[Posted 7:00 AM ET]
Wall Street…Bailout!
Who needs a beer? I do.
Steven Pearlstein / Washington Post
“Last week, it was a $200 billion cash-for-bond swap for the
banks.
“This week, it was a $200 billion bond-for-bond swap for the big
investment houses.
“If they keep this up, pretty soon you’ll be able to walk into any
Federal Reserve bank and hock that diamond brooch you
inherited from Aunt Mildred.
“Forget all that nonsense about the Bernanke Fed being too timid
or behind the curve. In the face of what is turning into the most
serious financial market crisis since the Great Depression, the
Fed has been more aggressive and more creative in using its
limitless balance sheet – in effect, its ability to print money –
than at any time in history.
“We can argue till the cows come home about whether this is a
bailout for Wall Street. It is – but only to the extent that it is also
a bailout for all of us, meant to prevent a financial and economic
meltdown that drags everyone down with it. In broad strokes,
we’re going through a massive ‘de-leveraging’ of the economy,
wringing out trillions of dollars of debt that had artificially
driven up the price of real estate and financial assets, and, more
generally, allowed Americans to live beyond their means.”
Mr. Pearlstein wrote the above on Wednesday, so he wasn’t
aware at the time that Friday morning we’d learn the Federal
Reserve, working with J.P. Morgan Chase, opted to bail out Bear
Stearns in a story that will be reverberating over the weekend as
Bear goes ‘bye-bye.’ In a nutshell, Bear was a purveyor of
crapola, tons of mortgage-backed securities based on faulty
(fraudulent) ratings, and its clients finally began to catch on that
this was a serious issue. Once they began to pull their cash out,
voila! A run on the bank.
And after listening to Bear CEO Alan Schwartz the other day
with CNBC’s David Faber, I can’t help but remind you of
something I wrote last Aug. 4, 2007, following a very similar
incident, problems with Bear’s hedge funds.
“I just have to add from personal experience, in light of the
Bear Stearns conference call on Friday that was designed to
reassure investors and shareholders, and did the opposite, that
back in early 1989, I was sitting in on a conference call at
Thomson McKinnon Securities with senior management where
our head of retail had the mission of reassuring his fellow
executives that all was well; that Thomson was well within all
capital requirements. Thomson had a much less complicated
financial structure than Bear Stearns does today, yet within
weeks Thomson had declared bankruptcy. Years ago, on the
issue of derivatives, specifically, I began warning that, 1) Wall
Street is peopled with folks who just aren’t that smart (4.0 GPAs,
yes…common sense, zero) and, 2) the Street really has no idea
what it owns. Life lessons now being learned, friends.”
It’s amazing to think that was already eight months ago and, in
hindsight, that Bear Stearns lasted this long. Nothing changed,
after all. It just took some time for others to realize what some of
us knew all along. Bear and others of its ilk are essentially a
house of cards.
But for a brief moment on Tuesday, after the Federal Reserve
came up with its latest effort to save the world, and the Dow
Jones rallied 400 points, all was calm, all was bright. The
Financial Times opined:
“Tuesday’s move was different. The Fed is not offering to lend
cash in exchange for bonds, it is offering to lend up to $200
billion of Treasury bonds in exchange for triple-A mortgage-
backed bonds. Unlike mortgage bonds, Treasuries are still easy
to borrow against in the private markets, so making it possible to
exchange one for the other is a sensible attempt to ease the short-
term pressure on leveraged investors.
“Whether it has any effect depends, as it has with every central
bank intervention since last July, on whether this is a crisis of
liquidity or solvency. If it is simply the case that banks do not
have the cash to lend against mortgage bonds then this will have
an effect. If, on the other hand, banks are worried that the
mortgage bonds or their owners will default, then they will be
unlikely to lend even if they can refinance at the Fed.”
For now it’s the latter.
The Fed is hoping, though, that their move to swap mortgage-
backeds for Treasuries, for up to 28 days, helps stabilize the
markets, but one of the many problems is you might say you
have a AAA-security, but is it really? We’ve already seen how
the ratings agencies screwed up royally in assessing the risks
inherent in the pools of mortgages they were asked to grade. The
Fed, by its action, claims this helps take care of the counterparty
risk, but the bigger issue is still falling home prices. Since the
Fed is not actually buying the securities (and I’m definitely not
saying they should), what is the value? It’s still to be
determined.
Nothing has worked to unclog the pipes of the financial system
since the credit crisis first hit last July, and the spreads between
Treasuries and government-sponsored entities such as Fannie
Mae have only come down minimally from record levels going
back to 1986; which means that mortgage rates will remain
higher than Treasury rates would otherwise dictate, not exactly a
way to solve the housing crisis.
Speaking of Fannie, Barron’s had a big piece on its shaky
balance sheet. But since Fannie owns or guarantees ¼ of all U.S.
home loans outstanding, it’s simply too big to fail (as well as
sibling Freddie Mac), and certainly the Federal Reserve has told
you as much with its treatment of Bear Stearns.
I have to admit, events are taking place at lightspeed and it’s not
easy keeping track of it all. This was such an historic week, for
example, that events such as Thornburg Mortgage’s potential
collapse, along with the actual collapse of a large fund, Carlyle
Capital (part of private-equity giant Carlyle Group) took a back
seat to all of the above.
Shares in jumbo loan maker Thornburg fell to 70 cents before
rallying to $3 and then finishing the week around $2.30, after the
Fed’s actions to backstop the mortgage market. But here again,
while Thornburg loves to tell anyone who will listen that it hasn’t
dabbled in the subprime sector and that its paper is AAA, is it?
Much of it is murky Alt-A (a level above subprime), where even
two of the Three Little Pigs weren’t required to submit full
documentation in acquiring their homes of straw and sticks.
Only the pig that bought the house of bricks is still solvent today,
yet S&P is rating the pool comprised of all three as AAA.
Then there is Carlyle Capital, a bond fund that levered up some
32 times and when its lenders began to question why the very
same Three Little Pigs had become part of Carlyle’s balance
sheet too (remember, the pigs were sliced and diced into different
classes of securities or tranches) said, hey, hold on a second, you
have to cough up more collateral or we’ll pull your loan. Carlyle
couldn’t and the lenders took possession of their share of the
bacon. As Carlyle Group’s CEO David Rubenstein said, “the
golden age of private-equity is over.” So is the golden age of
Wall Street in general, you could add.
More broadly, Harvard economist Martin Feldstein, a member of
the National Bureau of Economic Research, the group that dates
business cycles, told an audience on Friday, “I believe the U.S.
economy is now in recession. Could this become the worst
recession we have seen in the post-war period? I think the
answer is yes. I would emphasize the word ‘could.’”
Lastly, I am invoking my ‘24-hour rule’ when it comes to
Friday’s Fed action to bailout Bear Stearns. We’ll soon learn
more details. For now, I agree with economist Mark Zandi who
said that normally, 99% of the time you don’t want the
government interfering in free markets (i.e. let Bear Stearns fail),
but the other 1% of the time you do, and then you want the
government to act quickly in order to prevent a far worse
problem. This is beginning to feel like that 1%.
Street Bytes
–Tuesday’s 400+ point rally was the biggest in the Dow Jones
since July 2002, while the S&P 500 registered its single-biggest
advance since April 2001. Yet in the end, stocks finished mixed,
literally, with the Dow Jones up 0.5%, the S&P down 0.4%, and
Nasdaq unchanged. If you’re a technician, the market looks
awful.
–U.S. Treasury Yields
6-mo. 1.31% 2-yr. 1.46% 10-yr. 3.43% 30-yr. 4.36%
Rates fell across the board in a flight to safety. The Fed meets on
Tuesday and the bond market is projecting that Bernanke and Co.
will lower rates a full 75 basis points.
The government released its consumer price index for the month
of February and it revealed that prices were unchanged;
including the core reading, ex-food and energy. Well, that was
simply unbelievable and ignored by all. Meanwhile, the retail
sales figure for February was down 0.6%, when an increase of
0.2% was expected. Yes, I’m going to cherry pick my stats and
believe this latter one because it certainly makes more sense than
the CPI number.
Separately, I received a note from a loyal reader and friend of
StocksandNews that I was taking it too easy on Mr. Bernanke
recently. I sure don’t think so. I can’t call him Clueless Ben
every single week. I don’t want this site to become like one of
those shouting matches on “Hardball” or “Hannity and Colmes,”
after all. I correctly said the Federal Reserve was irrelevant last
summer, referring to its inability to prevent a recession resulting
from the housing bubble. But I added that the Fed was relevant
as to the degree of pain that we would all feel, or more simply,
preventing a recession from turning into a Depression. No one
can make that judgment yet as to their success or failure in this
endeavor, but if you follow the global scene as I do, it’s pretty
easy to come up with a scenario that is depressing and
Bernanke’s legacy has already been cemented by his inability to
recognize the implications of the bubble going back to last
spring. You can throw in birdwatcher Paulson on this last one as
well.
–The Treasury Department said the federal government’s budget
deficit for the month of February was an all-time best, $175.6
billion. Congratulations, guys! Now it needs to be pointed out
that due to the leap year, the figure was actually $33.6 billion
higher than it would have been otherwise, but for the first five
months of fiscal 2008 (beginning Oct. 1), the deficit is already
$263.3 billion, 62% higher than the same period for fiscal 2007.
Last month, the government paid net interest on the federal debt
of $20.2 billion. Now isn’t that special.
–I was not able to fully analyze the Treasury Department’s
proposal for stabilizing (and stimulating) the housing market, but
there didn’t appear to be anything that would remotely help
things today. As for Senator Dodd’s and Congressman Frank’s
own proposal to help homeowners, as much as they said it’s not a
bailout, it is. I’ll have more on both of these next time, assuming
another governor isn’t caught with “Kristen,” or Merrill Lynch
doesn’t suffer a run on the bank.
–Lehman Brothers is laying off 5% of its employees, or 1,400,
but there is talk on the Street that total layoffs for the industry
could reach 20% because traditional lines of business such as
M&A and debt origination are off 20% to 80%.
–As Robin Sidel wrote in the Wall Street Journal, when the large
banks report first quarter earnings next month, look for the
admission of big hits to their home-equity loan portfolios.
“While banks can foreclose on a first-lien mortgage, lenders
often have little recourse when trying to collect a delinquent
home-equity loan, especially if another bank holds the primary
mortgage.”
–Economist Robert Samuelson [Washington Post/Newsweek] on
OPEC’s renewed clout.
“The American approach is to rant at foreign producers on the
silly presumption that they should subordinate their interest to
ours. The resulting self-righteousness rationalizes a refusal to do
much that would actually influence their behavior and limit their
freedom of action. It was only last year that Congress raised
fuel-efficiency standards for new cars and light trucks: the
dampening effects on oil consumption will be years in coming.
We have steadfastly rejected higher gasoline taxes to curb
unnecessary driving and strengthen demand for fuel-efficient
vehicles (better to tax ourselves than let foreigners tax us through
higher prices). And we have consistently restricted oil drilling in
Alaska and elsewhere.
“It is a fair commentary that, by doing so little to check its own
thirst for imports, the United States has unwittingly contributed
to OPEC’s present triumph. The extent of that triumph will be
tested this year and next….We should be taking the hard steps to
limit its power. Considering our past complacency, we probably
won’t.”
As for crude itself, oil traded over $110, despite soaring
inventories in this country, thanks in no small part to the
cratering dollar and a general desire to hold hard assets, which is
also why gold traded above $1,000 for the first time ever.
–The FBI is investigating Countrywide Financial for possible
securities fraud with the central issue being, what did
Countrywide know about the financials of its borrowers before it
proceeded to repackage the mortgages into securities?
–Freddie Mac’s CEO said we are only 1/3 of the way through
the decline in home prices.
–The median home price in the six-county Southern California
region fell to $408,000 in February, the lowest level since
October 2004 and 19% below the peak of $505,000 last summer.
–On 2/16/08, I led off with the tale of a new development,
Windy Ridge, in Charlotte, N.C., where as of late ’07, 81 of the
132 houses were in foreclosure. So I note with interest a similar
depressing story, this one out of USA Today, that Peachtree
Hills, another Charlotte development, has 115 of 123 homes in
foreclosure. That’s unreal. And to think Charlotte has been one
of the better markets in the nation.
[One side bar…the USA Today story by Haya El Nasser notes
the Dept. of Housing and Urban Development has a program
allowing firefighters, police officers and teachers to purchase
foreclosed homes at 50% of their listed price.]
–Homebuilder Hovnanian said the gross margin on its new
homes in Florida is a whopping 2%. The average price of homes
sold by it nationwide in the first quarter was down 15%.
–Japan and the UK reduced their growth forecasts for the year.
–Toyota is slashing production in the U.S., while Chrysler is
forcing its workers to take a two-week vacation this summer as it
shuts operations nationwide to cut costs. Not exactly signs of an
economy that is “fundamentally sound,” as Treasury Secretary
Paulson and President Bush like to say.
–Since the New York Fed was heavily involved in structuring
the bailout of Bear Stearns, check out my “Wall Street History”
piece and a speech N.Y. Fed president Timothy Geithner gave
recently.
–China’s inflation rate was 8.7% in February, with food prices
rising 23%.
–I wrote the following on 9/28/02 in this space. Sure, I was only
5 ½ years early, but it’s still pretty good in hindsight.
“Then there is the ongoing issue of derivatives and the exposure
on some balance sheets. This week, EDS’s announcement that it
took a hit on its own share price (by screwing around with put
options…i.e., derivatives) is but the tip of the iceberg. One
simple truth bears repeating, that being the fact that the
investment community has been hoodwinked by the power of
derivatives, and some never seem to learn until it’s too late.
”As for yours truly, I await the day when we have a massive
accident at the likes of J.P. Morgan Chase. You think these guys
are really rocket scientists and understand how all their
instruments operate in various, chaotic scenarios? Do you think
they understand that the other side of some of these trades may
not be able to meet their end of the bargain? It’s coming, folks.
Fasten your seatbelt. Whether it’s JPM, Citigroup, Merrill
Lynch, Fannie Mae or some other player, something huge is
lurking out there.”
–Blackstone Group, manager of the world’s largest private-
equity fund, saw its profits tumble 90% in the fourth quarter as
chairman and founder Steve Schwarzman warned: “Difficult
market conditions in the U.S. and Europe will continue in 2008
and there is little visibility on when these conditions might
improve.”
But fret not for Schwarzman himself. His total compensation for
2007 was $350 million, according to a recent filing, though $309
million of this was previously disclosed as part of the firm’s IPO
last June, which as you know was literally the peak for the
private-equity game.
So this week Schwarzman was also in the news for his
philanthropy, pledging $100 million for the New York Public
Library’s $1 billion expansion program. The landmark building
on 5th Ave. will now be renamed after him.
As reported in the New York Times, “Mr. Schwarzman said it
was the library that proposed renaming (it). ‘They said, ‘We’d
like you to be the lead gift and give us $100 million and we’d
like to rename the main branch after you,’’ he said. ‘I said, ‘That
sounds pretty good.’’”
Of course. They all need their names in lights (or granite) in the
end.
–I support John McCain, but there are some skeletons that the
Democrats can exploit; such as the fact his campaign co-
chairman, former Representative Thomas Loeffler, a Texas
Republican, runs a lobbying group that earned $220,000 working
for the European Aeronautic Defense and Space Company
(EADS), part of the consortium that beat out Boeing for the $40
billion+ refueling tanker contract. You’ll recall how McCain
was instrumental in the scuttling of an earlier Air Force plan to
lease tankers from Boeing. Personally, I believe the Air Force
acted in our nation’s best interest in awarding the contract to
EADS and Northrup Grumman, but McCain is vulnerable.
–Two giants in the health-insurance sector, Wellpoint and
Humana, saw their shares taken out back and shot as they
reported accelerating health-care costs are eroding profits.
–Remember, sports fans….both President Bush and Treasury
Secretary Paulson reiterated, “A strong dollar is in our nation’s
best interest.” I feel so much better, don’t you?
–Inflation Watch, part XXXII. Josh P. passed along this
comment from Domino Pizza’s CEO. “For nine years in a row, if
you go back and you look at what was the average cost for a
bushel of wheat, we operated at about $3.75 a bushel. And, from
a volatility perspective, if the wheat market was high, it would go
up to $4.25, and, if it was low, it would go down to $3.25. But it
would operate in a very low volatility band. So we wake up one
day in 2007, and wheat begins to move. We could have a whole
‘nother discussion about how and why that happened. But,
nevertheless, suddenly wheat is at $7, $8, $9, and $10. And then
it goes to $11, $12, and $13. And, today, it’s north of $20.”
–When I was in Las Vegas last month, I got a kick out of the
stories that somehow it was immune to the problems in the
overall economy. Wrong. For the first time since 2001,
gambling revenues fell in the month of January, 1.3% vs. a year
ago levels, while statewide, revenues were off 5%. One thing is
for sure, by year end there are going to be some terrific hotel
deals.
–The Associated Press conducted a study on virus threats in
gadgets such as the iPod and concluded that many of the viruses
were preloaded, including ones that steal passwords, at
manufacturing facilities in China. Sloppiness is being cited,
rather than organized sabotage, but there is no way of really
knowing at this point.
–Southwest Airlines grounded 44 of its 737s until it could verify
that the aircraft were safe, having been cited by the FAA for
failing to inspect them properly. Southwest then admitted four
required repairs. This whole mess has definitely given the air
carrier a black eye and we’ll know soon enough whether it
impacts the bottom line.
–In a PricewaterhouseCoopers survey of real estate markets
across Europe, Moscow’s was rated the hottest, with Istanbul,
second. London dropped from 2nd last year to 15th out of 27
cities on the list.
–NASCAR driver Tony Stewart makes “Week in Review,” a
first for the sport, possibly, with his harsh criticism of Goodyear
and the tires it supplied at last week’s race in Atlanta. They are
“the most pathetic racing tires I’ve ever been on in my
professional career….When you’re stuck in a car for 3 ½-4 hours
and it drives like crap, you’re going to be upset about it.”
Stewart was directing his furor at the designing engineers, and
later apologized to the workers.
“Think about it. Every year we’ve blown tires. It’s like, how
many years have they been doing this? At this stage of the game,
how do you not figure it out? How could you have not figured
out how to not blow tires and build a competitive tire?”
Goodyear has exclusive rights to NASCAR. Other drivers
concur with Stewart. I bring this up in this space because it’s an
interesting commentary on quality and, in essence,
competitiveness. We had this discussion in the 1970s and 80s
when Detroit’s quality was called into question as the Japanese
auto manufacturers began to gain their toehold.
–Shares in Bear Stearns traded at $159 last April 25. They
closed the week at $30. $Billionaire investor Joseph Lewis has
lost about $800 million on his position in the company. Stay
away from the guy if you see him on the street.
–My portfolio: The China biodiesel play reported on its fourth
quarter and it couldn’t have been better as the company gears up
for its mammoth expansion, still slated for completion by year
end. But the stock barely moved and I slammed the CFO in
private for not following my advice after a recent Barron’s piece
questioning its auditor; as in the company should have issued a
statement of some kind, any kind. I told you in this space that
this was Troubleshooting 101. It’s frustrating. I still like the
story and am holding for the long term. One thing is for sure, the
demand in China for its product will remain strong, regardless of
the economic environment over there.
I also own this California solar power play I’ve written of and it,
too, reported strong revenues, but in this instance a net loss
greater than expected. Its shares fell on the news but it was
interesting how bullish the CEO is on the future, despite the
housing recession. I bought a little more at the lows, actually.
Lastly, I sold off some very small positions that I had on the
books just to raise a little more cash and unclutter my portfolio.
–Jimbo pointed out that Client 9 could not secure the services of
“Kristen” until cash was delivered, even though Client 9 had a
long history of doing business with the outfit. So Jimbo
correctly concludes, “What further evidence do we need that
there is a serious credit crisis when the Governor of New York
cannot order off the menu without paying up front and, further,
leaving a cash balance?”
–Finally, speaking of Client 9, Eliot Spitzer, yes, I was a
supporter of his when he was attorney general and no doubt he’s
easy game today. I also have more important people to feel sorry
for than the soon-to-be-former governor and his family. They’ll
all do just fine.
But you will never convince me Spitzer didn’t do a lot of good in
his initial crusading efforts against Wall Street, such as in
uncovering the research scandal. I also long argued that former
New York Stock Exchange chairman Dick Grasso, one of
Spitzer’s major targets, was little more than a carnival barker,
especially in the days after 9/11, and of course his pay package
was egregious. It’s all in these pages.
But Spitzer himself was out of control and his tactics were too
often over the top. His legacy is a complicated one. Wall Street
needed more oversight and he helped set it in motion, but as a
person, what a hypocritical slimeball.
Foreign Affairs
Iran: Parliamentary elections were held on Friday for 290 seats,
though only after 1,700 candidates were disqualified by the
hardliners headed up by President Mahmoud Ahmadinejad. The
vote is a total sham. Some argue, however, that a significant
number of those who will be elected are nonetheless critics of
Ahmadinejad’s economic policies, especially with inflation
running close to 20%. Supreme Leader Ayatollah Ali Khamenei,
though, while at odds with the president on many issues, urged
his people to support the conservatives. As for the people
themselves, there is a tremendous sense of apathy with the result
not in question. The final tally will however provide a sense of
whether or not Ahmadinejad faces problems with the presidential
election in 2009.
On the nuclear weapons program issue, the Wall Street Journal
editorialized:
“It has now been nearly five years since the Bush Administration
began pursuing a multilateral track on Iran, a course it has
followed patiently nearly to the end of its term. That hasn’t done
much to assuage its usual critics, and it didn’t prevent its own
intelligence bureaucracy from torpedoing that diplomacy with
the December NIE (National Intelligence Estimate).
“What it has done is give Iran vital time to develop its nuclear
knowhow and technical skill, perhaps to a point of no return. For
President Bush, whose signature promise has been that he would
not allow the world’s most dangerous weapons to fall into the
hands of the most dangerous regimes, this is not a record to be
proud of.”
Israel: Behind the scenes, Israeli and Palestinian leaders are
attempting to broker a 30-day truce between the Israelis and
Hamas, as Israel has further evidence Hamas terrorists have been
training in Iran, while some in the government believe Hizbullah
may have played a role in the seminary attack in Jerusalem.
But there is a heated debate within Israel over the issue of the
settlements, with the government of Prime Minister Olmert
having caved to the wishes of hardliners in approving the
construction of hundreds of homes in a disputed West Bank
district, with Palestinian leaders saying the move was another
attempt to demolish the peace process. The 2003 ‘road map,’
after all, called for the cessation of all settlement construction
and Israelis are split on the issue.
Back to Iran and the nuclear issue, the Jerusalem Post
editorialized:
“”(Peace) cannot be pursued when every U.S.-aligned Arab state
is already thinking ahead to a day when Iran has nuclear weapons
and can undermine their regimes with impunity.
“This brings us to the problem of deterrence and containment,
which have quietly become the consensus approach within the
West’s foreign and defense establishment with respect to Iran.
While only rarely expressed in public, the common establishment
view is that a nuclear Iran is not fundamentally different than a
nuclear Soviet Union was, or a nuclear China and nuclear
Pakistan are today – that is, a problem, but one that can be lived
with.
“What this approach misses is that the Iran regime is different,
and not just, or even mainly, because it glorifies martyrdom. The
Iranian regime may indeed be the national equivalent of a suicide
bomber, but even if it is not, and is susceptible to classic theories
of deterrence, the Iranian problem is different.
“It is different because deterrence, at its best, can only prevent a
nation from firing a nuclear-tipped missile. It might, but
certainly cannot be guaranteed, to prevent a regime from
deploying nuclear weapons through terrorist groups not
identified with the source state. And it cannot, even in theory,
prevent a regime from using its newfound nuclear immunity to
greatly increase its support for ‘conventional’ terrorism to
destabilize neighboring regimes, destroy a diplomatic process,
create crises to pump up the price of oil, or spark a nuclear arms
race.
“If there is an apt historical analogy to the Iranian situation, it is
not the Cold War, but the period that Winston Churchill dubbed
‘The Gathering Storm’ before World War II, during which the
Nazis were still weak but gaining power. This analogy holds
because the Iranian regime will seek to expand totalitarian
Islamism as far and as fast as it can until it is stopped.
“This is what our intelligence community should be saying on
the analytic level and our political leaders should be saying on
the international stage. Nor should we be shy about doing so, out
of fear of transforming an international problem into an ‘Israeli’
issue.
“Israel needs to be at the forefront of explaining the international
implications of a nuclear Iran. We have not done this urgently or
clearly enough. Now we have the worst of both worlds – Iran is
thought of as mainly a threat to Israel, but Israel does not seem
especially alarmed, so, by this measure, there is no reason for
other nations to be.
“While we are right to treat Iran as an international problem,
there is no escaping our own role in puncturing the delusions that
are lulling the West into collective inaction. Our message should
be, and not just in private meetings between heads of state, that
the U.S. and Europe together still can and still must prevent Iran
from becoming the first nuclear-armed terrorist regime.”
Iraq: The United States lost 12 soldiers over a three-day period in
some of the worst violence in months, while Central Command
leader Admiral William Fallon was forced to resign as a result of
an ongoing policy dispute with the White House and Gen. David
Petraeus over handling of both Iran and Iraq. For example,
Fallon wanted to see an aggressive troop withdrawal schedule for
Iraq, while issuing a few statements hinting that the
administration was hellbent on war with Iran.
As for Petraeus, who testifies before Congress next month, he
said “no one” in the U.S. and Iraqi governments “feels that there
has been sufficient progress by any means in the area of national
reconciliation,” or in the provision of basic public services.
[Cameron Barr / Washington Post] This despite the overall
reduction in violence thanks to the surge. In February, after
passage of three key laws, Petraeus was far more optimistic.
Afghanistan: Canada’s parliament voted 198 to 77 to keep
Canadian battalions in Kandahar for another three years,
provided NATO sends 1,000 reinforcements, drones and
helicopters to bolster Canada’s force. Otherwise, it will
withdraw next year.
I like the way our good friends up north are playing this. I
would do the same. Along with the U.S. and the Brits, the
Canadians are bearing the brunt of the heavy fighting (80
soldiers have died, plus a senior diplomat) and they deserve more
support. Americans, particularly the Democratic presidential
candidates, should also remember Canada’s role in Afghanistan
when they question issues such as NAFTA.
Lebanon: For a 16th time, a vote for president has been delayed
as the crisis in government continues. The White House warned
“that continued delay is unacceptable” as it urged outside forces,
i.e. Syria, to butt out. Of course I find this rather humorous since
it was the Bush administration that blew it back in 2005 by not
appropriately supporting the democracy movement in those
critical months after the assassination of Rafik Hariri. But then
I’ve said countless times that Lebanon is going to be one of the
big black marks on the Bush legacy. If you’re looking for a
shred of hope, though, maybe an Arab League summit set for
March 29-30 will produce a semi-positive result; only one thing,
it’s being held in Damascus.
Pakistan: The widower of Benazir Bhutto, Ali Zardari, looks set
to be tabbed prime minister this coming week when the new
parliament convenes, as the coalition between Zardari’s and
Nawaz Sharif’s parties have close to the two-thirds majority
required to strip President Pervez Musharraf of his powers to
dismiss parliament.
China: As I go to post, reports are sketchy on the level of rioting
in Tibet, but the situation is very serious and there evidently have
been fatalities. Earlier in the week, China had crushed protests
by Buddhist monks there. The timing of the violence couldn’t be
worse and there will be a growing cry in some quarters to
boycott the Olympic Games.
China is also dealing with a surge in domestic terrorism, which
the situation in Tibet will only exacerbate. The government
had to admit an incident on a China Southern airliner was an
attempt to take down the aircraft as a woman was trying to
assemble a petrol bomb in the restroom. The smell gave it away
and the crew was able to take action before the terrorist
succeeded. This came on top of an admission that the
government acted to break up a terror ring in western China that
was planning to disrupt the Games.
As for the issue of Taiwan, the island is holding its presidential
election on March 22 and both candidates want closer ties with
Beijing as the independence movement dies with outgoing
President Chen Shui-bian. The new leader is expected to be Ma
Ying-jeou of the Kuomintang. Separately, Chen’s pet project, a
referendum on whether Taiwanese want to apply for UN
membership under the name Taiwan rather than the island’s
name, the Republic of China, will be defeated as the majority just
doesn’t want to rock the boat right now.
Chen issued a parting shot, “Some people may say the window
of opportunity for Taiwan independence has already closed. But
I agree even more with the view that the opportunity of Taiwan
and the Chinese mainland merging, unifying, is becoming ever
more remote.”
Russia: President Vladimir Putin warned that relations between
Russia and the West will not necessarily improve when Dmitry
Medvedev takes over on May 7. “I do not think our partners will
have it easier with Medvedev.”
On the topic of NATO enlargement, Putin added, “You get the
impression that attempts are being made to set up an organization
that would substitute for the UN,” warning that if that happened
“the potential for conflict would only increase.” [BBC News]
But on a lighter note, here is a popular joke going around in
Moscow:
Putin takes Medvedev to a restaurant and orders a steak. “What
about the vegetable?” the waiter asks. Putin looks at Medvedev
and says, ‘The vegetable will have steak, too.” Ba-dum-dum.
Serbia: Prime Minister Kostunica is dissolving the government in
preparation for early elections May 11 because his coalition can
not agree on how to respond to Kosovo’s declaration of
independence and relations with the West and European Union.
Leaders appear to be split down the middle. Meanwhile, Kosovo
Serbs rioted on Friday in one of their two last strongholds.
Malaysia: Since independence in 1957, the United Malays
National Organization (UMNO) has ruled with a strong majority
but the party suffered a big defeat in elections last weekend as
rural Muslims, angered by rising food and fuel costs and rampant
corruption and cronyism rejected the Malay party and voted
instead for a fundamentalist group, as well as Anwar Ibrahim’s
leading opposition party. This was seen as a political tsunami
here and the stock market fell 9.5% on Monday over fears that
badly needed infrastructure projects now won’t be completed as
Prime Minister Abdullah Badawi has lost his crucial 2/3s
majority.
Spain: Socialist Prime Minister Zapatero won reelection and
gained seats in parliament, though to get a working majority he is
going to have to seek the support of parties that represent the
Catalans (Barcelona) and Basques and the issue thus becomes,
what kinds of concessions will they demand? I have to admit, I
often forget just how split this country is.
Random Musings
–It was all about Eliot Spitzer, sports fans. Since this is a
running history, just a few facts for the archives.
“Kristen,” now known to be Jersey girl Ashley Dupre, took the
5:39 p.m. Amtrak train down from Penn Station on Feb. 13 for
her rendezvous with “George Fox,” a k a Eliot Spitzer. As the
Washington Post’s Dana Milbank then reports:
“Calling in to her, uh, dispatcher just after midnight on
Valentine’s Day, she reported that Client 9 had given her $4,300
for the session and down payment toward the next. Spitzer had
used just two of his four allotted hours….
“Spitzer evidently had a reputation with the service for being
‘difficult’ – a sentiment shared by many Wall Street executives
he prosecuted – but Kristen was philosophical. ‘I’m here for a
purpose. I know what my purpose is,’ she said in a phone call
recorded by the feds. ‘I am not a…moron, you know what I
mean. So maybe that’s why girls maybe think they’re difficult.’”
Well, you know the rest. Now some opinion.
Andrea Peyser / New York Post…3/11
“Silda Spitzer was an accomplished woman. Loving mother and
devoted wife. Yesterday, her miserable husband stole it all.
“Silda walked out to face the cameras hanging on to her still-
current husband, Eliot, as if he were a life raft, looking like the
Wife of the Living Dead.
“Her eyes were red from lack of sleep or crying or both, as she
faced God, the media, and a man who actually said, out loud:
“ ‘I want to briefly address a private matter.’
“There’s one for the tombstone. The Spitzers, as in still-Gov.
Eliot and his still-smoking hot Mrs., a Harvard-educated lawyer,
were in and out of the room in 30 seconds. That’s a far shorter
time frame than the newly anointed Love Gov spent entertaining
a certain 5-foot-5, 105-pound American brunette who went by
the name Kristen, who presumably did not spend a day in
Cambridge.
“Kristen, whose ‘date’ with the Spitz ended after midnight on
Feb. 14, 2008. Some wives get roses. Others get Lewinskied.
“But take it from me. All you need to know about the louse you
married and loved enough to follow to Albany – the last bastion
of loose interns, tight miniskirts and shoulder pads – is this:
“Eliot Spitzer – now forever renamed by the federal government
as ‘Client 9’ – finished his ‘date’ with Kristen on Valentine’s
Day….
“I have to conclude that guys like this believe their own hype.
Normal men get lucky with their wives. Maybe have standard
affairs.
“But the Spitzers of the world seem to think their stress level is
so much greater than the rest of us working fools. The world is
on their shoulders. They think they deserve it.
“And they think nothing of dragging their significant others
before the spotlight, in a degrading show of unity.
“He should have gone it alone. A word of advice to Silda: Get
out as fast as your still very attractive legs can carry you. A guy
like this will wear you down.”
Andrea Peyser…3/12
“Elyssa Spitzer is 18 years old. This makes Eliot Spitzer’s first-
born daughter very close in age to a hooker called Kristen – the
woman with whom dad betrayed mom, repeatedly, and for a lot
of money.
“Eliot’s eldest is an adult, but barely. She’s old enough to drive
a car or serve in Iraq without dad’s permission, but still stands
with one foot planted in childhood.
“She is old enough to understand what her father did the day
before Valentine’s Day in Washington. But she is far too young
to make the kinds of moral and ethical compromises her long-
suffering mother, Silda, evidently has chosen.
“Which makes dear old dad’s betrayal all that more cruel.
“We heard Eliot Spitzer apologize on Monday, but briefly and
unspecifically to his ‘family’ and to the ‘public’ – while
suggesting the whole scandal carried out one night at the
Mayflower Hotel was but a ‘private’ matter.
“But Spitzer made no specific mention of the children he
dragged into the world. Who will they trust now?….
“Silda made a choice. She chose to lend herself as a pawn to the
charade that Gov. Spitzer has long been playing on New York,
when she stood at his side looking miserable and beaten. Thus,
she became his enabler. She should have been lying on a beach
in Bermuda.
“Silda will go on. But will the children ever trust again? For
that, Eliot Spitzer should burn.”
Editorial / Wall Street Journal…3/11
“One might call it Shakespearian if there were a shred of
nobleness in the story of Eliot Spitzer’s fall. There is none.
Governor Spitzer, who made his career by specializing in not just
the prosecution, but the ruin, of other men, is himself almost
certainly ruined….
“In our system, citizens agree to invest one of their own with the
power of public prosecution. We call this a public trust. The
ability to bring the full weight of state power against private
individuals or entities has been recognized since the Magna Carta
as a power with limits. At nearly every turn, Eliot Spitzer has
refused to admit that he was subject to those limits.
“The stupendously deluded belief that the sitting Governor of
New York could purchase the services of prostitutes was merely
the last act of a man unable to admit either the existence of, or
need for, limits. At the least, he put himself at risk of blackmail,
and in turn the possible distortion of his public duties. Mr.
Spitzer’s recklessness with the state’s highest elected office,
though, is of a piece with his consistent excesses as Attorney
General from 1999 to 2006.”
Editorial / New York Post…3/13
“On Day 437, everything changed. Finally. So long, Client No.
9. And good riddance.
“There wasn’t an iota of discernible sincerity in soon-to-be-ex-
Gov. Spitzer’s pinched statement of resignation, delivered
yesterday with wife Silda standing at his side.
“ ‘Over the course of my public life, I have insisted…that people,
regardless of their position or power, take responsibility for their
conduct. I can and will ask no less of myself.’
“Well, now, that would be a first, wouldn’t it?
“The truth? Spitzer faced felony indictments (and may still) that
in all probability would have forced him from office….
“So who’s he trying to kid? He didn’t voluntarily ‘take
responsibility’ for his conduct. He got caught. Plain and simple.
He had to go.”
Daniel Henninger / Wall Street Journal…3/13/08
“If Eliot Spitzer had spent his free time with Albany’s in-house
hookers, this wouldn’t be happening. Publicly embarrassed?
Yes. Resign? I doubt it. Now he’s done. Princeton, Harvard
Law, New York attorney general, governor, toast….
“Eliot Spitzer has been brought low by a sexual indiscretion.
This fantastic tale of the Emperors Club VIP, however, can’t be
separated from the rest of Mr. Spitzer’s life. It has been a
disproportionate life.
“Just as he went waaay over the top in his sex quest, he was over
the top as a prosecutor and even as governor….
“Somewhere along the line in our culture, we all became
complicit in elevating and celebrating that which is outsized, not
normal – disproportionate. Eliot Spitzer was a prosecutor on
steroids. His audience cheered, until he got caught. Then, quite
naturally, it leered.
“In a more restricted, even straitlaced age, people had internal
monitors. One was discretion. It had its uses. Still does. Now
we live in a less hinged age. We have unrestrained behavior.
Want to see one? Turn on your TV. Check the prose on the
Web. No surprise that some people, like Client 9, hit the wall.
Judgment is always the first thing to go.
“Eliot Spitzer has a screw loose, a screw that should have been
kept tight. He floated up through the hot celebrity vapors of our
time to become governor of New York. Eliot Spitzer is of a
piece with the outsized personalities this ethos breeds into our
politics now. It would be slanderous to name any public figure
alongside the current news cycle of the Emperors Club VIP. But
the type flourishes.
“The current presidential campaign is flirting with the weird fires
that we’ve set all over the American landscape. The too long
campaign requires the outputting of too much naked ambition.
Political desire – wanting it so bad for so long – runs risks. One
wonders what it may be doing to Barack Obama.
“There may be no going back to a more balanced time, when
unhinged personalities kept their excesses inside their own
homey hells rather than sharing with all of us. As modern
ballast, we use what we’ve got, which is schadenfreude, that
wonderful word for this moment of watching Eliot Spitzer’s fall
into the mud. Schadenfreude is German for pleasure at another’s
misfortune. The worse the better.
“In the spirit of the age, Eliot Spitzer pushed prosecution off its
traditional moorings and turned it into a public spectacle. Bread
and circuses, with his targets thrown to the lions. Now he’s the
circus. As spectacle, Eliot Spitzer’s public resignation yesterday
was as good as it gets, with Silda standing there to define the
outer edge of the horror. We do what we’ve been trained to do:
Show up and watch.
“On Monday, Mr. Spitzer said that he had violated ‘my, or any,
sense of right and wrong.’ Yeah, whatever. He was up and now
he’s down. Proportion restored, sort of.”
–It’s nice to hear a Republican congressman such as New York’s
Peter King say that incoming New York governor David
Paterson is a “thoroughly decent guy.” Paterson, the first legally
blind governor in our nation’s history, is also only the third
African-American to hold the office. We wish him well.
–Peggy Noonan / Wall Street Journal…on Hillary Clinton
“I end with a deadly, deadpan prediction from Christopher
Hitchens. Hillary is the next president, he told radio’s Hugh
Hewitt, because, ‘there’s something horrible and undefeatable
about people who have no life except the worship of power…
people who don’t want the meetings to end, the people who just
are unstoppable, who only have one focus, no humanity, no
character, nothing but the worship of money and power. They
win in the end.’
“It was like Claude Rains summing up the meaning of everything
in the film ‘Lawrence of Arabia’: ‘One of them’s mad and the
other is wholly unscrupulous.’ It’s the moment when you realize
you just heard the truth, the meaning underlying all the drama.
‘They win in the end.’ Gave me a shudder.”
–William Kristol / New York Times
“Perhaps the most obvious way McCain could upend the normal
dynamics of this year’s election would be a bold vice presidential
choice. He could pick a hawkish and principled Democrat like
Joe Lieberman. He could reach beyond the usual bevy of elected
officials by tapping either David Petraeus or Raymond Odierno –
the two generals who together, in an amazing demonstration of
leadership and competence, turned the war in Iraq around last
year. He could persuade the most impressive conservative in
American public life, Clarence Thomas, to join the ticket. There
are other unorthodox possibilities.”
I agree with Ken P., who remarked on the last idea, Clarence
Thomas, “this is totally asinine.”
–Barack Obama won in Mississippi and Wyoming, but now it’s
5 ½ long weeks until Pennsylvania, April 22. You have to feel
sorry for the residents of that state as they are saturation bombed
with campaign commercials. Hang in there!
–In the latest NBC/Wall Street Journal survey, 52% of
Republicans say they would have preferred another nominee.
That’s not too encouraging.
–This is too much. From Robert Novak / Washington Post.
“In preparation for oral arguments Tuesday on the extent of gun
rights guaranteed by the Second Amendment, the U.S. Supreme
Court has before it a brief signed by Vice President Cheney
opposing the Bush administration’s stance. Even more
remarkably, Cheney is faithfully reflecting the views of President
Bush.
“The government position filed with the Supreme Court by U.S.
Solicitor General Paul Clement stunned gun advocates by
opposing the breadth of an appellate court’s affirmation of
individual ownership rights. The Justice Department, not the
vice president, is out of order. But if Bush agrees with Cheney,
why did the president not simply order Clement to revise his
brief? The answers: disorganization and weakness in the eighth
year of his presidency.
“Consequently, a Republican administration finds itself aligned
against the most popular tenet of social conservatism: gun rights,
which enjoy much wider agreement than do opposition to
abortion or gay marriage. Promises in two presidential
campaigns are being abandoned, and Bush finds himself to the
left of even Democratic presidential candidate Sen. Barack
Obama.”
–The longtime treasurer of the National Republican
Congressional Committee, Christopher Ward, is under
investigation for possibly stealing hundreds of thousands of
dollars in funds earmarked for the 2008 campaign. That, my
friends, is a dirtball.
–Regarding the Associated Press’s highly-publicized study that
much of our drinking water contains trace amounts of six
commonly used drugs, count me as one who considers it a non-
story. The amounts found are ridiculously low and you and I
face far more danger in touching handrails and faucets every
day.
–The Earth Liberation Front may be America’s number one
domestic terror threat, but Richard Serrano of the Los Angeles
Times had an interesting piece on how all the other home-grown
terror threats we once concerned ourselves with have simply
faded away in the post-9/11 era.
“Many observers,” writes Serrano, “attribute (this) to Sept. 11,
for diverting the rage of disaffected Americans away from the
U.S. government and toward foreigners, and for fueling the
subsequent Patriot Act-driven crackdown. Others say the
movement began to crumble earlier, when the Y2K disaster, a
favorite prediction of conspiracy theorists, failed to materialize.”
Pssst. I also thought Y2K was a big deal. Never mind……
–1 in 4 teenage girls in this country have a sexually transmitted
disease; 50% of African-American girls. Staggering. Gee, do
you think trash television programs like those found on MTV
and VH-1 have anything to do with this crisis, let alone the
garbage found on the Net?
–If you have HBO, try and get your kids to watch “John
Adams,” starting this Sunday.
–A presidential panel has concluded students’ poor math scores
could be improved by focusing on the basics, such as addition,
multiplication and fractions. No surprise here, as I’ve long said
the best way to learn math is through sports, specifically studying
baseball box scores.
–Finally, it’s been a rough week, particularly if your last name is
Spitzer and you have dual homes in New York and Albany. So
it’s not a bad time to pour a cold one, don’t you think?
According to a study out of the University of Michigan, though,
the number of minutes of work per bottle of beer in India is 369,
but only 10 minutes here in the United States. Yes, we have our
problems, but it could be worse.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $1002
Oil, $110.16
Returns for the week 3/10-3/14
Dow Jones +0.5% [11951]
S&P 500 -0.4% [1288]
S&P MidCap +0.0%
Russell 2000 +0.4%
Nasdaq unchanged [2212]
Returns for the period 1/1/08-3/14/08
Dow Jones -9.9%
S&P 500 -12.3%
S&P MidCap -11.3%
Russell 2000 -13.5%
Nasdaq -16.6%
Bulls 31.1
Bears 43.3 [Source: Chartcraft / Investors Intelligence]*
*These bull/bear figures represent the biggest extremes since
Oct. 2002, right at the market bottom. Back then, the bull
reading then shot up to 50.6 in just four weeks, while the bears
fell to 28.1 as stocks rallied strongly. Remember, it’s a
contrarian indicator and just one of many used by investors and
traders alike.
Happy St. Patrick’s Day!
May the road rise to meet you.
May the wind be always at your back.
May the sun shine warm upon your face,
the rain fall soft upon your fields and,
until we meet again,
may God hold you in the palm of His hand.
Brian Trumbore
