
guys together who are collectively celebrating their 50th
birthdays this year and, well, you know the drill.
Have a great week. I appreciate your support.
Brian Trumbore
