[Posted 7:00 AM ET]
Wall Street
Kim Murphy / Los Angeles Times…Manchester, England.
“When Shirley Hale’s husband dumped her for a younger woman
and moved to the Czech Republic, Hale didn’t get mad. She got
a new house.
“After selling the family home in 2002, she bought a house in the
suburbs of this old industrial city in northern England and took
out a mortgage to fix it up. By last year, though, Hale had fallen
behind on the payments on her ‘gorgeous little place’ and was
looking at foreclosure – until a sales agent for a mortgage
‘rescue’ company stopped in.
“Hale signed over her house for $50,000 less than what it was
worth. In return, she says, she was told she could live in it as
long as she wanted if she paid the company $600 a month. Six
months later, Hale learned her home had been sold and the
mortgage transferred to one of Britain’s major subprime lenders.
Hale had 28 days to get out.
“ ‘I don’t even know who owns it now,’ Hale, 72, said wistfully
in an interview in the tiny public-housing apartment she lives in
now. ‘It’s empty still…The garden shed has been stolen, all my
built-in kitchen has been smashed to pieces, the wallpaper’s been
ripped off…They could have let me stay.’
“The American subprime mortgage crisis has received attention
worldwide, and European officials have been quick to blame lax
U.S. oversight of lenders for the international credit crunch that
has crippled banks and sent shock waves through the financial
markets. But Europe has its own burgeoning mortgage
meltdown – in Britain.”
Just a reminder, friends. From “Week in Review,” 4/2/05:
“Remember, the bubble isn’t just a U.S. story, it’s global;
whether we’re talking Britain, Spain, Australia, or China.”
Funny how years later some are still just getting this. I got a kick
out of a breathless CNBC reporter who came on this week to cite
a new research report from Tobias Levkovich of Citigroup who
was now talking of a global real estate bubble as a new risk. No
kidding, Sherlock.
By one indicator of the UK housing market, the average home
price is $466,000. Kim Murphy wrote of “modest three-bedroom
tract houses in the London suburbs going for $2.2 million at one
point.”
I know I’ve been beating a dead horse on this topic but it has
been, and continues to be, issue No. 1. The focus since August
may be on the credit crisis and mammoth writedowns in the
financial sector, but the Big Picture starts with the fact that the
chief asset of people in America, Britain, Spain, Australia, China
and everywhere in between has either peaked, and is now
crumbling, or is about to. Without the real estate bubble you
don’t have the other crises, plain and simple. And when your
prime asset is increasingly underwater (10.3 percent of all U.S.
homeowners, today, according to Moody’s Economy.com), this
is a growing number that will lead to severely reduced personal
consumption.
Take auto sales. You thought they were punk last year? By one
estimate they were down another 16% in the first 15 days of
February. No wonder GMAC is closing more than half of its
auto-financing offices in the U.S. and Canada, cutting at least
1,000 jobs, as auto delinquencies rise.
State budgets are also taking an increasing hit as property and
sales tax revenues begin to dry up. In New Jersey, Governor
Corzine is looking to eliminate 3,000 to 4,000 positions. Cuts in
college aid can also be expected around the country, on top of the
normal reductions in services found during most recessions.
But back to real estate, while in Africa, President Bush made the
following statement. “I think the economy is down because we
built too many houses.” That’s not totally inaccurate, but
coming from the man who at every opportunity was touting
home ownership, while not having a clue as to the quality of the
homebuyer, makes some of us want to scream. There are those
who say government was powerless to stop the madness, but
that’s a bunch of bull. Or rather that’s what the bully pulpit is
for, as I’ve argued in the past.
Economist Martin Feldstein, in an op-ed for the Wall Street
Journal.
“The current situation has the elements of a Catch-22: The credit
flows needed for economic expansion require confidence in the
values of existing financial assets, but market participants may
not have such confidence while the risk of recession hangs over
us.
“There is plenty of blame to go around for the current situation.
The Federal Reserve bears much of the responsibility, because of
its failure to provide the appropriate supervisory oversight for the
major money center banks. The Fed’s banking examiners have
complete access to all of the financial transactions of the banks
that they supervise, and should have the technical expertise to
evaluate the risks that those banks are taking. Because these
banks provide credit to the nonbank financial institutions, the
Fed can also indirectly examine what those other institutions are
doing.
“The Fed’s bank examinations are supposed to assess the
adequacy of each bank’s capital and the quality of its assets. The
Fed declared that the banks had adequate capital because it gave
far too little weight to their massive off balance-sheet positions –
the structured investment vehicles (SIVs), conduits and credit
line obligations – that the banks have now been forced to bring
onto their balance sheets. Examiners also overstated the quality
of banks’ assets, failing to allow for the potential bursting of the
house price bubble.
“The implication of this for Fed supervision policy is clear. The
way out of the current crisis of confidence is not. We can only
hope that those who predict nothing worse than a temporary
slowdown are correct.”
For now, though, the hits just keep on coming…to the balance
sheets, that is. How about Credit Suisse, for example. One week
after telling the world that its fourth quarter earnings would
reflect that it had avoided the worst of the subprime mess, CS
shocked the world with a $2.85 billion writedown as the result of
a few traders mispricing positions on the books. A UBS analyst
said that on top of the $150 billion already written off by the
financial sector to date, an additional $120 billion to $200 billion
was in the offing. Examples such as Credit Suisse’s mispricing
are particularly worrisome because everyone knows the practice
is widespread. I at least give them some credit for admitting it
had to be divulged now rather than to try and keep hoodwinking
shareholders while awaiting a hoped for recovery in asset values.
It was also a week where the likes of titan KKR had problems
repaying some short-term debt and a few hedge funds began to
acknowledge issues, and losses, of various shapes and sizes.
Then there’s inflation. The consumer price index for January
was up 0.4% for a second consecutive month and has now risen
4.3% over the past 12 months; 2.5% if you strip out food and
energy, though unfortunately you and I aren’t able to on a day-
to-day basis.
But while the Federal Reserve acknowledges there are growing
pricing pressures, market participants are convinced the Fed is
going to keep slashing interest rates to buck up the economy,
first, and worry about fighting inflation later if need be. After
all, the Fed cut its growth forecast for 2008 to 1.3% to 2.0%, this
as the European Commission was cutting the forecast for growth
in its own region to 1.8% from 2.2%, as inflation in the euro-
zone is running at 2.6%. This isn’t yet stagflation as we had in
the 1970s, but it wouldn’t surprise a lot of folks were we to
develop a milder version in the intermediate term.
Street Bytes
–Stocks were about to suffer a down week until literally in the
last half hour on Friday equities staged a strong rally on the heels
of a CNBC report that one of the struggling bond insurers,
AMBAC, was going to receive a bailout. Earlier, stocks had
struggled on growing recession fears as a reading on Philadelphia
area manufacturing came in particularly weak. In the end the
Dow Jones and S&P 500 eked out fractional gains while Nasdaq
still declined 0.8%.
–U.S. Treasury Yields
6-mo. 2.12% 2-yr. 2.02% 10-yr. 3.80% 30-yr. 4.58%
The yield curve flattened just a bit this week, though intraday
there was quite a bit of volatility with the 10-year at one point
approaching 4.00% on the poor inflation data before recovering
at week’s end. The Fed has been hoping that through their rate
cuts, yields would plummet across the board but they have no
control over the key mortgage rate, the 10-year, and that has been
rising; hardly a solution if you’re seeking to reinvigorate the
housing industry. [Plus you have the issue of more and more
existing homeowners losing equity and thus unable to refinance
even if they wanted to.]
–The British government stepped in to nationalize mortgage
lender Northern Rock in a highly controversial move; the first
such step to nationalize a company or industry since the
dreadful 1970s. Recall that last fall, Northern Rock suffered the
first bank run in the UK in over a century, forcing the
government to step in and guarantee deposits.
But then the Gordon Brown administration sought takeover
offers, received two, including one from Richard Branson’s
Virgin Group, only to then reject the bids and opt to continue to
subsidize Northern Rock with $100 billion in loans, and the
ongoing guarantees, as the government instead hopes to
revitalize it and then return the bank to the private sector at a
better price.
Not only are shareholders left penniless, though, with thousands
of employees also facing layoffs, but this is a huge gamble and
UK taxpayers could easily have to foot the bills down the road as
the whole mess ends up being a referendum on Brown and the
Labor Party itself.
–Inflation in China is running at a 7% clip, the highest in 11
years, thanks in no small part to disruptions caused by the recent
severe winter weather and soaring food and fuel prices.
–The subprime crisis reached into Australia & New Zealand
Banking Group, in what CEO Michael Smith said was a
“bloodbath” in debt markets due to derivatives linked in this case
to insurer ACA Capital.
–Us savers have seen our money market yields drop 0.6% in
the past two months. We’re being penalized for doing the right
thing, by god.
–By an 8-1 vote, the Supreme Court ruled that makers of
medical devices like implantable defibrillators are immune from
liability for personal injuries as long as the FDA approved the
device beforehand. Thousands of existing lawsuits against the
manufacturers could now be dismissed. Writing for the majority
in Riegel v. Medtronic, Justice Antonin Scalia said that allowing
state juries to impose liabilities on the maker of an approved
device “disrupts the federal scheme,” ‘under which the FDA has
the responsibility for evaluating the risks and benefits of a new
device and assuring that it is safe and effective for its intended
use.’ [Linda Greenhouse / New York Times]
–Societe Generale confirmed a record fourth-quarter loss of $4.9
billion due in no small part to the $7 billion trading scandal. But
regarding the rogue trader Jerome Kerviel, it’s increasingly clear
that others, at the least, should have known of the fraud, though a
report commissioned by SocGen said the opposite; that he acted
alone.
–Microsoft chairman Bill Gates said there was “nothing new” in
the Yahoo takeover process. “We’ve reinforced that we consider
(the original $31 price) a very fair offer.” Microsoft is
threatening to launch a proxy fight.
Separately, Microsoft said it was opening levels of the
company’s software, making it easier to create new products that
run or link to Microsoft’s designs. Many, such as the European
Commission, which has had a long-running battle with Microsoft
and its perceived monopolistic practices, are less than impressed.
–Google’s 10-K (annual report) reiterated it is “taking steps to
reduce accidental clicks.” Click-fraud.
–I got a kick out of GE’s regulatory filing that it has found more
accounting errors in various divisions in terms of how revenues
are recognized. The SEC has been investigating the behemoth’s
accounting since 2005. Of course during the bull run ending in
2000, GE was notorious for managing to ‘beat’ earnings
expectations by a penny every single quarter. The last few years
they have generally been meeting analyst estimates. Basically,
it’s all a joke.
–Sharper Image Corp. filed for bankruptcy protection and will
shed half of its 184 stores as it seeks a loan to stay in business
and restructure. It’s largely a matter of “tired” stores and the fact
that in a recession type environment, we don’t need the gadgets
Sharper Image peddles.
–New York developer Harry Macklowe, attempting to stave off
bankruptcy, has received at least three bids of $3 billion or more
for the iconic General Motors building in New York, which
would be a record for a single edifice in the U.S. Of course this
is totally absurd. As Jennifer Forsyth noted in the Wall Street
Journal, “the rents from the building barely pay the mortgage and
many of the tenants have long-term leases far below current
rates. Yet, the sales price jumps every time it changes hands.
‘Nobody ever made money owning the General Motors Building;
they only made money selling it,’ says Lawrence Russo,
president of a real-estate investment advisory firm.”
–Update: Regarding the cause of the British Airways Boeing 777
crash at Heathrow Jan. 17, a mechanical defect has been ruled
out, as were ice and birds. No one evidently has a clue what the
real cause was, which is equally unsettling.
–Chaohu lake, China’s fifth largest and one of the most polluted,
is employing 50,000 silver carp with, get this, another 1.55
million to be added shortly, in an effort to gobble up toxic blue
algae. But when the carp mature, fishermen are then allowed to
catch and sell them.
So here’s my take on this. If you see “Farm-raised carp from
China” at your local supermarket, take a pass.
–The U.S. Dept. of Agriculture ordered the largest beef recall in
U.S. history, four times the size of the previous record, as a result
of an animal-abuse investigation into Chino, California-based
Westland/Hallmark Meat Co. Undercover video from the
Humane Society showed crippled and sick animals (“downer
cows”) being shoved with forklifts and sprayed with water in an
effort to get them to walk into the slaughterhouse. Otherwise,
the meat isn’t supposed to find its way into the food chain.
Westmark is a leading provider of beef to school lunch programs
but there was no evidence consumers have gotten sick from the
product. The film itself was disgusting.
–Deflation Watch: Charles Schwab cut its online trading
commission to $8.95 from $9.95. Thanks, Chuck.
–Media giant Reed Elsevier is paying a staggering $4 billion for
personal data provider ChoicePoint. Anglo-Dutch Reed is
attracted by the prospects of selling ChoicePoint’s 19 billion
pieces of data to insurers, employers, and financial institutions.
–Charles K. and I exchanged some notes on a topic I brought up
a few weeks ago, the Internet disruptions in the Middle East and
South Asia caused by the severing of up to five key cables that
cross the Mediterranean, the cause of which has yet to be
determined. Was it terrorism? India’s Economic Times noted
“It provided a grim prospect of the Net being hostage to terrorist
attacks.” In reality cables could be severed by earthquakes,
submarines, or monster fish….OK, maybe not this last one.
But one expert told the Christian Science Monitor that “Cable
cuts happen on average once every three days” and are nothing
more than an inconvenience, with fishing boats being the most
common cause.
Perhaps the bigger issue, though, is the lack of redundancy.
Regardless, fundamental networks, including electronic banking,
are at increasing risk and maintenance of the networks is largely
in private hands so it would be easy to infiltrate them if you
wanted to wreak havoc…say as part of a wider-scale operation.
[This last bit is simply my own personal conclusion.]
–Martha Stewart Living Omnimedia acquired the rights to
Emeril Lagasse’s franchise of cookbooks, television shows and
kitchen products for $45 million in cash and $5 million in stock
at closing. The company didn’t acquire Emeril’s 11 restaurants.
Good for Emeril. You can’t help but love the guy.
–Zimbabwe’s inflation rate is now more than 100,000 percent,
“gaining 34,367 percentage points on the December rate of
66,213 percent,” according to the government. At least 80
percent of the people here live below the poverty line.
–My portfolio: I communicated with the CFO of the biodiesel
company in China last weekend following a negative piece in
Barron’s on one of their auditors, but the company opted not to
take my advice and issue some kind of statement. Frankly, I’m a
better troubleshooter than they are. Fourth-quarter earnings and
the annual report are due out shortly, however, and they’ve
assured me they will address it at that time. I see no reason to do
anything with my holdings.
But remember when I said I owned solar-power giant Suntech at
one point, buying at $31 and selling at $47, only to then see it
run up to $90? Shares in the company hit $35 this week on an
earnings miss, though the growth rate is still spectacular. My
remaining solar play pre-announced that it would not only
exceed expectations for its fourth-quarter, but that the outlook for
2008 remained strong as well, yet the market still took this one
out back and shot it. All hyper-growth industries go through
these phases but understand, solar is here to stay. You must,
however, go with the leaders, or in the case of my existing
holding, companies that have a technological advantage.
Foreign Affairs
Kosovo: I have been all over this one for well over a year,
including…
WIR…12/15/07
“I have said this is a flashpoint worth keeping your eye on…not
because it would be a market-moving event, but rather it would
sap resources from the war in Afghanistan. That is the import I
have yet to see anyone mention.”
WIR…12/29/07
“Kosovo will remain a big issue and could yet explode
depending on how far Russia wants to support its client Serbia.”
The Kosovar parliament declared independence last Sunday and
among those immediately recognizing the fledgling nation were
the U.S., UK, France and Germany. Others, such as Slovakia,
Spain and Cyprus have yet to do so due to fears that separatist
movements in their own countries could flare up as a result of
Kosovo’s move.
As for Russia, it is not necessarily a done deal that they will take
advantage of the renewed chaos to then actively support not just
Serbia, but separatist movements in Abkhazia and South Ossetia,
both of which broke off from Georgia in the 1990s. The leaders
of these two immediately said they would seek their own
independence, but Russian officials were less than welcoming of
the statements.
The Kremlin has long felt there was no need to change the UN
protectorate status going back to 1999 and the end of the
Yugoslav wars that claimed 10,000 lives in Kosovo alone. The
Western powers and the UN felt otherwise; that it was only fair
to protect the two million ethnic-Albanians in the province who
had been systematically persecuted, and worse, while Russia and
Serbia argue that by granting Kosovo its independence, 120,000
Serbs living there will become the new victims.
So on Thursday, during a mass rally in Belgrade, Serbian Prime
Minister Kostunica fanned the flames by proclaiming “As long
as we live, Kosovo is Serbia” and a few hundred drunken thugs
took it upon themselves to attack the U.S. embassy while Serbian
police were nowhere to be seen, a total outrage.
But in keeping with my own predictions over the past year, I
expect the violence to be mitigated thanks to the existing
presence of 16,000 NATO troops on the ground, with more
police and advisors on the way. This means, however, that, yes,
it will be sapping strength from Afghanistan; a fact I still don’t
hear anybody talking about. That’s why we need to focus on
Kosovo in keeping our eye on the real Big Picture. You
undoubtedly saw that over 130 were killed in two suicide attacks
in Afghanistan on consecutive days last week; the first of which
killed 100 and represented the single deadliest attack since the
invasion. From a political standpoint in the U.S., the Democrats
would be foolish not to admit successes in Iraq, but then pivot to
Afghanistan with credibility.
Iraq: In a somewhat surprising, yet positive, move on Friday,
Shia cleric Moqtada al-Sadr ordered a renewal of the ceasefire
his Mahdi Army militia has been observing the past six months;
a major reason why there has been such a significant drop in
violence amidst the surge of Gen. David Petraeus. Petraeus is
due to address Congress in April and Sadr’s apparent move can
lend credence to the general’s plans to withdraw more troops.
One other item. On Friday, Turkey launched a ground offensive
to root out Kurdish rebels, as is their right at this point, and
reportedly killed 24. It’s clear that military cooperation between
Ankara and Washington is once again on a strong footing after
the relationship suffered at the beginning of the Iraq war.
Iran: President Ahmadinejad renewed his despicable threats to
destroy Israel as the world community does nothing in response.
Hizbullah, meanwhile, issued its own warnings in the aftermath
of the assassination of Imad Mugniyeh, who it is now known was
killed by a headrest bomb.
But I noted with interest the opinions of two who are calling for
something that I long have, dialogue with Tehran.
Writing in the Wall Street Journal, Christopher Hitchens said we
should use the pretext of Iran’s exposure to catastrophic
earthquakes, such as 2003’s Bam quake, where “American
search-and-rescue teams performed prodigies of valor and skill
and became so popular locally that the news of their
achievements had to be hushed up by the regime’s less-than-
perfect censorship.”
Continuing, “Consider, then the ‘public diplomacy’ impact of a
serious public offer to Iran, made through international media
and from the podium of the United Nations. The U.S. could
propose the following: a commitment to help Iran protect its
centers of population and its key installations against an
earthquake. Along with the provision of expertise and advice
would come a request for inspections of key facilities, especially
those which might, if ruptured, pose a Chernobyl-type threat to
neighboring countries.
“At one stroke, this would make a strong appeal on a matter of
urgent material interest, to the general Iranian public. It would
point a contrast between our priorities and those of the regime.
And it would position us, before the fact, for something not
unlike the well-improvised post-tsunami operation mounted by
the U.S. Navy in Indonesia.”
Reuel Marc Gerecht of the American Enterprise Institute, in an
op-ed for the New York Times.
“For far too long, the United States has failed to wage a war of
ideas with the Iranian regime over the proposal that scares them
the most: the reopening of the American Embassy. Washington
has the biggest bully pulpit in the world, and we are faced with a
clerical foe that constantly rails against the intrusion of American
values into the bloodstream of Iranian society. There are
profound social, cultural and political differences among Iran’s
ruling elites, let alone between that class and ordinary Iranians.
Some of these differences could conceivably have a major effect
on the progress of Iran’s nuclear-weapons program. And the
way to make these differences increasingly acute is to apply
American soft and hard power.
“Ayatollah Khamenei needs to be put off balance, as he was in
1997 when Mr. Khatami unexpectedly tapped into a huge
groundswell of popular discontent and became president. What
we need now is a psychological repeat of 1997: a shock to the
clerical system that again opens Iran to serious debate.
“When dealing with the mullahs, it is always wise to follow the
lead of one of Iran’s most audacious clerical dissidents, former
Interior Minister Abdallah Nuri. In 1999, he mocked the regime
for its organic fear of the United States. Is the revolution’s Islam
so weak, he said, that it cannot sustain the restoration of relations
with the United States?
“It would be riveting in Tehran – and millions of Iranians would
watch on satellite TV – if Secretary of State Condoleezza Rice
challenged the regime in this way: Islam is a great faith; the
United States has relations with all Muslim nations except the
Islamic Republic; we have diplomatic relations with Hugo
Chavez and American diplomats in Havana. Why does the
Islamic Republic fear us so? Is the regime so fragile? President
Khatami repeatedly said that he wanted a ‘dialogue of
civilizations.’ The United States should finally say, ‘O.K., let’s
start.’
“If the Bush administration were to use this sort of diplomatic
jujitsu on the ruling clerics, it could convulse their world. No,
this is absolutely no guarantee that Tehran will stop, or even
suspend, uranium enrichment. But a new approach would
certainly put the United States on offense and Iran on defense.
We would, at least, have the unquestioned moral and political
high ground. And from there, it would be a lot easier for the next
administration, if it must, to stop militarily the mullahs’ quest for
the bomb.”
To me it’s always been about Diplomacy 101. Put Iran on the
record. I have advocated two steps the last two years. End-run
Ahmadinejad and talk to Rafsanjani (which neither Hitchens nor
Gerecht discuss) and, second, President Bush should accept
Tehran University’s invitation from last year (which I assume
still stands) to address the students. Again, of course
Ahmadinejad would forbid this, but what would have been
accomplished? It would put his regime on the record, obtain the
further backing of the West, and galvanize the students.
But without engagement, such as that suggested above, it is a
certainty in the eyes of your editor that Israel will have to launch
a preemptive strike on Iran’s suspected weapons facilities by
year end. Iran is ripe for revolution, but I’m afraid we have
missed our opportunity.
Pakistan: The late Benazir Bhutto’s Pakistan People’s Party
(PPP) finished first in the parliamentary voting as her husband,
Ali Zardari, takes control, while former prime minister Nawaz
Sharif’s PML-N captured second with President Musharraf’s
party a distant third. But as Zardari and Sharif, once bitter
enemies, formed a coalition, they still don’t have the two-thirds
needed in parliament to oust or impeach Musharraf. At least not
now. Other smaller parties may yet cross over to support the
majority.
Musharraf has thus far vowed not to resign, but one has to
wonder just how long he can hang on. At least for now he is
saying he “wants to avoid confrontation” and will gradually
“ease himself out” of politics “in a peaceful and civil manner.”
One thing is apparent, however, and that is the reinstatement of
Pakistan’s chief justice Chaudhry, whom Musharraf had fired
last year, thus precipitating the crisis. And a player who deserves
a lot of credit for the relatively peaceful election (considering it
was Pakistan) is Army Chief of Staff Gen. Kayani, who acted
responsibly throughout and gained the plaudits of U.S. Senator
Joe Biden, a witness to the vote.
But back to Zardari and Sharif, amidst all the glowing talk of an
emerging democracy in Pakistan, remember that these two (along
with Bhutto) were absolutely awful when they were previously in
power.
China: Bernard Cole, an expert on China’s Navy.
“ ‘Sinister’ may not be the right word, but I do think that China
wants to be the hegemon of East Asia. By that I mean that
Beijing aspires to be in a position where it can effectively –
through economic and diplomatic pressure, for the most part –
direct the course of events in the region that affect Chinese
interests. This will certainly impact U.S. allies and interests, but
it is the course of action we should expect China to take.”
Wendell Minnick of Defense News adds:
“Some say that China is reusing the strategy that it used over 20
years to marginalize Taiwan in the region and on the world stage:
financial incentives, gifts of aid and arms, and outright bribery.”
Analyst John Tkacik of the Heritage Foundation:
“Clearly, Washington…is allowing a laser-focused Beijing to
shape the strategic agenda in the Pacific,” Tkacik said, adding
that America’s democratic friends and allies in the Asia-Pacific
“watch with great anxiety America’s new willingness to accept
China’s new preeminence in the region.”
On a different issue, the recent breaking up of an alleged spy ring
by the U.S. Justice Department, Taiwanese authorities are
concerned China now has access “to the crypto/keying material/
algorithms that could allow Beijing to penetrate Taiwan and U.S.
networks.” [Wendell Minnick / Defense News]
And then you have the incredibly successful satellite shootdown
by the U.S. Navy. Congratulations, guys!
Oh, but China accused the United States of hypocrisy in
criticizing other nations’ space ambitions while rejecting a
proposed space treaty and firing a missile to destroy one of its
own.
“The United States will not easily abandon its military advantage
based on space technology, and it is striving to expand and fully
exploit this advantage.” [South China Morning Post]
Well, talk about a bunch of garbage, I can’t put it any better than
an editorial in the Wall Street Journal did, prior to the
shootdown.
“As early as today, the U.S. Navy will aim a ship-based SM-3
missile at a decaying satellite that is falling to Earth. The
missile’s make, the general location of the launch vehicle and the
target are all known – because the U.S. government has publicly
stated these facts. Still, the Chinese and Russian governments are
raising a fuss.
“Contrast this operation with what happened a year ago January,
when Beijing surprised the world by shooting down one of its
weather satellites in a test of its antisatellite capabilities. Not
only was the test unannounced, but it took China days to concede
that it had happened. Because the satellite was destroyed at an
altitude of approximately 850 kilometers, it left countless
hazardous particles drifting in orbit that could harm future space
flights.”
Russia: The presidential election is just a week away, March 2,
but in a scary reminder of where this nation might be headed,
Moscow has seen six fatal attacks on dark-skinned people in just
the past week, all in separate incidents. Last year, 42 of 1,101
killings were said to be racially motivated.
As for the election, some are saying that Dmitry Medvedev can’t
receive more than 71 percent of the vote because anything above
this would be an embarrassment to Putin, who was very proud he
garnered that figure in the 2004 election. No doubt Medvedev
will receive 80 percent, if the vote is tallied accurately, so if
we instead see 69 or 70, you know it was manipulated.
North Korea: Not for nothing, but zero is going on here in terms
of negotiations to completely end the country’s nuclear program
per previous agreements. It’s now basically March and
Pyongyang was to have provided a full declaration of all its
activities by the end of 2007. Kim Jong-il continues to play us
for chumps.
Africa: There is little to say about President Bush’s trip to
Tanzania, Benin, Ghana, Liberia and Rwanda except to note that
he deserves credit for his malaria and AIDS initiatives and the
pictures from the trip were nothing but positive in terms of
America’s image.
But obviously the continent remains awash in conflict, whether
it’s Kenya, Somalia, Sudan/Darfur, Congo or Zimbabwe.
Regarding the latter, there is a big election coming up March 29
and, finally, it would appear President Mugabe could meet his
end. Remember the name Simba Makoni, a finance expert who
had previously been in Mugabe’s cabinet and has now broken
ranks. He gets high marks from all.
As for Kenya, there was talk of a settlement between the two
leading factions and the creation of a prime minister post that
would go to the opposition, but we’ve learned to ‘wait 24 hours’
here. There was also a disturbing story that some of Kenya’s top
distance runners have been funding and organizing tribal gangs
involved in the worst violence in the Rift Valley; the region that
produces most of the nation’s elite athletes. Two have already
died in the violence.
Cuba: You’ve undoubtedly noticed I tend to list the countries for
this section of WIR in terms of their priority for the week, so my
ranking of Cuba down this far tells you everything about my
opinion of the announcement Fidel Castro was formally stepping
down.
Castro, 81, is turning power over to brother Raul, 76, who it is
expected will be anointed successor at a meeting of the national
assembly on Sunday. Will Raul take the path of a reformer?
Possibly. It can’t get much worse here. But my reading of the
situation says to follow No. 2, 56-year-old Carlos Laga, who is a
known reformer.
As for the U.S. embargo, which in terms of farm products was
dismantled back in 2000, it should of course be totally shelved,
following a face-to-face between President Bush and either Raul
or Carlos. Now ask me if that will happen this year? Of course
not. It’s an election year and the exile community in south
Florida (and Union City, N.J.) calls the tune. Otherwise, in
all honesty this issue bores the hell out of me because for the
better part of 50 years the United States has blown it. Ask
yourself just one question. By our policy of refusing to engage,
in what way did we better the lives of the Cuban people? Class
dismissed.
Mexico: I read two separate articles on Tijuana. The first said
tourism was down 90% due to the widespread drug violence.
According to a story in the L.A. Times, only 150 tourists show
up each day now. That was Sunday. Then on Wednesday I read
the following Reuters bit.
“Drug hitmen have killed a popular Mexican singer along with
his manager and assistant (in Tijuana)…The body of Jesus Rey
David Alfaro, known as ‘The Little Rooster,’ was one of six that
turned up tortured, murdered and pinned with threatening
messages for Mexico’s army.”
Turns out Little Rooster had ties to a rival drug cartel. I think I’ll
pass on a roadtrip to Tijuana over the coming year.
Random Musings
–Barack Obama made it ten in a row with decisive wins in
Wisconsin and Hawaii and we are rapidly approaching the end of
the road for the Clinton campaign. Hillary needs to win Ohio
and Texas, March 4, by 65-35 margins, it appears, to get back in
it and that just doesn’t seem in the least bit possible as Obama
rides a stunning wave of popularity. Those aren’t small crowds
he’s playing to, sports fans.
But before we get to some opinion on the Obama campaign, just
a note on Clinton via George Will / Washington Post.
“Nothing…will assuage Clinton supporters’ sense of injustice if
the upstart Obama supplants her. Their, and her, sense of
entitlement is encapsulated in her constant invocations of her ‘35
years’ of ‘experience.’ Well.
“She is 60. She left Yale Law School at age 25. Evidently she
considers everything she has done since school, from her years at
Little Rock’s Rose Law Firm to her good fortune with cattle
futures, as presidentially relevant experience.
“The president who came to office with the most glittering array
of experiences had served 10 years in the House of
Representatives, then became minister to Russia, then served 10
years in the Senate, then four years as secretary of state (during a
war that enlarged the nation by 33 percent), then was minister to
Britain. Then, in 1856, James Buchanan was elected president
and in just one term secured a strong claim to being ranked as
America’s worst president. Abraham Lincoln, the inexperienced
former one-term congressman, had an easy act to follow.”
But this week Hillary went after Barack when it was discovered
that Obama had lifted a stirring passage from a speech given by
Massachusetts Governor Deval Patrick, a close friend of
Obama’s, two years ago, saying it raised “fundamental
questions” about the integrity of Obama’s campaign.
First off, this is frankly the kind of issue writers such as yours
truly face all the time. I sometimes get criticism for my use of
lengthy quotes but, one, I want to make sure the author is
properly credited and, two, often I feel obligated to supply the
full context. We all have good original thoughts, but I have a
pretty simple rule. Give proper credit if the idea isn’t totally my
own. I used to do a lot of public speaking in my old Wall Street
job and a presentation isn’t diminished in the least when you
acknowledge where your supposed brilliance came from.
But then you had Michelle Obama’s statement before a large
crowd that “for the first time in my adult life, I am really proud
of my country.”
Now I’m not going to go off on a Limbaugh-esque rant on this
one. I have my ’24-hour rule,’ after all. But Michelle and her
staff did wait far too long to set the record straight, which brings
up another point of mine when speaking in public. Everyone
makes mistakes, of all kinds, but you should also be able to
recognize them immediately and correct them. [A problem I’ve
always had with President Bush, by the way.] But if someone as
intelligent as Michelle Obama couldn’t recognize her mistake in
judgment with that line and correct the record at once, one can’t
help but wonder just what the heck she meant? It certainly
wasn’t the explanation she later gave, that “For the first time in
my lifetime, I’m seeing people rolling up their sleeves in a way
that I haven’t seen.”
Needless to say John and Cindy McCain weighed in, with the
senator saying “I owe America more than she has ever owed me.
I have been an imperfect servant of my country for many years.
I have never lived a day, in good times or bad, that I haven’t
been proud – proud – of the privilege.” Cindy said, “I’m proud
of my country. I don’t know about you, if you heard those words
earlier, I’m very proud of my country.”
Barack Obama, in defending his wife, said: “What she meant
was, this is the first time that she’s been proud of the politics of
America.”
But there are other issues of more import when it comes to the
Obama candidacy.
Editorial / Washington Post
“At his best, Sen. Barack Obama is a tribune of hope, an
eloquent politician-prophet who unabashedly calls on Americans
to remember that ‘we rise or fall as one nation.’ He is the
Democratic Party’s presidential front-runner today in part
because, to many people, he forthrightly identifies the country’s
problems but in a language of hope, optimism and generosity.
“And then there are moments like last Wednesday (2/13), when
Mr. Obama truck some unusually sour notes in what was billed
as a major economic policy address. Yes, there were the
trademark invocations of ‘shared sacrifice and shared
prosperity.’ But Mr. Obama’s remarks were also tinged with an
angrier, and intellectually sloppier, message. We thought we’d
heard the last of class warfare and populism when former North
Carolina senator John Edwards finally bowed out of the race. In
his speech, Mr. Obama quoted Mr. Edwards approvingly; he then
echoed him in implying that he could pay for new domestic
programs with an immediate U.S. withdrawal from Iraq and in
exaggerating the ‘millions’ of job losses attributable to trade
agreements. Mr. Obama even seemed to draw a line connecting
the current subprime mortgage crunch to ‘decades of trade deals
like NAFTA and China.’
“These simplifications might help Mr. Obama beat out Sen.
Hillary Rodham Clinton for the dubious prize of an Edwards
endorsement. They might play well in Ohio, where foreclosures
are rampant, some plants have shut because of international
competition – and the Democrats hold a crucial primary on
March 4. But they are not worthy of a candidate whose past
speeches and writings demonstrate that he understands the
benefits of free trade. ‘I won’t stand here and tell you that we
can – or should – stop free trade,’ Mr. Obama declared, candidly,
then quickly promised that ‘I will not sign another trade
agreement unless it has protections for our environment and
protections for American workers.’ It’s not clear what he means
by this.”
Gerald Seib / Wall Street Journal
“Here’s the rub: As anyone who has listened to Sen. Obama
knows, the substance of policy positions takes a decided back
seat to the more ephemeral ideas of hope and inspiration when he
addresses voters. The basic Obama argument is that America
can solve its problems, that the country can transcend partisan
divides, that Washington can overcome gridlock and that he, as a
new leader unbound by the debates of the past 20 years, is the
one who can make all those things happen.
“The beauty of this Obama approach, aside from its presenter’s
impressive oratorical skills, is that it is so in tune with the mood
of many Americans, who seem to want both to be inspired and to
leap beyond partisanship.
“The risk, though, is that rhetoric that is light on substance might
fail to unite voters in either party or the country behind specific,
often difficult, steps a new president would have to take.
Campaigns are for winning – and for building a consensus on
what is to be done after the victory.
“In this case, is Sen. Obama building a case for renegotiating the
North American Free Trade Agreement, or for ending it? Is
withdrawing troops from Iraq within 16 months a goal or a
deadline? They are significant questions, and Sen. Obama’s task
is to be sure his campaign is shedding light on the answers.”
Robert Samuelson / Washington Post
“As a journalist, I harbor serious doubt about each of the most
likely nominees. But with Sens. Hillary Clinton and John
McCain, I feel that I’m dealing with known quantities. They’ve
been in the public arena for years; their views, values and
temperaments have received enormous scrutiny. By contrast,
newcomer Obama is largely a stage presence defined mostly by
his powerful rhetoric. The trouble, at least for me, is the huge
and deceptive gap between his captivating oratory and his actual
views….
“If you examine his agenda, it is completely ordinary, highly
partisan, not candid and mostly unresponsive to many pressing
national problems.
“By Obama’s own moral standards, Obama fails. Americans ‘are
tired of hearing promises made and 10-point plans proposed in
the heat of a campaign only to have nothing change,’ he recently
said. Shortly thereafter he outlined an economic plan of at least
12 points that, among other things, would:
“Provide a $1,000 tax cut for most two-earner families ($500 for
singles).
“Create a $4,000 refundable tuition tax credit for every year of
college.
“Expand the child-care tax credit for people earning less than
$50,000 and ‘double spending on quality after-school programs.’
“Enact an ‘energy plan’ that would invest $150 billion in 10
years to create a ‘green energy sector.’
“Whatever one thinks of these ideas, they’re standard goody-bag
politics: something for everyone. They’re so similar to many
Clinton proposals that her campaign put out a news release
accusing Obama of plagiarizing. With existing budget deficits
and the costs of Obama’s ‘universal health plan,’ the odds of
enacting his full package are slim.
“A favorite Obama line is that he will tell ‘the American people
not just what they want to hear but what we need to know.’
Well, he hasn’t so far. Consider the retiring baby boomers. A
truth-telling Obama might say: ‘Spending for retirees – mainly
Social Security, Medicare and Medicaid – is already nearly half
the federal budget. Unless we curb these rising costs, we will
crush our children with higher taxes. Reflecting longer life
expectancies, we should gradually raise the eligibility ages for
these programs and trim benefits for wealthier retirees. Both
Democrats and Republicans are to blame for inaction. Waiting
longer will only worsen the problem.’
“Instead, Obama pledges not to raise the retirement age and to
‘protect Social Security benefits for current and future
beneficiaries.’ This isn’t ‘change’; it’s sanctification of the
status quo….
“(Obama) has run on the vague promise of ‘change,’ but on issue
after issue – immigration, the economy, global warming – he has
offered boilerplate policies that evade the underlying causes of
the stalemates. These issues remain contentious because they
involve real conflicts or differences of opinion.
“The contrast between his broad rhetoric and his narrow agenda
is stark, and yet the media – preoccupied with the political ‘horse
race’ – have treated his invocation of ‘change’ as a serious idea
rather than a shallow campaign slogan. He seems to have
hypnotized much of the media and the public with his eloquence
and the symbolism of his life story. The result is a mass delusion
that Obama is forthrightly engaging the nation’s major problems
when, so far, he isn’t.”
But then there’s John McCain and the New York Times story
that insinuated he had an affair with a lobbyist, Vicki Iseman,
eight years ago. Almost all of the innuendo came via anonymous
sources and much of the story had already been vetted during the
2000 campaign as McCain released documents concerning his
dealings with Iseman, who represented a number of telecom
interests at that time; issues that came before McCain’s
commerce committee. McCain’s campaign said of the story,
“It’s a shame that the New York Times has chosen to smear John
McCain like this.” McCain then stepped forward on Thursday
morning and denied all the charges.
Yet this is another classic case of ‘wait 24 hours.’ My campaign
donation dollars have gone to the senator, but I am not blind. I’ll
weigh all the evidence that develops, if any, and form a further
opinion at that time like any fair-minded American. For
example, there is a story in the Washington Post this morning
that could prove a little troubling for McCain regarding past
communications with “Bud” Paxson and efforts on his behalf
before the FCC. [I haven’t had time to read the whole piece,
however.]
But I do have to add I thought the real beneficiary this week of
the closer scrutiny Obama is beginning to receive, along with
McCain’s issue, was New York Mayor Michael Bloomberg,
should he still decide in the next month or two to make a go of it
because he sees the other two stumbling.
–I watched New York Yankees pitcher Andy Pettitte’s press
conference the other day where he apologized for his use of
HGH, and I have to note that at one point he interjected a plea for
parents to make sure their kids riding ATVs, all-terrain vehicles,
wear a helmet; Pettitte’s son having suffered a serious injury as a
result of not having done so. Earlier I had read a piece in the
Anchorage Daily News on this subject. In 2006, at least 555
people – including more than 100 children – died in ATV
accidents and this number will rise as government safety officials
get more accurate information from coroners and hospitals.
Since 1982, Pennsylvania has had the highest number of reported
ATV deaths, 420, and the Consumer Product Safety Commission
said the trend is for more than 800 deaths per year. The CPSC
also notes that in 60 percent of the fatal accidents, riders were not
wearing helmets.
–Did you read any of the comments Mohammed al-Fayed made
at the inquest into the deaths of Princess Diana and his son Dodi?
I’d kick him out of the country for such blasphemy.
–I loved this op-ed from Susan Jacoby in the Washington Post
on “The Dumbing of America.”
“Dumbness, to paraphrase the late senator Daniel Patrick
Moynihan, has been steadily defined downward for several
decades, by a combination of heretofore irresistible forces.
These include the triumph of video culture over print culture
(and by video, I mean every form of digital media); a disjunction
between Americans’ rising level of formal education and their
shaky grasp of basic geography, science and history; and the
fusion of anti-rationalism with anti-intellectualism.
“First and foremost among the vectors of the new anti-
intellectualism is video. The decline of book, newspaper and
magazine reading is by now an old story. The drop-off is most
pronounced among the young, but it continues to accelerate and
afflict Americans of all ages and education levels….
“The shrinking public attention span fostered by video is closely
tied to the second important anti-intellectual force in American
culture: the erosion of general knowledge.
“People accustomed to hearing their president explain
complicated policy choices by snapping ‘I’m the decider’ may
find it almost impossible to imagine the pains that Franklin D.
Roosevelt took, in the grim months after Pearl Harbor, to explain
why U.S. armed forces were suffering one defeat after another in
the Pacific. In February 1942, Roosevelt urged Americans to
spread out a map during his radio ‘fireside chat’ so that they
might better understand the geography of battle. In stores
throughout the country, maps sold out; about 80 percent of
American adults tuned in to hear the president. FDR had told his
speechwriters that he was certain that if Americans understood
the immensity of the distances over which supplies had to travel
to the armed forces, ‘they can take any kind of bad news right on
the chin.’
“This is a portrait not only of a different presidency and president
but also of a different country and citizenry, one that lacked
access to satellite-enhanced Google maps but was far more
receptive to learning and complexity than today’s public.
According to a 2006 survey by National Geographic-Roper,
nearly half of Americans between ages 18 and 24 do not think it
necessary to know the location of other countries in which
important news is being made. More than a third consider it ‘not
at all important’ to know a foreign language, and only 14 percent
consider it ‘very important.’
“That leads us to the third and final factor behind the new
American dumbness; not lack of knowledge per se but arrogance
about that lack of knowledge. The problem is not just the things
we do not know (consider the one in five American adults who,
according to the National Science Foundation, think the sun
revolves around the Earth); it’s the alarming number of
Americans who have smugly concluded that they do not need to
know such things in the first place. Call this anti-rationalism – a
syndrome that is particularly dangerous to our public institutions
and discourse. Not knowing a foreign language or the location
of an important country is a manifestation of ignorance; denying
that such knowledge matters is pure anti-rationalism. The toxic
brew of anti-rationalism and ignorance hurts discussions of U.S.
public policy on topics from health care to taxation.
“There is no quick cure for this epidemic of arrogant anti-
rationalism and anti-intellectualism; rote efforts to raise
standardized test scores by stuffing students with specific
answers to specific questions on specific tests will not do the job.
Moreover, the people who exemplify the problem are usually
oblivious to it….It is past time for a serious national discussion
about whether, as a nation, we truly value intellect and
rationality. If this indeed turns out to be a ‘change election,’ the
low level of discourse in a country with a mind taught to aim at
low objects ought to be the first item on the change agenda.”
Amen.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $945
Oil, $98.81…closed above $100 Tues./Wed.
Returns for the week 2/18-2/22
Dow Jones +0.3% [12381]
S&P 500 +0.2% [1353]
S&P MidCap +0.7%
Russell 2000 -0.9%
Nasdaq -0.8% [2303]
Returns for the period 1/1/08-2/22/08
Dow Jones -6.7%
S&P 500 -7.8%
S&P MidCap -6.7%
Russell 2000 -9.2%
Nasdaq -13.2%
Bulls 41.6
Bears 33.7 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
