[Posted 7:00 AM ET]
Wall Street
It was another ugly week, though bookended nicely by Monday’s
assessment of the economy by Warren Buffett, that the U.S. is in
recession by “any common sense definition,” and Friday’s
release of the February employment figures revealing a second
consecutive month of job losses. While we have to wait for
further data to make it official, Mr. Buffett is right.
Stephen S. Roach / New York Times
“The United States is now going through its second post-bubble
downturn in seven years. Yet this one stands in sharp contrast to
the post-bubble shakeout in the stock market during 2000 and
2001. Back then, there was a collapse in business capital
spending, a sector that peaked at only 13 percent of real gross
domestic product.
“The current recession has been set off by the simultaneous
bursting of property and credit bubbles. The unwinding of these
excesses is likely to exact a lasting toll on both homebuilders and
American consumers. Those two economic sectors collectively
peaked at 78 percent of gross domestic product, or fully six times
the share of the sector that pushed the country into recession
seven years ago.
“For asset-dependent, bubble-prone economies, a cyclical
recovery – even when assisted by aggressive monetary and fiscal
accommodation – isn’t a given. Over the past six years, income-
short consumers made up for the weak increases in their
paychecks by extracting equity from the housing bubble through
cut-rate borrowing that was subsidized by the credit bubble.
That game is now over.”
Robert J. Samuelson / Washington Post
“Gloom. Doom. Calamity. Home prices are tumbling. We’re
bombarded by somber reports. But wait. This is actually good
news, because lower home prices are the only real solution to the
housing collapse. The sooner prices fall, the better. The longer
the adjustment takes, the longer the housing slump (weak sales,
low construction, high numbers of unsold homes) will last….
“Even many economists – who should know better – describe the
present situation as an oversupply of unsold homes. True, there
is about 10 months’ supply of existing homes as opposed to four
months’ a few years ago. But the real problem is insufficient
demand. There aren’t more homes than there are Americans who
want homes; that would be a true surplus. There’s so much
supply because many prospective customers can’t buy at today’s
prices.
“By definition, the ‘housing bubble’ meant that home prices got
too high. Easy credit, lax lending standards and panic buying
raised them to foolish levels. Weak borrowers got loans. People
with good credit borrowed too much. Speculators joined the
circus.
“Look at some numbers from the National Association of
Realtors. From 2000 to 2006, median family income rose almost
14 percent, to $57,612. Over the same period, the median-
priced existing home increased about 50 percent, to $221,900.
By other indicators, the increase was even greater.
“But home prices could not rise faster than incomes forever.
Inevitably, the bust arrived. Credit standards have been
tightened, and the (false) hope of perpetually rising home prices
– along with the possibility of always selling at a profit – has
evaporated. For many potential buyers, prices have to drop for
housing to become affordable.”
What to do? Samuelson:
“The Treasury has organized voluntary efforts. Some measures
being considered by Congress might help. But other proposals –
particularly empowering bankruptcy judges to reduce mortgages
unilaterally – would perversely hurt the housing market by
raising the cost of mortgage credit. Lenders would increase
interest rates or down payments to compensate for the risk that a
court might modify or nullify their loans.
“The understandable impulse to minimize foreclosures should
not be a pretext to prop up the housing market by rescuing too
many strapped homeowners. Though cruel, foreclosures and
falling home values have the virtue of bringing prices to a level
where housing can escape its present stagnation. Helping
today’s homeowners makes little sense if it penalizes tomorrow’s
homeowners. An unstoppable free-fall of prices seems
unlikely. Slumping home construction and sales have left much
pent-up demand. What will release that demand are affordable
prices.”
Wolfgang Munchau had a piece in the Financial Times that
reminds us of the nature of the global housing bubble.
“The twin engines of the coming Spanish economic crisis are a
collapsing housing market and a current account deficit, now at
10 percent of gross domestic product. The two are related, of
course, as the property bubble has been a driving force behind a
credit-financed spending boom….
“I have become a collector of scary housing statistics of late.
One of my favorites is a chart from the Bank of Spain, which
shows that building approvals and permits have fallen off the
edge of a cliff since the end of 2006. At their peak, building
permits were rising at an annual growth rate of 25 percent. In the
autumn of 2007, their annual change was minus 20 percent –
probably still going down. House prices have not fallen nearly
as much, but this is only a matter of time, as sellers tend to suffer
from a collective delusion at this stage in the housing cycle.
“Between 1995 and last year, Spanish house prices tripled in
nominal terms, and doubled in real terms. Several explanations
have been offered: a trend for young people to leave their
parental homes earlier; a rise in immigration; and the country’s
popularity among northern European homebuyers. But beware
of demand-side arguments. They are usually cyclical, and the
cycle is just turning. Also, as supply increases with demand,
there is now a glut of unsold homes.
“I would expect real Spanish house prices to fall by almost as
much as they have risen over the past 10 years.”
Here are some facts, from data released on the U.S. housing
market this week. 5.82% of all mortgage loans are delinquent,
while homeowner equity nationwide is below 50% for the first
time since 1945.
The problems in housing, of course, begat the credit crisis we’ve
been embroiled in in one form or another since August. We’ve
reached the point today, though, that as Timothy Giethner, the
president of the Federal Reserve Bank of New York, noted,
banks are simply reluctant to take any chances, which is why the
system has seized up.
In a speech this week Giethner said, “The rational actions taken
by even the strongest financial institutions to reduce exposure to
future losses have caused significant collateral damage to market
functioning. This, in turn, has intensified the liquidity problems
for a wide range of bank and nonbank financial institutions.”
[Floyd Norris / New York Times]
And there’s the longstanding issue of leverage, as in some
players have been utilizing gobs of it as we learned once again in
the case of a company affiliated with the Carlyle Group, a
leading private-equity shop, that received some margin calls and
was in default. Thornburg Mortgage also said it was in default,
as its shares have tumbled from a close of $11.54 on Feb. 27 to
$1.30 today. Speed kills, and Thornburg was forced to admit its
future is in serious jeopardy.
When it comes to the investment banks, we’re all just sitting
around waiting for the next round of writedowns on troubled
debt, that is if they ever truly come clean…or can figure out what
the value of their securities is when there is no market for them.
It’s a vicious circle, as one problem begets another, and lenders
batten down the storm shutters, thus causing the situation to
deteriorate further if you’re left outside without a key.
On the micro front, the week’s news outside housing was
equally dreadful as readings on manufacturing and the service
sector remained at recessionary levels (even if the latter was up
slightly from a horrendous January figure), while construction
spending is at its worst since 1994 and January factory orders
were down a whopping 2.5%.
The Federal Reserve’s own survey of regional economic activity
said business spending continues to weaken virtually across the
country, and auto sales for February were down, including a 13%
decline at General Motors vs. year ago levels.
About the only good news on the week came out of Wal-Mart,
whose February same-store sales were up a better than expected
2.6%; this as Target’s were flat, Kohl’s were down 3.8%, and JC
Penney saw its sales decline 6.7%. [Other big players such as
Home Depot, Macy’s and Sears have stopped giving monthly
data altogether.]
Then there’s oil. Thanks in no small part to the still-sliding
dollar, oil closed the week at $105 after an historic $5 move on
Wednesday. Gasoline futures, meanwhile, finished up around
$2.70, thus ensuring a nationwide average of $3.30+ should we
sit at this level for a while. If you want a good look at both food
and energy prices these days, check out my current “Wall Street
History” column.
Back to housing, Fed Chairman Ben Bernanke has been all over
the board on potential solutions, though he now ‘gets it.’
“Reducing the rate of preventable foreclosures would promote
economic stability for households, neighborhoods and the nation
as a whole. Although lenders and servicers have scaled up their
efforts and adopted a wider variety of loss-mitigation techniques,
more can, and should, be done.”
But Bernanke then talks of a bailout and I think Robert
Samuelson above effectively deals with that topic.
Lastly, we have this issue of auction-rate securities, or floating-
rate bonds, that were sold to Mr. and Mrs. Jones as money
market alternatives. This $330 billion market has seized up with
the rest, though the issue here is individuals thought they had
ready access to their funds and now they’re locked out. I talked
to a friend in the business on Thursday evening and as he put it,
it’s lawsuit city.
Not a good time to be aggressive, friends. My 80% cash, 20%
equities recommendation of the past two years doesn’t look too
bad. But even with your cash portion you have to be careful just
where you put it.
Street Bytes
–The major averages all closed at their lowest levels since the
summer and fall of 2006, as the Dow Jones lost 3.0% to 11893.
The S&P 500 and Nasdaq fell 2.8% and 2.6%, respectively. All
averages, including the small cap Russell 2000, have already
posted double digit declines for the year.
–U.S. Treasury Yields
6-mo. 1.55% 2-yr. 1.52% 10-yr. 3.55% 30-yr. 4.56%
Yields on the short end of the curve continued to plummet on a
flight to safety. The Fed next meets March 18 amidst rumors it
may be forced to act beforehand, while on Friday it injected $200
billion into the system in an attempt to unclog the pipes and get
financial institutions lending again.
Across the pond, the Bank of England and the European Central
Bank kept their rates steady, despite clear signs economies there
are slowing rapidly. Bottom line, without a coordinated policy
among all parties, the dollar is going to continue to get crushed.
–A Conference of Mayors report revealed that tax revenues in
ten states, including New York, California and Florida, could
drop $6.6 billion.
–Saudi oil minister Ali Naimi, responding to President Bush’s
call for OPEC to open up the spigots and get more oil on the
market, said “This speculation has no link to the stable market
fundamentals, which do not need any action. Why then should
any new action be taken if the health of the market that we
follow…is sound?” Chakib Khelil, OPEC’s president, said crude
inventories were above their five-year average and that soaring
crude prices were caused by the weak dollar and the credit crisis.
“It’s due to the mismanagement of the U.S. economy that’s
affecting…economies in the rest of the world.”
Bush had earlier complained that “the high price of gasoline has
hurt economic growth here” and it was a “mistake to have
(OPEC’s) biggest customer’s economy slow down.”
But on the issue of Big Oil, commentator Ben Stein weighed in
in his op-ed for the New York Times after watching a Barack
Obama campaign speech that took aim at Exxon Mobil.
“I know it’s primary season. I know Democratic candidates have
to make obeisance to the populist, anti-business wing of their
party, just as the Republican front-runner, Senator John McCain,
has to make bows and curtsies to the supply-side part of his (and
my) party.
“But Mr. Obama’s comments about Exxon Mobil are, as folks
used to say, fightin’ words.
“Mr. Obama is clearly an intelligent man. So it may not be too
early to start a small process of education about Exxon Mobil
and other oil companies and why attacking them is not smart.
First, Exxon Mobil, like all the other gigantic integrated energy
companies in this country, is owned not by a cabal of reactionary
businessmen holding clandestine meetings in a lodge in the
Texas scrublands….
“Exxon Mobil, in fact, is owned mostly by ordinary Americans.
Mutual funds, index funds and pension funds (including union
pension funds) own about 52 percent of Exxon Mobil’s shares.
Individual shareholders, about two million or so, own almost all
the rest. The pooh-bahs who run Exxon own less than 1 percent
of the company.
“When Exxon Mobil earns almost $12 billion in a quarter, or $41
billion in a year, as it did in 2007, that money does not go into
the coffers of a few billionaire executives quaffing Champagne
in Texas. It goes into the pension and retirement accounts of
ordinary citizens. When Exxon pays a dividend, that money
goes to pay for the mortgages and oxygen tanks and in-home
care of lots of elderly Americans.
“So, Mr. Obama, which union pension plans – and which blue-
collar workers who benefit from them – will be among the first
you would like to deprive of the income that flows from Exxon’s
rich dividends?”
Mr. Stein doesn’t mention my own favorite topic when it comes
to Big Oil. Without the enormous sums in taxes that they pay,
the federal budget deficit picture would be far worse than it
already is.
–I’ve been talking about the critical issues faced by developing
market governments and soaring subsidies for food and energy,
and the Wall Street Journal had a piece on Tuesday echoing the
theme. “Across the Middle East and North Africa, ‘this bread
subsidy is so politically sensitive that it is very hard to
dismantle,’ says Akhter Ahmed, a senior research fellow with the
International Food Policy Research Institute in Washington.”
Egypt, for example, is spending about 8% of its gross domestic
product on subsidies.
Along the lines of the above, Tim Lang, Professor of Food Policy
at the University of Leeds, told Magnus Linklater of the London
Times, “We are sleep-walking into a crisis.” “At the very least,”
writes Linklater, “he predicts the end of the era of cheap food,
which will of itself amount to a big shift in our eating habits. But
if the process of rising costs and diminishing supplies of grain
accelerates, as it may well do, we could witness actual shortages
of basic foodstuffs. One report last month said that the world is
only ten weeks away from running out of wheat supplies after
stocks fell to their lowest level for 50 years.”
At the heart “is a change in global consuming habits that has
crept up on us almost without our noticing,” adds Linklater. “In
China and the Far East, growing wealth has been accompanied
by a taste for Western diets, including, principally, beef, which is
now being imported in increasing quantities. There was a time
when the idea of an American-style hamburger would have
turned the stomach of the average Chinese; not any more.”
Separately, Britain’s Chief Scientific Adviser said that the rush
for biofuels and the potential for food shortages is the “elephant
in the room.” “It’s very hard to imagine how we can see the
world growing enough crops to produce renewable energy and at
the same time meet the enormous demand for food. The supply
of food really isn’t keeping up.” [London Times]
–Rising food prices do benefit one segment…farmers. In the
U.S., farm income is expected to total $96.6 billion in 2008, 10%
more than the record set in 2007. [USDA]
–Quotations from Warren Buffett’s annual letter to Berkshire
Hathaway Inc. shareholders.
“As house prices fall, a huge amount of financial folly is being
exposed. You only learn who has been swimming naked when
the tide goes out – and what we are witnessing at some of our
largest financial institutions is an ugly sight.”
“There’s been much talk recently of sovereign wealth funds and
how they are buying large pieces of American businesses. This
is our doing, not some nefarious plot by foreign governments.
Our trade equation guarantees massive foreign investment in the
U.S. When we force-feed $2 billion daily to the rest of the
world, they must invest in something here. Why should we
complain when they choose stocks over bonds?
“Our country’s weakening currency is not the fault of OPEC,
China, etc. Other developed countries rely on imported oil and
compete against Chinese imports just as we do. In developing a
sensible trade policy, the U.S. should not single out countries to
punish or industries to protect. Nor should we take actions likely
to evoke retaliatory behavior that will reduce America’s exports,
true trade that benefits both our country and the rest of the
world.”
–Some in Congress are furious that Boeing lost out on a $40
billion contract to build a new refueling aircraft for the U.S.
military, particularly those in Washington and Kansas that have
Boeing plants. [The total could eventually grow to $100 billion
over 30 or more years.]
The controversy stems over the awarding of the contract to a
partnership between U.S. defense contractor Northrop Grumman
and Europe’s Airbus (part of the European Aeronautic Defense
and Space Company…EADS). The planes will be assembled in
Alabama and Mississippi, but largely constructed in Europe.
The congressional dispute is likely to go on for some time as
Democrats blast John McCain for his role in scuttling a previous
deal to let Boeing supply the tankers. Dem. Rep. Rahm Emanuel
of Illinois said, “Having made sure that Iraq gets new schools,
roads, bridges and dams that we deny America, now we are
making sure that France gets the jobs that Americans used to
have. We are sending jobs overseas, all because John McCain
demanded it.”
–Shares in Citigroup are down over 50% thus far in ’08, the
worst showing among the 30 stocks that make up the Dow Jones
industrials, as CEO Vikram Pandit attempts to dispel rumors the
bank needs $billions more in capital. One analyst predicted Citi
would take an additional $15 billion in writedowns due to its
mortgage investments.
–Just 15 months ago, Merrill Lynch acquired subprime mortgage
originator First Franklin Financial Corp. for $1.3 billion. Today,
it’s pulling the plug and 650 have lost their jobs, not that these
same folks wouldn’t have lost them eventually anyway. Former
CEO Stanley O’Neal blew this one, big time.
–According to a European study on housing, home prices in
Ireland declined 7% in 2007, the worst performer in the region.
Home prices in Germany fell 6%.
–The World Health Organization said the bird flu virus is
“firmly entrenched” in Asia and a pandemic among humans is
still a possibility. Expert Takeshi Kasai said “The virus itself
keeps changing.”
–Southwest Airlines said we shouldn’t be concerned that it flew
60,000 flights with planes that were overdue for inspection.
–General Motors said it expects to bring a lithium-ion battery
powered hybrid engine system to market in North America in
2010, which could result in a 15 to 20 percent increase in fuel
economy over today’s nonhybrid vehicles.
–According to a study by AAA, traffic accidents cost U.S.
motorists $164.2 billion a year, or about $1,051 per person when
taking into account factors such as property damage, lost
earnings, medical costs, emergency services, legal costs and
travel delays. By comparison, the costs associated with
congestion are $67.6 billion, or about $430 per person.
–In a scary development, the Food and Drug Administration has
upped its estimate of the number of patients who may have died
as a result of reactions to the drug Heparin from four to 19, after
the FDA detected a “contaminant” in samples of the Chinese-
supplied blood-thinning drug used widely in surgery and kidney
dialysis. So add this episode to the other product safety issues
emanating from China. The FDA was able to isolate the
problematic batches as being sold by Baxter International
through a plant outside Shanghai, while acknowledging FDA
officials had never inspected the facility. Heparin is made from a
compound found in pig intestines.
–But it’s not just China with serious issues on the medical front.
This week, 40,000 in Las Vegas learned that they were receiving
Third World type treatment at a clinic that for at least four years
was reusing syringes and vials of medication, thus exposing the
patients to the potentially fatal hepatitis C virus, as well as HIV.
The number involved represents the biggest public health
notification operation in U.S. history. Thus far, six acute cases
of hepatitis C have been confirmed. This is unbelievable.
Investigators were told the practice was an attempt to cut costs.
So the real issue now becomes, just how many similar clinics are
operating in such a fashion these days? This obviously isn’t the
only one.
–CNN’s viewership exploded during the month of February, up
150% in prime time to 614,000 in the key demographic, 25 to
54, vs. 454,000 for Fox News and 326,000 for MSNBC.
Meanwhile, CNN parent Time Warner is seeking to create an
alternative to Microsoft’s offer for Yahoo; folding its AOL unit
into Yahoo. Of course while Yahoo dithers, its value to any
prospective buyer goes down in this ugly market environment.
–Radio advertising revenue fell 2.6% in 2007 over 2006 and is
basically back to the levels of 2003.
–Fidelity Investments has settled with the SEC and will pay an
$8 million fine for accepting more than $1.6 million in gifts from
brokers seeking trades, an investigation that goes back years.
But what I love is the fact Vice Chairman Peter Lynch is among
13 employees singled out for taking inducements that included
the now-infamous $160,000 junket to Miami, where bachelor
party attendees were entertained by female escorts and supplied
with ecstasy pills. [Lynch didn’t partake in this one.]
The central issue is that in accepting the gifts, Fidelity then
didn’t seek the best possible terms when trading for its funds
because employees routed the transactions to the favored
brokers.
Lynch himself, while not admitting or denying guilt as part of the
settlement terms, was cited for receiving “numerous” free tickets
to concerts, theater and sporting events. He agreed to forfeit
more than $20,000, representing the value of the gifts, plus
interest, as reported by Bloomberg News. In a statement, Lynch
said “I never intended to do anything inappropriate.” But,
c’mon, Peter, you knew the rules.
Lynch, by the way, built his track record on flipping IPOs when
Magellan was a tiny little fund, not because he was necessarily a
brilliant investor, though I’d be lying if I didn’t say I used his
general investment principles as much as the next guy when
giving a generic investment seminar.
–Warren Buffett passed Bill Gates to become the world’s richest
man, according to Forbes magazine’s annual survey. Buffett is
now estimated to be worth $62 billion, with Mexican mogul
Carlos Slim in second at $60 billion and Gates 3rd at $58 billion.
Facebook founder Mark Zuckerberg, 23, joined the list as the
world’s youngest billionaire at $1.5 billion. Other notables…
Oprah ($2.5bn), Donald Trump ($3bn) and JK Rowling ($1bn).
Foreign Affairs
Russia: Dmitry Medvedev captured 70% of the vote in the
presidential election (exactly the number I predicted last week,
incidentally), one that was called a farce by the few Western
observers on the ground. Medvedev, 42, said after that under the
constitution the president runs foreign affairs. But who will
really handle it, new prime minister Putin (as of May 7) or
Medvedev? We should get a firm answer in July at the next G-8
summit in Japan, but as the Washington Post editorialized, “the
better question is why either of them should be invited.”
For Medvedev, however, it’s really all about oil, keeping the
people happy, and rising wages…without inflation. In other
words, an impossible task.
Ralph Peters / New York Post…on the vote and Russia’s future.
“The only positive thing about the no-real-choice vote is that
today’s Kremlin crowd had the restraint to hold down the we-
love-Medvedev tally to 70 percent, rather than the 95 percent-
plus demanded by the old USSR’s gerontocrats.
“The truth? Russian citizens are content to be led like sheep. As
long as there’s a bit more fodder in the trough than there was
yesterday, Russians won’t protest against being herded around:
Their primary characteristic over the centuries has been the
determination to avoid responsibility.
“It’s incomprehensible to us, but most Russians want a good-but-
strong czar to make their choices for them. [Oh, and they’d
rather not work too hard, thanks.]
“I almost wrote that Russia isn’t a banana republic – despite its
execution of journalists, the imprisonment of political opponents,
state theft of property, the Kremlin’s sponsorship of domestic
terrorism (Stalin’s stage-managed murder of Sergei Kirov comes
to mind) and belligerence toward its neighbors.
“But I would’ve been wrong – not only because Russia isn’t a
republic of any sort, but because Putin’s Russia is headed for
exactly the fate that’s gutted so many developing countries: the
crash after the boom.”
Peters then related a conversation he had the other week with
former Czech president Vaclav Havel, who said:
“A dictatorship of a fairly new type is coming into existence to
the east of the area under NATO protection. All basic human
and civic freedoms are gradually and quietly being suppressed
under the banner of the aggrieved ideology that everybody is
doing Russia wrong or that they are all covert enemies.
“The system of formal democracy and one-party rule familiar to
us from Communist times is being revived. The secret police is
becoming all-powerful. The nation’s enormous wealth is passing
into the hands of the powerful or their friends…
“Everything that is free and has major influence is destroyed in
subtle ways….Troublesome people disappear or are mysteriously
murdered. Political murders and even major terrorist operations
are never properly investigated.
“An enormous nation inhabiting enormous territory is lapsing
into apathy and adapting to the status quo. It is accepting the
propaganda-fed cult of the leader, that is sometimes reminiscent
of the cult of Stalin….
“I believe none of us has the right to remain silent and
pretend…that we can’t see these things. Politeness and
falsehoods have never yet preserved the peace.”
[On the natural gas front, Gazprom cut supplies, twice, to
Ukraine, before relaxing some as the state-owned energy giant
continues to say Ukraine has been slack in paying off its debts.]
Iran/Iraq/Israel: Thursday was an absolutely awful day for planet
Earth with the horrific terror attack on the seminary in Jerusalem
and the car bombing in what had been thought to be a safe part of
Baghdad that claimed at least 68 lives. Further, this week you
had the visit to Iraq of Mahmoud Ahmadinejad, the first such
visit by an Iranian leader since the 1980-88 war between the two.
Ahmadinejad said “the two parties are determined to strengthen
their political, economic and cultural cooperation,” then he
turned his sights on Washington, saying “The Iraqi nation does
not want the U.S.”
On Tuesday, the UN Security Council voted for a third round of
sanctions against Iran’s nuclear program that will prove as
useless as the first two in terms of forcing Tehran to suspend it’s
uranium enrichment operation. Iran is holding key parliamentary
elections on March 14 that should signal increased support for
Ahmadinejad and the hardliners, seeing as the president has
purged many of the reformers from his cabinet, while keeping
others that pose a threat off the ballot.
In Israel, U.S. Secretary of State Condoleezza Rice convinced
Palestinian President Mahmoud Abbas that he should return to
the negotiating table, then a day later a Palestinian gunman
somehow got into the crowded library of the leading seminary in
West Jerusalem, killing 8 before he himself was killed. While
it’s unknown as of this writing exactly who the terrorist was
representing, Hamas immediately described it as a “natural
reaction” to Israeli military actions in the Gaza Strip. Israel
vowed revenge, though the government of Prime Minister
Olmert also insisted it would continue with the peace effort.
Calev Ben-David / Jerusalem Post
“Rarely have terrorists chosen their target with so much
malicious care as in Thursday night’s attack.
“In striking the flagship institution of the religious Zionist
movement, a Jerusalem landmark whose history is linked with
the founding and fulfillment of the Jewish national home in the
Land of Israel, the gunman aimed his weapon at the heart of the
Zionist enterprise.
“If the goal was to outrage the general public and to inflame that
particular segment of it most skeptical of the possibility of Israel
one day coming to terms with its most immediate Arab
neighbors, then the bullets struck home with deadly and accurate
force….
“This will be a sharp blow for those Israelis, especially
Jerusalemites, who have allowed themselves to let their
psychological guard down since the second intifada petered
out….
“The Olmert government, which until now has been able to
contain political fallout from the rocket fire on Sderot and
Ashkelon in part because of the absence of major attacks
elsewhere in the country, will now find its margin of error – and
survival – dramatically narrowed.”
Amir Mizroch / Jerusalem Post
“The people directly affected by the deadly terrorist attack…are
not just students, their relatives and friends, but the much wider
larger segment of the religious Zionist public….
“Being messianic religious people, the religious Zionists are
going to see this attack through the prism of messianic
prophecy….
“The fact that the Foreign Ministry has already come out with a
formal statement saying the attack won’t derail the talks with the
Palestinian Authority will only fuel the anger of the settler
population this weekend….
“Very few people outside the religious Zionist population have
even heard of Mercaz Harav, let alone know somebody who
studies there. This was not an attack aimed at the wider Israeli
public, but a strategic attack against a very vocal public who will
be demanding action of the government. There may even be
some on the fringes of the settlement movement who will want to
take the law into their own hands.”
Prior to the massacre, President Bush reassured all parties that
with ten months remaining in his term, there was still “plenty of
time to get a (peace) deal done.”
I, on the other hand, simply believe we are one step closer to
Israel having to act preemptively against Iran’s nuclear weapons
program.
Colombia/Venezuela/Ecuador
Last weekend, Colombia raided a FARC rebel camp one mile
inside Ecuador, killing 23, among whom was Raul Reyes,
FARC’s No. 2. The government of Colombian President Alvaro
Uribe apologized, but Ecuador and Venezuela both condemned
the move and sent troops to their respective borders with
Colombia. Venezuelan President Hugo Chavez said “Dracula’s
fangs are covered in blood.”
Colombia claimed to have computer evidence, captured in the
raid, of Venezuela’s complicity in working with FARC, to the
tune of some $300 million in aid, while Ecuador’s current
leadership was also shown to have FARC connections.
There were rumblings of war during the week but Colombia’s
military is superior to its rivals and the White House wouldn’t
hesitate for a second should Colombia be attacked. By Friday,
though, all parties agreed to stand down.
China: The Pentagon expressed concerns over China’s
continued arms buildup as Beijing announced it was hiking
expenditures another 18%, up to $59 billion or so, officially, but
more likely two or three times that according to many experts.
The U.S. says that China is focusing on weapons that would
disable enemy satellites in a conflict, while China says the U.S.
needs to abandon Cold War thinking.
But then there is China’s water crisis, specifically in Beijing, as
the city draws from already rapidly declining underground
sources. Is this thus another concern for the Olympics in
August? Consider this. Beijing is stealing water from
neighboring Hebei province, which has been enduring a long
drought. Plus you have the issue of the water’s quality itself.
Spain: Contentious elections are being held here on Sunday as
the Basque separatist group ETA is suspected of killing a former
city councilman in northern Spain on Friday, just shy of the
fourth anniversary of the March 11, 2004, train bombings in
Madrid that claimed 191 lives.
Northern Ireland: After more than 40 years, the Rev. Ian Paisley
announced his retirement from the leadership of the Democratic
Unionist Party. Martin McGuinness of rival Sinn Fein, with
whom Paisley finally came to terms in the 2007 power-sharing
agreement, said “I think that he will be fondly remembered by
the people of Ireland – north and south – for the very courageous
leadership that he showed.” McGuinness was being polite.
Random Musings
–I’m going to stick to predicting election results in Russia rather
than to try and make sense out of what has been transpiring in
our own presidential election cycle the past year. This week it
was Hillary Clinton’s turn to shock the world as she beat back
Barack Obama in both Ohio (54-44) and Texas (51-47). The
race is now guaranteed to last through the Pennsylvania primary
on April 22 and beyond.
In the meantime, Obama is going to have to deal with the
publicity surrounding the trial of former friend / real-estate
developer Tony Rezko on corruption charges, as well as the
bleatings of his campaign staff, including Samantha Power’s
description of Hillary as a “monster;” this while attempting to
blast Hillary for not divulging her joint income tax returns with
her husband. John McCain, who wrapped up the Republican
nomination this week, gets to sit back and enjoy the squabbling.
David Brooks / New York Times
“The Obama people seem to have persuaded themselves they can
go on the attack, but in the right way. They can be tough and
keep their virginity, too. But there are more than five long
months between now and the convention.
“Unless they consciously reject conventional politics, the
accusations will build on each other. The BlackBerries will
buzz. The passions will rise. The Obama forces will see hints of
Clinton corruption all around, and they’ll accuse and accuse
again. The war will begin to take control, and once you’re
halfway through you can’t suddenly surrender because it’s
become too rough.
“And the Clinton people will draw them every step of the way.
Clinton can’t compete on personality, but a knife fight is her only
real hope of victory. She has nothing to lose because she never
promised to purify America. Her campaign doesn’t depend on
the enthusiasm of upper-middle-class goo-goos. On Thursday, a
Clinton aide likened Obama to Ken Starr just to badger them on.
“As the trench warfare stretches on through the spring, the
excitement of Obama-mania will seem like a distant, childish
mirage. People will wonder if Obama ever believed any of that
stuff himself. And even if he goes on to win the nomination, he
won’t represent anything new. He’ll just be a one-term senator
running for president.
“In short, a candidate should never betray the core theory of his
campaign, or head down a road that leads to that betrayal.
Barack Obama doesn’t have an impressive record of experience
or a unique policy profile. New politics is all he’s got. He loses
that, and he loses everything. Every day that he looks
conventional is a bad day for him.
“Besides, the real softness of the campaign is not that Obama is a
wimp. It’s that he has never explained how this new politics
would actually produce bread-and-butter benefits to people in
places like Youngstown and Altoona. If he can’t explain that,
he’s going to lose at some point anyway.”
When it comes down to hypothetical match-ups in November,
the latest ABC News/Washington Post survey has Obama
besting McCain by 12 points, with Hillary beating him by six.
Interestingly, Americans are split on what they consider to be
qualities most important to them: 45 percent said strength and
experience, 46 percent said a new direction and new ideas.
I thought reader Chris C., an Obama supporter, had a great
observation about John McCain. He needs to keep his zen-like
quality and stay above the fray; “exuding stability, fiscal
responsibility and an earnest desire to build consensus to solve
problems vs. ‘politics as usual.’”
On the policy front, NAFTA is shaping up to be a big issue and
McCain weighed in last weekend.
“We need our Canadian friends and we need their continued
support in Afghanistan. So what do we do? The two Democratic
candidates for president say that they’re going to unilaterally…
abrogate the North America Free Trade Agreement. Now how
do you think the Canadian people are going to react to that?”
McCain supporter Phil Gramm added:
“If we can’t compete with Canada, who can we compete with?
Are these people proposing we go build a wall around America
and hide under a rock somewhere? Are they saying we are totally
and absolutely helpless in competing against a small country
with the same environmental standards, the same labor standards
we have? America’s got to lead the world and I think this issue
about abrogating NAFTA is an extraordinary one – and it
shows that they have faith in our ability to even compete against
Canada.”
On a different matter, I need to set New York Times columnist
Frank Rich straight on one matter involving McCain. In Rich’s
March 2, 2008, op-ed, he writes “contrary to (the senator’s)
current claims, he never publicly demanded Mr. Rumsfeld’s
head.”
All I know is I wrote the following on 12/2/06: “McCain was the
first major Republican figure to call for the dismissal of Donald
Rumsfeld years ago.”
–Aside from the problems in the Middle East on Thursday, it
was a depressing day for another reason, the senseless killing of
the student body president at the Univ. of North Carolina /
Chapel Hill, Eve Carson. From the few accounts of her life that
I’ve read, this is a tragedy on so many different levels. Eve
Carson had already accomplished much in her short life and she
was destined for greatness. Our thoughts and prayers go out to
her family and the entire school community.
–There was another tragic murder, that of Jamiel Shaw in Los
Angeles, a fine high school running back who was being
recruited by the likes of Rutgers and Stanford. L.A. police
described the killing as random and senseless. A spokeswoman
for the department told the Los Angeles Times that “two Latino
men pulled up in a car, jumped out, asked Jamiel if he belonged
to a gang, and shot him when he didn’t answer. She said Jamiel
was not affiliated with a gang and that detectives had no
suspects.”
[Homicides in L.A. are up 27% thus far in 2008.]
–The domestic terrorist group ELF, Earth Liberation Front,
torched three unoccupied multi-million dollar homes in a Seattle
suburb, even though the builders involved with the project had
been promoting their use of “green” techniques and tens of
thousands had toured the development last summer. Opponents
such as the ELF questioned whether the homes would pollute a
creek home to endangered chinook salmon. The ELF is as
dangerous as any home-grown movement in America.
–Oscar-winning French actress Marion Cotillard refused to
apologize for remarks she made, first broadcast a year ago but
now seeing the light again with her award, that the 9/11 attacks
were part of a conspiracy; specifically that the towers were
destroyed by the owners for insurance reasons because it was too
expensive to rewire them. Ms. Cotillard also believes the moon
landing never happened. But as the comments have burned up
the Internet since the Academy Awards, Cotillard is worried it
will impact future acting opportunities in the states. Now ask me
if I’m going to care should this turn out to be the case.
–In an effort to promote ecumenical dialogue between Catholics
and Protestants, Pope Benedict XVI is said to be readying a
papal statement to rehabilitate Martin Luther, “arguing that he
did not intend to split Christianity but only to purge the Church
of corrupt practices,” as reported by Richard Owen of the
London Times. Cardinal Walter Kasper, head of a pontifical
council, said that while Luther aroused papal ire back in the day
(he’s a hip Cardinal), he could now be seen as having
“anticipated aspects of reform which the Church has adopted
over time.”
–Warren Buffet: “At 84 and 77, Charlie (Munger) and I remain
lucky beyond our dreams. We were born in America; had terrific
parents who saw that we got good educations; have enjoyed
wonderful families and great health; and came equipped with a
‘business’ gene that allows us to prosper in a manner hugely
disproportionate to that experienced by many people who
contribute as much or more to our society’s well-being.
Moreover, we have long had jobs that we love, in which we are
helped in countless ways by talented and cheerful associates.
Every day is exciting to us; no wonder we tap-dance to work.”
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $974
Oil, $105.46
Returns for the week 3/3-3/7
Dow Jones -3.0% [11893]
S&P 500 -2.8% [1293]
S&P MidCap -3.5%
Russell 2000 -3.8%
Nasdaq -2.6% [2212]
Returns for the period 1/1/08-3/7/08
Dow Jones -10.3%
S&P 500 -11.9%
S&P MidCap -11.3%
Russell 2000 -13.8%
Nasdaq -16.6%
Bulls 41.9
Bears 36.6 [Source: Chartcraft / Investors Intelligence]
*Thanks to all who attended my “Evening with Willie Wilson”
on Thursday that proved to be a rousing success (or so
everyone told me). You are a great group of friends and I won’t
forget your support at a time when I needed you in a big way.
Brian Trumbore
