[Posted 7:00 AM ET]
Wall Street
Rebecca O’Connor / London Times
“Mortgage borrowers unable to muster a big deposit have
become the latest victims of the credit crunch after Britain’s
biggest building society effectively shut its doors to all but the
most cash-rich buyers.
“Nationwide has told customers wanting a loan for more than 75
percent of a property’s value that they will pay higher rates of
interest to reflect the increased risks involved….
“Experts gave warning that the move would hit cash-strapped
first-time buyers the hardest and could be a sign of further
tightening of mortgage lending by other banks.”
That’s Britain. Here in the United States….
Dominic Rushe / London Times…from Cleveland, Ohio
“Look through squinted eyes and you can still see what once
attracted people to Cleveland’s Slavic Village.
“The area took its name from the Czech and Polish immigrants
who settled there in the mid-19th century to work the city’s wool
and steel mills. Its tree-lined streets and attractive, wood-framed
homes were once home to a community filled with factory
workers, young families and first-time homebuyers.
“Small pockets still have that family feel, but decline set in
during the 1980s as those jobs moved overseas and drug dealers
and violence moved in. The city authorities cracked down, local
people rallied round, and until a few years ago residents said life
in the village seemed to be improving again. Then came the
subprime debacle.
“Now Slavic Village looks as if it has been hit by a hurricane.
And this man-made disaster rivals hurricane Katrina when it
comes to displacing families. The 2005 storm displaced some
35,000 people in the worst-hit districts of New Orleans. Since
2003, 34,156 people have lost their homes to repossession in the
Cleveland area, according to Case Western Reserve University,
and the pace of those losses is accelerating. The new year is
barely two months old and so far there have been 1,857
foreclosures in the Cleveland area….
“Bins and rubbish (now) litter the streets (of Slavic Village).
Signs warn trespassers the structures are unsafe. People have
spray-painted ‘No copper’ or ‘No metal’ on their doors to deter
crooks who have stripped anything of value from these decaying
shells. Even brick steps have been ripped off, leaving houses
that look as if they are floating on a dark sea of garbage.
“Slavic Village is Ground Zero for a tragedy being repeated
across America.”
It’s sickening, and scary, what is happening in our country, but I
threw in the U.K. example because it further points out how truly
global the crisis is when it comes to housing and the unfolding
credit crunch.
This was a week here where there was a slew of news on this
front and it was all disastrous. The leading S&P Case-Shiller
index of 20 metropolitan housing markets revealed that prices
were down 8.9% in the fourth quarter vs. a year earlier, and are
now off 10.2% from the 2006 peak. January existing and new
home sales continued to plummet, with the median price on the
former off 4.6% year-over-year, and down a whopping 15% for
the latter. Meanwhile, inventories are still rising at a time when
you all know you can’t have a bottom until you begin to work
them off, and the ultimate indicator, foreclosures, also reflects a
further weakening; as in they were up 57% in January, with
Nevada the worst state and the Cape Coral-Ft. Myers, Fla., metro
area suffering the most.
The nation’s two largest mortgage finance companies, Fannie
Mae and Freddie Mac, reported losses of $3.2 billion and $2.45
billion for the quarter thanks to plummeting values on their
derivatives holdings tied to mortgages, while Newsweek had a
telling story on how lenders are turning off the spigot on home
equity loans, as in say your line of credit is $25,000 and you’ve
spent $10,000. Now some lenders are stepping in and saying
they will extend you no more. Only the $10,000. With moves
like this, it’s no surprise defaults on consumer, auto, and student
loans continue to rise at an accelerating pace.
CEO Robert Toll, of the homebuilder bearing his name, in
reporting the worst quarterly loss in its history, blamed the media
to a large extent for hawking fear. “Revived buyer confidence is
paramount to getting the market moving again,” Toll said.
But while no doubt the media is guilty of fanning the flames, the
truth hurts. Inflation (around the world), is a big issue, with a
dire reading on producer prices, the PPI, up 1.0% in January,
while readings on manufacturing, such as this week’s releases on
durable goods and the Chicago Purchasing Managers Index, were
dreadful. So is it any wonder then that two readings on
consumer confidence also came in at new, multi-year lows?
Just a note on global food prices, the UN’s World Food Program,
which is responsible for relieving hunger among the poor, can no
longer afford the volume of aid once given because of the rising
cost for agricultural commodities. You keep hearing how more
and more are entering the middle class, worldwide, but many of
these same folks (let alone the poor) are now being hit with
soaring prices for basic staples such as wheat and rice. The
director of the WFP, Josette Sheeran, said “We are seeing a new
face of hunger in which people are being priced out of the food
market.”
Back on 1/5/08, I wrote of the potential for food inflation and
“political combustibility” in countries such as Russia and China,
but you can talk of this just about anywhere these days. It’s the
developing world that is most at immediate risk as governments
are no longer able to deal with rising subsidies on everything
from food to fuel. Something has to give, so they raise prices on
one, or both. The people then, already barely scraping by, voice
their frustration and increasingly take it to the streets. This is
going to be a major theme the rest of the year, I suspect.
But what of our Federal Reserve? Chairman Ben Bernanke
appeared before the House and Senate for his semi-annual
testimony on the state of the economy and he left little doubt the
Fed’s main concern these days is to keep the economy from
sliding into recession, first, while fighting inflation is going to
have to take a backseat for now. Ergo, on March 18 the Fed will
slash rates yet again, at least 50 basis points (1/2 percent), even
though until just the past two days, reducing the short-term funds
rate (its primary vehicle) has had little, if any, impact on
reducing the yield on the key 10-year Treasury off which most
conventional mortgages are based. Coupled with the disconnect
between Treasuries and mortgage-backed securities due to the
credit crisis and illiquid markets, the rate on a 30-year mortgage
has risen, not what the Fed had sought by its actions.
But by week’s end, rates on Treasuries had come down across
the board in a flight to safety and mortgages, all else being equal,
should eventually follow. The problem when it comes to
reinvigorating the housing market, though, is that so few seem to
qualify for a conventional mortgage these days and those with
existing ones, seeking to refinance if rates fall, can’t because
more often than not they now have negative equity if they’ve
acquired their home in the past 3-4 years.
Back to Bernanke, he warned some small U.S. banks could
collapse in the current environment, but, fear not, no big ones! I
needn’t remind you this is the same man who last June was
saying, in his best Bart Simpson imitation, “No problemo!” when
asked about the extent of the subprime crisis. It is a national
embarrassment how clueless this man is, or perhaps to put it a
little more delicately, Stephen Stanley, economist at RBS
Greenwich Capital Markets and a former member of the
Richmond Fed staff, told Bloomberg “It really kind of scares me
that the Fed had no idea things were going to get worse,”
particularly in terms of liquidity in the credit markets.
Speaking of clueless, there is no bigger example of this than
President Bush, who was taken aback at his press conference
when a reporter suggested we might see $4-a-gallon gasoline.
“Wait, what did you just say? You’re predicting $4-a-gallon
gasoline? That’s interesting. I hadn’t heard that….I know it’s
high now.”
Josh P., out San Diego way, told me he paid $3.70 a gallon last
Sunday. Just a reminder, Mr. President. As you’re working
out, flip on CNBC and look at the gasoline futures contract. Say
you see $2.50. Now, Mr. President, tack on about 65-70 cents
for a national average at the pump. That takes you to $3.15-
$3.20. Some states are higher, some are lower, depending
mostly on taxes. ‘Huh,’ you might then muse. ‘We’re really just
one more spike away from $4.’
And since I brought up Josh, a managing director at a large
financial outfit, we’ve been exchanging notes on our various
markets and he wrote this week, “My office is in downtown San
Diego and I am staring out at two 200+ unit condo towers,
largely empty, as a massive 600-unit project is also going up.
The inventory is staggering.” I myself keep staring at the 75-unit
townhouse development down the block from me, just about
finished (at least the exterior), and not one ‘sold’ sign as yet. I
have nightmares of gangs of ghouls breaking in to steal copper in
my otherwise upper-middle class neighborhood. It could be time
to tie up some wolverines in the yard.
Street Bytes
–Stocks opened the week strong, though no one knew why, yet
finished in the red thanks to Friday’s drubbing…315 points in
the Dow Jones. AIG’s announcement it was taking an $11
billion hit on derivatives contracts tied to mortgages didn’t help
matters, while uncertainty over potential workouts with some of
the monoline insurers that have been in the news a lot recently
provided their own source of woe. Overall, the Dow fell 0.9% to
12266, while the S&P 500 lost 1.7% and Nasdaq gave up another
1.4%. The month of February represented the 4th straight month
of declines.
–U.S. Treasury Yields
6-mo. 1.81% 2-yr. 1.63% 10-yr. 3.52% 30-yr. 4.41%
Rates plummeted in the aforementioned flight to safety, as well as
on Bernanke’s comment the Fed will act in a “timely manner” to
combat a “sluggish” economy, i.e., more rate cuts.
There has been a lot of talk about the Fed’s moves and the
impact on the long end of the yield curve, so I’ll give you some
data you won’t find anywhere else….at least in such a simplistic
fashion.
6/29/06…Fed hikes the funds rate 25 bp to 5.25%…10-yr. 5.22%
9/18/07…Fed lowers funds rate 50 bp to 4.75%…10-yr. 4.50%
10/31/07…Fed lowers funds rate 25 bp to 4.50%…10-yr. 4.48%
12/11/07…Fed lowers funds rate 25 bp to 4.25%…10-yr. 3.98%
1/22/08…Fed lowers funds rate 75 bp to 3.50%…10-yr. 3.52%
1/30/08…Fed lowers funds rate 50 bp to 3.00%…10-yr. 3.78%
Today, the 10-yr. is back down to 3.52%, having touched 4.00%
intraday just a few weeks ago. It’s not the be all to end all, but
the 10-year must trade lower if a segment of the housing market
is to begin the bottoming process (while assuming the mortgage
securities market stabilizes in kind). But remember, once we
bottom, we sit there. No ‘U’- or ‘V’-shaped recovery, sports
fans. It will be like the end of a luge or bobsled run. You flatten
out, and stop, and look around…and think now what?
–For the record, the first revision on 4th quarter GDP came in at
0.6%, same as the initial estimate.
–A UBS analyst said the total volume of writedowns as a result
of the mortgage/derivatives crisis would be $600 billion. As of
today, about $160 billion has been taken.
–President Bush said with a straight face that a strong dollar
was in our nation’s best interest; this as the dollar plummeted to
another all-time low against the euro…$1.52. And the Fed is
only exacerbating the problem by continuing to cut rates, which
in turn is giving inflation a chance to get well-entrenched.
–The Journal had a big story on the commercial real estate glut
…in the U.K.
–Wheat on Monday had its highest one-day price rise ever, up
20%, on reduced supply due to extreme weather among the
leading producing nations, the lowest inventories in 60 years, and
tariffs on exports among some countries seeking to maintain
enough wheat for domestic consumption.
–Out of nowhere, Liechtenstein wormed its way into the
conversation as the result of a wide-ranging, and scandalous,
German investigation into tax evasion. Citizens of Sweden, the
U.S., the U.K., France, Italy, Spain, Canada, Australia and New
Zealand also have suspects that are getting swept up in the probe.
In Germany, more than 100 have already been questioned with
most then confessing they were hiding income in the little
principality. The data became available through an informant
inside Liechtenstein’s largest financial group, LGT, who then
turned it over to German intelligence. With the information now
being shared with the above noted countries, you have people
like U.S. Sen. Carl Levin offering that the bank “apparently
harbored numerous secret accounts which hid the taxable assets
of thousands” around the globe. In the case of Germany,
officials there are looking to recoup hundreds of millions of
euros, while Chancellor Angela Merkel is also pressuring another
principality under suspicion, that being Monaco.
–A trader for MF Global, the world’s largest broker of
exchange-traded futures and options, lost $141 million after he
somehow overrode the order-entry system and “substantially
exceeded” his limit in the wheat futures markets. He was
immediately terminated and sent flying out a fortieth-story
window.
–Ah, but $141 million is small potatoes to Sprint Nextel Corp.,
the third-largest wireless carrier, which posted a loss of $29.5
billion, along with scrapping its dividend, as it wrote down the
value of Nextel Communications, while in the process of losing
over 680,000 subscribers. It is the 5th-largest loss among S&P
500 companies since 1990 and the outlook is for more of the
same, as in subscribers continue to leave in droves.
–The European Union fined Microsoft $1.3 billion for charging
“unreasonable prices” to software developers who wanted to
make products compatible with the Windows operating system.
It’s the largest fine ever and brings the total amount the EU has
demanded of Microsoft in its antitrust dispute to $2.5 billion.
Last week, you’ll recall, in an attempt to beat back such an
action, Microsoft said it was opening up its source code.
On Thursday, Microsoft also announced it was cutting the price
of some versions of Windows Vista (only those sold in boxes),
by 20 to 48 percent. This comes as the company prepares Vista
Service Pack 1, a collection of security fixes.
Lastly, as the Wall Street Journal pointed out on Friday, it’s now
been one month since Microsoft made its $31 bid for Yahoo.
“It isn’t just that Microsoft’s own market value has declined
since it went public with the takeover offer. Analysts also have
been lowering their forecasts for Internet-advertising growth and
Yahoo’s earnings, according to FactSet Estimates, amid concerns
about the slowing U.S. economy.”
Check out Google, down about 15% over this time. As the
Journal correctly opines, Yahoo CEO Jerry Yang is an idiot (my
term, not theirs) for not grabbing Microsoft’s bid because sooner
rather than later, one must assume, Microsoft’s Steve Ballmer
will just walk away, at which point would he then pursue
German software king SAP, an idea floated by Randall Stross in
the New York Times?
–Four former executives of General Re Corp. and a former
executive of American International Group were found guilty of
a scheme to manipulate the financial statements of the world’s
largest insurance company. Four of them face up to 230 years in
prison and a fine of up to $46 million. The fifth faces 160 years.
The defendants were accused of inflating AIG’s reserves through
reinsurance deals by $500 million in 2000 and 2001 in order to
artificially boost the stock price.
–This isn’t good either. Workers are raiding their 401(k)s with
increasing frequency. 18% have loans outstanding vs. 11% in
2006. As Terry Keenan noted in the New York Post, Fidelity
Investments said withdrawals surged 17% in December alone,
the biggest jump on record.
–BMW has increased its layoffs from 2,500 to 8,100, or 7.5% of
its global workforce.
–New Jersey Dem. Gov. Jon Corzine called for a reduction in
state spending of $500 million in order to begin to tackle a
crippling budget crisis. I and all Republicans in my home state
give him credit for finally admitting this is a course we must
take, but it’s also symptomatic of the issues facing other
governors across the country, which means more layoffs and,
invariably, higher taxes of one sort or another.
–A British study has concluded that anti-depressants, such as
Seroxat and Prozac, have little clinical benefit, citing the placebo
effect; people simply feeling better because they are taking a
medication that they believe will help them. In England, the
number of prescriptions for the drugs hit a record in 2006, even
though guidelines stress they should not be used as a first line of
treatment for mild depression. [BBC News]
–The U.S. Air Force had 21 B-2 stealth bombers until last
Saturday, when one crashed after takeoff on the island of Guam,
a growing base of operations for the military. It was the first
crash for the plane since its introduction in 1989. The pilots
ejected safely. I only bring this up because the B-2 (and its B-52
stealth brother) cost about $1.2 billion each. That’s just
staggering, and one reason why some of us will consider Sen.
John McCain because I’m convinced he will take a look at all of
our weapons programs. We need the B-2, but the military
complex has a long, undistinguished history of cost overruns that
someone with credibility, such as McCain, has to attack.
[On Friday, the Pentagon awarded Northrop Grumman and
European Aeronautic Defense & Space Co. a $40-billion aerial
tanker contract for up to 179 planes, a deal that Boeing thought it
would get.]
–Spending on Medicare is expected to double by 2017 to $844
billion, up from $427 billion in 2007, according to the journal
Health Affairs.
–Update: Pfizer canceled its long-running ad campaign for
cholesterol drug Lipitor using artificial heart pioneer Robert
Jarvik. Pfizer spent more than $258 million since January 2006
promoting the world’s best-selling drug. The issue was Jarvik’s
credentials, for while he has a medical degree he is not a
cardiologist nor licensed to practice medicine. Plus he used a
stunt double in the commercial where he was rowing.
–Boy, the Oscars were once again dreadful, but those little gold-
plated guys cost $500 to make, vs. $400 last year, due to the
soaring price of the precious metal.
–Are you looking for an exciting job, but one that doesn’t pay
well until you hit the ‘senior’ level? Start taking flying lessons.
Hilary Potkewitz of Crain’s New York Business reports that
there is a severe pilot shortage, especially for regional carriers,
mostly due to factors such as extended tours of duty in Iraq and
Afghanistan, as well as a ton of pilots taking early retirement.
–Time doesn’t permit me to cover Warren Buffett’s annual letter
to Berkshire Hathaway shareholders. I have the same problem
each year because he releases the darn thing Friday evening and
I’m always too tired to do it justice. So next week, recognizing
you will have seen and heard it all by then.
Foreign Affairs
Iraq: Turkey announced it was ending its offensive against
Kurdish rebels, the PKK, after the U.S. had urged Ankara to limit
the invasion, while at the same time giving Turkey’s leadership a
wink of approval. Cooperation between the two has increased
substantially, a good thing.
Elsewhere, there is increased concern over the fate of the
northern Iraq city of Kirkuk, laden with oil, that is being fought
over by the Kurds, Arabs, and Turkmen. A referendum on the
status was to have been held years ago and is now scheduled
again for this coming June. The Turks (as well as Iraq and the
U.S.) are concerned that the majority Kurds would use the oil
wealth to then seek independence.
Afghanistan: The number of U.S. forces here will be at a record
level by mid-summer, some 32,000, as U.S. intelligence says
President Karzai controls only 30% of the country, with the
Taliban at about 10% and the remainder ruled by the tribal
warlords. These days, 40% of the proceeds from the drug trade
go to fund the insurgency.
Israel: Remember Annapolis? That seems so long ago as on the
ground the situation grows tenser by the day amid signs Israel is
preparing another massive invasion of Gaza, with a goal this time
of actual regime change. Hamas continued its rocket attacks this
week, killing an Israeli citizen, and Israel responded with one
strike after another that resulted in over 30 deaths, including six
children.
Iran: Danielle Pletka and Michael Rubin, in an op-ed in the Wall
Street Journal on International Atomic Energy Agency (IAEA)
Director General Mohamed ElBaradei and his latest report on
Iran’s nuclear activities that in essence whitewashes Tehran’s
record.
“Mr. ElBaradei’s report culminates a career of freelancing and
fecklessness which has crippled the reputation of the
organization he directs. He has used his Nobel Prize to cultivate
an image of a technocratic lawyer interested in peace and justice
and above politics. In reality, he is a deeply political figure,
animated by antipathy for the West and for Israel on what has
increasingly become a single-minded crusade to rescue favored
regimes from charges of proliferation.
“Mr. ElBaradei assumed the directorship on Dec. 1, 1997. On
his watch, but undetected by his agency, Iran constructed its
covert enrichment facilities and, according to the 2007 U.S.
National Intelligence Estimate, engaged in covert nuclear-
weapons design. India and Pakistan detonated nuclear devices.
A.Q. Khan, the Pakistani nuclear godfather, exported nuclear
technology around the world.
“In 2003, Libyan strongman Moammar Gadhafi confessed to an
undetected weapons effort. Mr. ElBaradei’s response? He
rebuked the U.S. and U.K. for bypassing him. When Israel
recently destroyed what many believe was a secret (also
undetected) nuclear facility in Syria, Mr. ElBaradei told the New
Yorker’s Seymour Hersh that it is ‘unlikely that this building was
a nuclear facility,’ although his agency has not physically
investigated the site.”
Russia: Dmitry Medvedev will roll to the presidency in Sunday’s
vote and the only question here is whether it’s 70 or 80 percent.
I still go with 70 and not the 71 that Vladimir Putin received in
2004.
Medvedev, who has done virtually zero actual campaigning once
he was handpicked by Putin to succeed him, has promised to
intensify the fight against corruption, cut red tape and encourage
small business; while towing the Putin line.
“I will feel obliged to continue the course which has proven its
efficiency over the past eight years: the course of President
Putin….We need political stability, we need to keep improving
people’s lives, develop the economy, ensure reliable protection
of Russia’s sovereignty and protect citizens’ freedoms,” Dmitry
told voters in one of the few places he gave a speech in.
What’s been funny for the press is watching Medvedev literally
morph into Putin, including his cadence and enunciation, which
is no real surprise since they have the same image makers. And
as one analyst told the Moscow Times, “By parroting Putin’s
speech, Medvedev is also reassuring voters that the relative
stability under Putin will continue after he leaves office.”
Medvedev traveled to Belgrade this week to show his support for
ally Serbia in its showdown over Kosovo’s declaration of
independence. Medvedev demanded the United States rescind its
recognition in warning “there will be no stability” until the “fake
state” is annulled.
Of course as will be the case over the next four to eight years,
Vladimir Putin is the one pulling the strings as he moves into the
office of prime minister. There are some, though, who say
Medvedev will develop his own independent voice as he tires of
being manipulated. I say this won’t be the case, but the bigger
issue will be whether Putin can control the various KGB (FSB)-
oriented factions that walk the halls of the Kremlin.
Meanwhile, Estonia’s president warned Russia is sliding into
dictatorship, citing the atmosphere at the time of the Weimar
republic, while on Friday, four Russian “Bear” bombers flew a
training mission over the Atlantic Ocean, a classic Cold War
tactic. But speaking of the Russian air force, for the first time
that anyone can recall, one of Russia’s arms customers is seeking
to return some product; specifically, Algeria, which wants to
send back 15 MiG-29 fighter jets, part of an $8 billion arms deal
sealed in 2006, because the shipment was deemed defective.
After Algerian officials discovered technical problems with the
first jets they took delivery of, they concluded the aircraft were
assembled with fuselages from used aircraft. [Nabi Abdullaev /
Defense News]
Kosovo: It was a quiet week here, though on Friday, Germany
announced it is sending more troops as part of a training exercise
that is also a demonstration of force in the face of Serbian
opposition. But this is a perfect example of what I’ve been
writing of for well over a year on this front. Kosovo will take
away from any hoped for increase in NATO’s presence in
Afghanistan. Germany, which has been loath to contribute more
troops to the Afghan effort, let alone put its men in harm’s way,
can now say ‘we are already stretched too thin.’
China: Foreign Minister Yang Jiechi expressed the sentiments of
all in government in speaking out against criticism over China’s
human rights record and the upcoming Olympic Games.
“People in China enjoy extensive freedom of speech. No one
will get arrested because he said that human rights are more
important than the Olympics. This is impossible. Ask 10 people
from the street to face public security officers and ask them to
say ‘human rights are more important than the Olympics’ 10
times or even 100 times, and I will see which security officer
would put him in jail.”
Much of the rest of the world, though, would choose to disagree;
that China’s pledge to improve its human rights record ahead of
the Games is bunk.
And in the drought-stricken northern part of the mainland, the
agency overseeing flood control and disaster relief has asked
local governments to draw up emergency plans to ensure water
supplies, the recent severe winter weather having largely missed
this region. Rivers continue to dry up and an estimated 2.43
million ( as well as 1.89 million cattle) are short on drinking
water. If the drought continues this could lead to increased
sandstorms, right around Olympics time.
As further evidence of China’s wide-ranging issues on the water
front, you have the story that 120 tons of phosphate-laced mud
was dumped on farmland in Yunnan province, contaminating the
water table. From the South China Morning Post:
“An official from (the Environmental Protection Bureau) said his
agency was alerted to the contamination on Sunday after
aquaculture farmers spotted dead fish in the water.”
Ergo, I have to issue another warning…do not buy fish labeled
“farm-raised in China.”
Lastly, China is studying scrapping its one-child policy due to a
rapidly aging population and the fact that the birth rate today
doesn’t match the replacement level of 2.1 needed to sustain the
population at existing levels. The flipside is, how much would
an increase in family size sap already sparse resources?
North Korea: I am ambivalent about the New York
Philharmonic’s historic performance in Pyongyang. On one
hand, it didn’t do any harm as I don’t believe Kim Jong-il can
hoodwink the rest of the world into thinking he can successfully
use this for propaganda purposes. But at the same time Kim
himself did not show up and the plain fact remains North Korea
has not lived up to its promise to fully declare all of its nuclear
activities, including details on the number of nuclear bombs
currently in its possession.
Separately, the Wall Street Journal had an interview with the
U.S. commander in South Korea, Gen. B.B. Bell, who points out
that at least 77% of South Koreans today support having U.S.
troops in their country and the new president is pro-American, a
positive change in sentiment that makes one somewhat hopeful
the North will still buckle under pressure down the road.
Kenya: Just two days after talks were suspended, Kenya’s rival
leaders agreed to share power. Former UN secretary general
Kofi Annan brokered a deal in which opposition leader Raila
Odinga will occupy a newly-created, and powerful, prime
minister position, with the cabinet being split between his party
and the government of President Mwai Kibaki. Perhaps, a real
reason for hope here.
Cuba: Last Sunday, the rubberstamp parliament confirmed
Fidel’s brother Raul Castro to be the island’s president, but
passed over reformer Carlos Laga for the No. 2 slot and gave it
to ideologue Jose Ramon Machado instead. Raul said he would
consult Fidel on all important issues until the end.
At a press conference on Thursday, President Bush was queried
on engaging with Raul. “Now is not the time to talk,” said Bush,
adding “having your picture taken with a tyrant such as Raul” is
not the right thing.
So I thought back to an interview on CNN that Nebraska Rep.
Sen. Chuck Hagel gave this past Sunday and here were his
thoughts on Cuba and engagement in general.
“On Cuba, I’ve said that we have an outdated, outmoded,
unrealistic, irrelevant policy. John Ashcroft and I in 1999 were
two of the first to offer amendments to begin engaging with
trade. It’s always been nonsensical to me about this argument,
well, it’s a communist country, it’s a communist regime. What
do people think Vietnam is? Or the People’s Republic of China?
Both of those countries are WTO members. We trade with them.
We have relations.
“Great powers engage. Great powers are not afraid. Great
powers trade.
“If we’re going to see any improvement in the Middle East, in
Central Asia, the two wars that we’re bogged down in right now,
we’re going to have to engage Iran.
“That doesn’t mean we give up our position, that we in any way
dilute our sovereignty, but in fact, Iran is going to have to be part
of any mix of any solution, certainly any peace settlement in the
Middle East.
“Are things getting better? I don’t think things are getting better.
I think things are getting worse. We’re not going to be able to
sustain the policies that we have in Afghanistan and Iraq. Right
now we own both of those countries.”
[Back to Cuba…..]
“I think there’s some steps before you get to President Bush
sitting down with Raul Castrol. And that’s where I think you
should start, for example, engaging with some trade. [Hagel then
pointed out that Nebraska has signed $70 million in contracts
with Cuba over the last three years.]
“Now that’s part of diplomacy. That’s part of reaching out.
That’s part of engaging. That’s part of improving our situation.
And I think that those are the things you need to do to start
building bridges to engage.
“When the appropriate time would be for the president, whether
it’s McCain or Obama….policies will dictate that.
“But the fact is a great nation like America should never be
afraid to engage. And the reality is until you engage, things will
only get worse. We’re in a battle of ideas.
“We’re not going to win in Afghanistan or Iraq to start with.
That’s never a win or lose thing. What will happen in Iraq, in
Afghanistan, will be determined by the people, the Iraqi people,
the Afghan people.
“Our military can play a role. They are. It is part of our arc of
our instruments of power. But so is diplomacy, so are alliances,
so are all the factors involved.”
I think Hagel’s comments are critically important as they frame
the debate over American foreign policy in the years ahead. I do
not agree with his stance on Iraq, necessarily, seeing as you’ll
recall he was against the surge, I sided with McCain and the
president, and we need more time to make it work. But on
engaging in general, I couldn’t agree more.
President Bush added in his press conference that engaging Cuba
would “discourage reformers inside their own country,” while
earlier he said the “stories from Cuba are unbelievably sad.” So I
say again, as I did last week, just what good has our existing
policy done in benefiting the Cuban people the past 50 years?
And carrying the argument to the Middle East, when Iran gets
the bomb, we’ll ask ourselves, why didn’t we try some real
diplomacy years earlier? Nixon went to China, Nixon and
succeeding U.S. presidents negotiated arms control agreements
with the Soviet Union during the height of the Cold War, all to
the good. Granted, each situation is different and I have never
said we should negotiate directly with Mahmoud Ahmadinejad,
for example, but the lack of creativity in the Bush White House
will haunt us for decades.
Random Musings
–Various opinions on Barack Obama. First up, Peggy Noonan /
Wall Street Journal.
“Are the Obamas, at bottom, snobs? Do they understand
America? Are they of it? Did anyone at their Ivy League
universities school them in why one should love America? Do
they confuse patriotism with nationalism, or nativism? Are they
more inspired by abstractions like ‘international justice’ than by
old visions of America as the city on a hill, which is how John
Winthrop saw it, and Ronald Reagan and JFK spoke of it?
“Have they been, throughout their adulthood, so pampered and
praised – so raised in the liberal cocoon – that they are
essentially unaware of what and how normal Americans think?
And are they, in this, like those cosseted yuppies, the Clintons?
“Why is all this actually not a distraction but a real issue?
Because Americans have common sense and are bottom line.
They think like this. If the president and his first lady are not
loyal first to America and its interests, who will be?….
“And there is a contest. So many Americans right now fear they
are losing their country, that the old America is slipping away
and being replaced by something worse, something formless and
hollowed out. They can see we are giving up our sovereignty,
that our leaders will not control our borders, that we don’t teach
the young the old-fashioned love of America, that the
government has taken to itself such power, and made things so
complex, and at the end of the day when they count up sales tax,
property tax, state tax, federal tax they are paying a lot of money
to lose the place they loved.
“And if you feel you’re losing America, you really don’t want a
couple in the White House whose rope of affection to the country
seems lightly held, casual, provisional….
“Michelle Obama seems keenly aware of her struggles, of what it
took to rise so high as a black woman in a white country. Fair
enough. But I have wondered if it is hard for young African-
Americans of her generation, having been drilled in America’s
sad racial history, having been told about it every day of their
lives, to fully apprehend the struggles of others. I wonder if she
knows that some people look at her and think ‘Man, she got it
all.’ Intelligent, strong, tall, beautiful, Princeton, Harvard, black
at a time when America was trying to make up for its sins and be
helpful, and from a working-class family with two functioning
parents who made sure she got to school.
“That’s the great divide in modern America, whether or not you
had a functioning family, and she apparently came from the
privileged part of that divide. A lot of white working-class
Americans didn’t come up with those things. Some of them
were raised by a TV and a microwave and love our country
anyway, every day.
“Does Mrs. Obama know this? I don’t know. If she does, love
and gratitude for the place that tries to give everyone an equal
shot would seem to be in order.”
Stephen Hayes / Wall Street Journal
[Hayes, a writer for the conservative The Weekly Standard, notes
it’s dangerous for Republicans to underestimate Obama.]
“Mr. Obama has the unique ability to offer doctrinaire liberal
positions in a way that avoids the stridency of many recent
Democratic candidates. That he managed to do this in the days
before the Iowa caucuses – at a time when he might have been
expected to be at his most liberal – was quite striking.
“His rhetorical gimmick is simple. When he addresses a
contentious issue, Mr. Obama almost always begins his answer
with a respectful nod in the direction of the view he is rejecting –
a line or two that suggests he understands or perhaps even
sympathizes with the concerns of a conservative.
“At Cornell College on Dec. 5, for example, a student asked Mr.
Obama how his administration would view the Second
Amendment. He replied: ‘There’s a Supreme Court case that’s
going to be decided fairly soon about what the Second
Amendment means. I taught Constitutional Law for 10 years, so
I’ve got my opinion. And my opinion is that the Second
Amendment is probably – it is an individual right and not just a
right of the militia. That’s what I expect the Supreme Court to
rule. I think that’s a fair reading of the text of the Constitution.
And so I respect the right of lawful gun owners to hunt, fish,
protect their families.’
“Then came the pivot:
“ ‘Like all rights, though, they are constrained and bound by the
needs of the community…So when I look at Chicago and 34
Chicago public school students gunned down in a single school
year, then I don’t think the Second Amendment prohibits us from
taking action and making sure that, for example, ATF can share
tracing information about illegal handguns that are used on the
streets and track them to the gun dealers to find out – what are
you doing?’
“In conclusion: ‘There is a tradition of gun ownership in this
country that can be respected that is not mutually exclusive with
making sure that we are shutting down gun traffic that is killing
kids on our streets. The argument I have with the NRA is not
whether people have the right to bear arms. The problem is they
believe any constraint or regulation whatsoever is something that
they have to beat back. And I don’t think that’s how most lawful
firearms owners think.’
“In the end, Mr. Obama is simply campaigning for office in the
same way he says he would operate if he were elected. ‘We’re
not looking for a chief operating officer when we select a
president,’ he said during a question and answer session at
Google headquarters back in December.
“ ‘What we’re looking for is somebody who will chart a course
and say: Here is where America needs to go – here is how to
solve our energy crisis, here’s how we need to revamp our
education system – and then gather the talent together and then
mobilize that talent to achieve that goal. And to inspire a sense
of hope and possibility.’
“Like Ronald Reagan did.”
William Kristol / New York Times [and editor of Mr. Hayes’
The Weekly Standard]
“John Kennedy, to whom Obama is sometimes compared,
challenged the American people to acts of citizenship and
patriotism. Barack Obama allows us to feel better about
ourselves.
“Obama likes to say, ‘we are the change that we seek’ and ‘we
are the ones we’ve been waiting for.’ Obama’s rhetorical skill
makes his candidacy appear almost collective rather than
individual. That’s a democratic courtesy on his part, and one
flattering to his followers. But the effectual truth of what Obama
is saying is that he is the one we’ve been waiting for.
“Barack Obama is an awfully talented politician. But could the
American people, by November, decide that for all his
impressive qualities, Obama tends too much toward the preening
self-regard of Bill Clinton, the patronizing elitism of Al Gore and
the haughty liberalism of John Kerry?
“It’s fitting that the alternative to Obama will be John McCain.
He makes no grand claim to fix our souls. He doesn’t think he’s
the one everyone has been waiting for. He’s more proud of his
country than of himself. And his patriotism has consisted of
deeds more challenging than ‘speaking out on issues.’”
Michael Bamberger / Sports Illustrated
“There’s something happening here. When Tiger Woods won
his first Masters, in 1997, most every story noted that he was the
first African-American to win at Augusta. Back then, the exotic
ancestral history of Woods – his black father, his Thai mother –
was an engaging subject. But now, with Tiger in our living
rooms one weekend after another, it hardly ever comes up.
Familiarity breeds comfort. We’ve moved on.
“And now, at warp speed and on a scale that dwarfs anything to
do with sport, something similar is happening with Barack
Obama. We know about his black father from Kenya and his
white mother from Kansas. But when you watch Obama in a
televised debate, or see him on the evening news, are you
thinking about his race? The man won Iowa! Zach Johnson, the
Masters champion, is from Iowa.
“So the question here in the toy department is this: Has Tiger
Woods – simply by conducting his business the way he does –
helped make the country more tolerant? And if you believe he
has, do you think Woods, in a way no CNN pie chart could ever
capture, has helped pave the way for Barack Obama? Dicuss.”
Lastly, an old friend Dan L. from my PIMCO days had the great
observation that it’s interesting to watch Obama defer at a debate
when a better answer is given. Brilliant, and very frustrating for
Hillary, notes Dan.
–There are some things that disturb me about John McCain. To
wit:
George Will / Washington Post
“In 2001, McCain, a situational ethicist regarding ‘big money’ in
politics, founded the Reform Institute to lobby for his agenda of
campaign restrictions. It accepted large contributions, some of
six figures, from corporations with business before the
Commerce Committee (e.g., Echosphere, DISH Netowrk,
Cablevision Systems Corp., a charity funded by the head of
Univision). The Reform Institute’s leadership included (Trevor)
Potter (general counsel of the McCain campaign) and two others
who are senior advisers…Rick Davis and Carla Eudy.
“Although his campaign is funded by lobbyists; and although his
dealings with lobbyists have generated what he, when judging
the behavior of others, calls corrupt appearances; and although
he has profited from his manipulation of the taxpayer-funding
system that is celebrated by reformers – still, he probably is
innocent of insincerity. Such is his towering moral vanity, he
seems sincerely to consider it theoretically impossible for him to
commit the offenses of appearances that he incessantly ascribes
to others.
“Such certitude is, however, not merely an unattractive trait. It is
disturbing righteousness in someone grasping for presidential
powers.”
And the other side. David Brooks / New York Times
“You wouldn’t know it to look at them, but political consultants
are as faddish as anyone else. And the current vogueish advice
among the backroom set is: Go after your opponent’s strengths.
So in the first volley of what feels like the general election
campaign, Barack Obama has attacked John McCain for being
too close to lobbyists. His assault is part of this week’s
Democratic chorus: McCain isn’t really the anti-special interest
reformer he pretends to be. He’s more tainted than his reputation
suggests.
“Well, anything is worth trying, I suppose, but there is the little
problem of his record. McCain has fought one battle after
another against lobbyists and special interests….[Brooks then
describes about seven specific examples.]
“Over the past few years, McCain has stepped up his
longstanding assault on earmarks. Every year, McCain goes to
the Senate floor to ridicule the latest batch of earmarks, and
every year his colleagues and the lobbyists fume. For years,
McCain has proposed legislative remedies – greater
transparency, a 60-vote supermajority requirement – that were
brutally unpopular with many colleagues until, suddenly, now.
“Over the course of his career, McCain has tried to do the
impossible. He has challenged the winds of the money gale. He
has sometimes failed and fallen short. And there have always
been critics who cherry-pick his compromises, ignore his larger
efforts and accuse him of being a hypocrite.
“This is, of course, the gospel of the mediocre man: to ridicule
somebody who tries something difficult on the grounds that the
effort was not a total success. But any decent person who looks
at the McCain record sees that while he has certainly faltered at
times, he has also battled concentrated power more doggedly
than any other legislator. If this is the record of a candidate with
lobbyists on his campaign bus, then every candidate should have
lobbyists on the bus.
“And here’s the larger point: We’re going to have two
extraordinary nominees for president this year. This could be one
of the greatest general election campaigns in American history.
The only thing that could ruin it is if the candidates become
demagogues and hurl accusations at each other that are an insult
to reality and common sense.”
–New York City Mayor Michael Bloomberg, in announcing he
will not run as an independent for president, said the following in
his New York Times op-ed.
“Watching the 2008 presidential campaign, you sometimes get
the feeling that the candidates – smart, all of them – must know
better. They must know we can’t fix our economy and create
jobs by isolating America from global trade. They must know
that we can’t fix our immigration problems with border security
alone. They must know that we can’t fix our schools without
holding teachers, principals and parents accountable for results.
They must know that fighting global warming is not a costless
challenge. And they must know that we can’t keep illegal guns
out of the hands of criminals unless we crack down on the black
market for them.
“The vast majority of Americans know that all of this is true, but
– politics being what it is – the candidates seem afraid to level
with them….
“The changes needed in this country are straightforward enough,
but there are always partisan reasons to take an easy way out.
There are always special interests that will fight against any
challenge to the status quo. And there are always those who will
worry more about their next election than the health of our
country.
“These forces that prevent meaningful progress are powerful, and
they exist in both parties. I believe that the candidate who
recognizes that the party is over – and begins enlisting all of us to
clean up the mess – will be the winner this November, and will
lead our country to a great and boundless future.”
–This is scary. There is a severe shortage of surgeons in rural
America. As Robert Davis of USA Today notes, the problem
goes back to a time when various advisory groups forecast a
surplus of physicians. So medical schools “voluntarily held
enrollment relatively constant at about 16,000 new students a
year. From 1980 to 2005, enrollment was flat while the U.S.
population grew by more than 70 million.”
But even as medical schools have recognized their mistake and
begun hiking enrollment, the problem is it takes three to seven
years to train doctors, at a time when the number of senior
citizens is booming, as are the number of aging physicians.
–Good news! Finally. The heavy snowfalls in the West should
go a long ways to alleviating the drought in some areas as the
snowpack is generally about 130% to 180% above normal. One
result is that some reservoirs should start filling up again. At
Lake Powell, for example, water levels are projected to rise 50
feet when the snowpack melts. We could, of course, go right
back into drought but this is an encouraging sign. [Alan Gomez /
USA Today]
–Sorry, back to bad news. Violence has returned as an issue in
many parts of the country. I was reading a piece by Tim
Reiterman in the Los Angeles Times, describing the movement
of gangs from the cities to the suburbs, and it’s just very
depressing, let alone it’s presenting a major crisis for the
communities.
One case in point was Fresno’s Bulldogs gang, which had 6,000
members…6,000!…before a series of crackdowns. So now they
are moving to neighboring Selma, a community of about 24,000
that has now seen five gang homicides the last three years. Plus,
to make matters worse, the Bulldogs adopted the menacing
mascot of Cal State Fresno’s athletic teams, so when confronted
by police, they say they are just fans.
Then you have the deal in Los Angeles on Wednesday, where a
gunman fired into a crowd of children and adults at a South L.A.
bus stop, wounding eight, including three girls ages 10 to 12.
Back on Feb. 21, there was a huge gunfight in broad daylight in
northeast L.A. between police and a well-entrenched gang. [A
suspect was later caught in the bus stop shooting…a member of
the Crips.]
L.A. had been making great progress on the crime front, but like
elsewhere in the country, violence is exploding and many
sociologists are voicing particular concern over the number of
inmates due to be released over the next five to ten years.
So it’s no wonder that L.A. Police Chief William Bratton is a bit
exasperated when it comes to a proposed city law that would
create a 20-yard ‘safety bubble’ around certain celebrities
targeted by paparazzi. As noted in the Star-Ledger the other day,
Bratton told a radio host in Pasadena he doesn’t need new laws;
what he needs is “Britney Spears to stay home….That would
solve the problem,” he said. “What you have is several young
women in this town and several young men who basically are
making fools of themselves and tying up not only my resources
but the resource of the media that would do better covering
legitimate stories instead of a bunch of airheads running around
out there.”
–And along the lines of the above, we learned via the Pew
Center on the States that the U.S. has the world’s highest
incarceration rate, 2.3 million adults, or one of every 99 out of a
total population of 230 million adults. Damn we’re good.
–But many of us are also idiots. The American Enterprise
Institute issued a report titled “Still At Risk: What Students
Don’t Know, Even Now,” a follow-up on a federal study 25
years ago, “A Nation at Risk.” The AEI report confirms high
schoolers still lack important historical cultural underpinnings.
To compound matters, the current focus on math and basic
reading skills is often ignoring the humanities.
1,200 17-year-olds were surveyed and it’s unbelievable that a
quarter couldn’t identify Adolf Hitler, only 43% knew the Civil
War was fought between 1850 and 1900, and only 60% could
place World War I between 1900 and 1950.
I saw some educator on the network news explain away the
results by saying the current generation of students is the
smartest ever and that such historical data points really didn’t
matter. I wanted to reach through the television and, well, we’ve
had enough violence for today.
–When I saw the story that Prince Harry has been fighting the
Taliban, I felt as proud of his service as much of Britain is. As
for the story being exposed, I could go on a rant but at least he
was able to live his dream for ten weeks.
–RIP, William F. Buckley Jr.
An editorial in the Wall Street Journal cited a debate in 1978
with the Gipper on the Panama Canal.
Reagan: “Well, Bill, my first question is why haven’t you
already rushed across the room here to tell me that you’ve seen
the light?”
Buckley: “I’m afraid that if I came any closer to you the force of
my illumination would blind you.”
“WFB found joy in everything, even in politics. ‘I have always
held in high esteem the genial tradition,’ he wrote. This
approach is now faded, and more in need in public life than ever.
Several generations of conservatives grew up (in more than one
sense) with Bill Buckley. Now they have – well, there is no one
like him….
“Buckley himself never lost his faith – in God, his country, the
obligation to engage in the controversies of the age, and the
wonders of the mind. His half-century at the center of the
American scene was a model of thoughtfulness and political
creativity that remains as relevant today, perhaps more so.”
Or as he addressed the Yale Political Union in 2006, his last
public appearance:
“Despair is inappropriate for a culture as buoyant as our own.”
It’s that culture, and our loss of a sense of history, that worries
me these days, Bill.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $975
Oil, $101.74
Returns for the week 2/25-2/29
Dow Jones -0.9% [12266]
S&P 500 -1.7% [1330]
S&P MidCap -1.6%
Russell 2000 -1.3%
Nasdaq -1.4% [2271]
Returns for the period 1/1/08-2/29/08
Dow Jones -7.5%
S&P 500 -9.4%
S&P MidCap -8.1%
Russell 2000 -10.4%
Nasdaq -14.4%
Bulls 42.0
Bears 36.4 [Source: Chartcraft / Investors Intelligence]
*If you’re a baseball and high school sports fan, and live in the
Summit, N.J. area, come to an event I’m sponsoring on
Thursday, March 6, at The Grand Summit Hotel, 570 Springfield
Ave., Summit; an evening with Willie Wilson. 7:00-9:00 pm.
Admission is free. I’d love to see you.
Have a great week. I appreciate your support.
Brian Trumbore
