[Posted 7:00 AM ET]
Wall Street
Most Fridays, as I’m working on this column I have CNBC on in
the background with the sound off but Friday afternoon I put the
sound up briefly for a discussion on energy. I was so ticked at
the senseless drivel and everyone talking over everyone else (the
ultimate in bad television) that I disgustedly turned it off and
ended up having a conversation with my friend Trader George,
of Strategic Energy Research and Capital, who thinks somewhat
along the same lines as me.
“We are such a nation of idiots,” I told George, who was hearing
it from me for only about the 4,500th time, seeing as we’ve
known each other for 35 years. As I’ve written in the space at
least a hundred times alone, when it comes to our energy
predicament there is no debate. We have to do everything! You
can’t pick and choose, such as New York Times columnist
Thomas Friedman tries to do on occasion. There is no substitute
for oil in the short- to intermediate-term so we have to drill, drill,
drill…as well as conserve. This debate over ANWR, for
example, is beyond absurd. Drill in ANWR. And drill offshore.
And drill in the Rockies. We can do it environmentally safely.
But we also have to extend tax credits, such as for solar power,
and incentivize those coming up with other alternative energy
projects until they can stand on their own economically. Yes,
that’s going to cost money and explode the deficit even further,
but we have to do it. There will be pain. Tough. Ask the Real
Greatest Generation, the Depression/WWII crowd, the few left
among us, what real pain and sacrifice is. Remember what I told
you just seven weeks ago after my visit to the World War II
Museum in New Orleans? All the products Americans cut back
on to aid the troops? The collection of cooking grease and such?
That was both conservation and sacrifice. We need to do it all
again today. Just don’t look for leadership in the White House.
It only makes sense. The one industry I do have a beef with,
however, is coal, because it pollutes more than anything else we
use today, as well as being China’s pollution export of choice,
via the jet stream, but here, too, there are clean-coal technologies
available today so promote and incent them as well. As for the
tired debate about nuclear, we can’t wait that long at this point.
10+ years, if we acted today, to build one plant? I don’t think so.
The French ‘got it’ when it comes to nuclear long ago. Our
nation of idiots, on the other hand, didn’t. Now there are better
and easier options in the required time frame.
On a related topic, PIMCO’s Bill Gross wrote the following:
“It’s Sunday afternoon at the Coliseum, folks, and all good fun,
but the hordes are crossing the Alps and headed for modern day
Rome – better educated, harder working, and willing to sacrifice
today for a better tomorrow. Can it be any wonder that an
estimated 1% of America’s wealth migrates into foreign hands
every year? We, as a people, are overweight, poorly educated,
overindulged, and imbued with such a sense of self importance
on a geopolitical scale that our allies are dropping like flies. ‘Yes
we can?’ Well, if so, then the ‘we’ is the critical element, not the
leader that will be chosen in November. Let’s get off the couch
and shape up – physically, intellectually, and institutionally – and
begin to make some informed choices about our future.”
Amen.
—
As you’ve all noticed, oil hit over $130 this week, $135 before
closing at $131 and change, and gasoline futures finished the
week at $3.40, guaranteeing $4.00 at the pump as a national
average shortly. Yes, Virginia, we’ve reached the tipping point
as the stock of automaker Ford cratered due to its reliance on
SUV and pickup sales at the worst possible time, and airline
stocks across the board plunged thanks to jet fuel costs that have
risen over 80% in just the last year. We risk killing an industry
that, to say the least, is critical to our economic future, unless
you’ve figured out a way to teletransport yourself all over the
world. The damage to the economy is swift and severe. The
bubble in oil and other commodities will pop at some point, but
these things can go on for indeterminable periods of time before
they do.
Though here is where I disagree with many of my friends in the
energy business, as well as PIMCO’s Bill Gross. I believe
inflation will moderate for one simple fact. The global economy
is about to totally flip, just as we have done in the U.S., and
demand not only for oil but wheat, rice and just about everything
you can imagine will fall. Not a crash, mind you…just call it the
Big Moderation.
I get a kick out of those who say, well look at all those in the
developed world who can now afford to eat more rice; that’s why
the price of it was skyrocketing. Bull. There’s always been
enough rice. But as I also wrote recently, in all seriousness,
when the economy flips those who had graduated from eating
insects to rice will have to go back to eating insects for a spell.
As for when prices for most commodities will begin to moderate,
with some the process has started and the rest will follow, sooner
than you think. Of course the Big Moderation will at the same
time wash out the speculators, which is always fun to see, for
those of us who didn’t speculate, as it provides the opportunity
for true value investors to then get back in…as I hope will be the
case with yours truly and oil stocks. Because the longer-term
picture for oil is indeed very bullish. I remain a Peak Oil
adherent.
In the meantime, record energy prices will do a number on the
earnings of Corporate America, either because of increased
expenses and/or decreased consumer spending. Stocks won’t
collapse, as has been my forecast for 2008 all along, but any
rallies will be limited in scope and we’ll still end the year down
about 3 to 5 percent as measured by the major averages.
Lastly, the housing picture continues to deteriorate with April
existing home sales falling again and the median price now off
8% for this category year over year. Most importantly, however,
inventory levels surged; now over 11 months. You all know the
drill here; you aren’t going to see any kind of recovery in the
sector until you work off a significant amount of the inventory
and yet it keeps going up.
Economist Dean Baker notes that we are losing $60,000 per year
per homeowner these days, which has an enormous impact on
consumption. Blackstone Group co-founder Pete Peterson was
on CNBC Friday morning and he added that when the latest
figures on the average Americans’ net worth is released, the
decline will be severe, which only stands to reason, but it is
significant because the move will be at a level not seen since the
Depression, at least that’s my own guess.
Two other notes on housing. In case you haven’t noticed, the
days of putting down less than 20% for a home are over…finis…
for our lifetime. That’s a good thing, but a shock nonetheless.
And you’ve undoubtedly noticed I haven’t said more than about
four words this entire year on the prospects for a housing bailout.
Good thing I didn’t waste my or your time on it, because
remember how important this was supposed to be? As in our
leaders in Washington, starting with the president, the secretary
of the treasury, and the chairman of the Federal Reserve, have
known about the crisis since last summer but we still don’t have
a piece of legislation that Bush can sign, though now we appear
to be close to one.
Forget whether or not you even believe we should attempt to bail
out a single existing homeowner. Regardless, when you couple
my opening discussion on energy with the fact that our Congress
can’t act on what is supposed to be the biggest financial crisis for
the average American since the 1930s, and you can’t help but
shake your head. You can still believe in America, but you have
to admit we are writing one of our worst chapters.
Street Bytes
–Stocks tumbled anew after a solid rally the previous week
thanks to ever-soaring energy and inflation fears of all kinds.
The Dow Jones had its worst week since early February, off
3.9% and back down to 12479, while Nasdaq lost 3.3% and the
S&P 500 3.5%.
The Fed released its minutes from the April meeting and at the
same time revised its growth forecast down yet again to 0.3% to
1.2% growth for 2008 from 1.3% to 2.0%. It also projects that
the unemployment rate will move from its current 5.0% to 5.5%
to 5.7%. That doesn’t sound like much of a move, historically,
but it will feel much worse, plus the actual unemployment rate is
higher than the government’s figure.
–U.S. Treasury Yields
6-mo. 1.92% 2-yr. 2.43% 10-yr. 3.84% 30-yr. 4.57%
Bonds were unchanged on the week despite a higher than
expected core producer price reading, up 0.4%, that helped spook
stocks. And the aforementioned Fed minutes signaled Bernanke
and Co. are finished cutting interest rates for the foreseeable
future as the focus shifts to dealing with inflation.
Bill Gross, as he first offered in 2004, reiterated the
government’s official statistics are understating inflation by 1%,
which if the bean counters ever got around to admitting this and
correcting the methodology would spell trouble not only for
Treasuries, but also more pain for stocks and real estate.
–One of the Street’s best economists, ISI’s Ed Hyman, told
CNBC that the main issue today is oil, followed by housing and
the European Central Bank. Oil is keeping the ECB from
lowering interest rates, because their mandate is for price
stability (as opposed to the Fed’s floating mandate of
‘whatever’), first and foremost, and inflation remains the chief
concern across the pond. This comes at the expense of growth.
But while Hyman doesn’t see a recession, he also doesn’t see a
recovery thru the first half of 2009 either; essentially 1% growth.
However, he’s sanguine when it comes to the equity market over
this period.
–Oppenheimer banking analyst Meredith Whitney sees another
$170 billion in bank writedowns coming, or round two of the
credit crisis as it spreads to commercial real estate, auto and
home equity loans, as well as further damage on the credit
default swap side of the ledger.
–The U.K. housing slump continues to deepen, impacting tens of
thousands of jobs on the construction front there.
–In a survey for the Financial Times, the question was asked in
Germany, France, Japan, U.K., Italy, Spain, U.S. and China, “Do
you expect the gap between the rich and poor to widen in the
next five years?” 60% in China said ‘yes.’ In the other seven,
the percentage saying yes exceeded 75%. As the FT framed it,
“Income inequality is the great divide.”
–Taiwan, Malaysia and Indonesia have been forced to cut fuel
subsidies in order to protect their budgets. The impact is no
different than that on food for this region (or the rest of the
developing world for that matter). So much for the rising middle
class and folks graduating from $1 a day to $10 in income.
The protests will be swift as the positive trends of the past
decade reverse. But these governments have no choice,
especially seeing as they have to protect state-owned energy
companies that have been killed by the same price controls.
–The economic impact of the China earthquake is still unknown,
but deeply worrisome, with analysts pointing to near-term further
inflationary pressures, seeing as Sichuan province was a critical
agricultural and pork producing area. [Pork, being a staple of the
diet, had been a key source of rising inflation prior to the disaster
amidst supposed supply issues.]
–While the past two years have seen a break on the hurricane
front, the National Oceanic and Atmospheric Administration is
forecasting six to nine this year, with two to five classified as
major. It will just take one to shoot the gap into the Gulf for all
hell to break loose on the energy front like never before,
including 2005.
–Corporate defaults are rising, which should be no surprise.
According to S&P, borrowers have defaulted 28 times on $19
billion of debt thus far this year, compared with 30 for all of
2006.
–Ford, in a sudden reversal, said it would not return to
profitability in 2009, just one month after stating it would do so,
thanks to tumbling sales of pickups and SUVs amidst $4
gasoline. Nice strategic planning, eh? Lots of Big Picture guys
at Ford, don’t you think? Ford will now pare North American
production 15 percent. S&P changed its outlook on Ford debt to
“negative,” though its bonds are already rated junk.
–You want good news? Try the food front, like with wheat. The
Department of Agriculture is forecasting a strong wheat harvest
in the U.S., with world wheat production setting records, up 8%
from 2007 levels. Admittedly, though, we need a few years of
solid harvests to get supplies back up to comfortable levels.
–In line with the above, the drought across much of the
Southeast and the West has eased significantly. One-quarter of
the USA is suffering from some form of drought compared to 65
percent last summer, various federal agencies claim. One big
heatwave can put us back in major deficit, but the data is very
encouraging.
–There are some concerns that some of the plants being
proposed for extensive “second-generation” biofuels could turn
out to be major invasive alien species, according to a paper put
out by various groups such as the Nature Conservancy. For
example, one proposed Florida biofuel project would use ‘giant
reed,’ which a number of scientists say could endanger the
Everglades, seeing as this particular species is known to drain
wetlands and clog drainage systems in places where it has been
used in the past. [New York Times]
–The Wall Street Journal opined on the $300 billion farm bill,
which President Bush vetoed but was handily overridden.
“Since the last farm bill in 2002, the price of cotton is up 105%,
soybeans 164%, corn 169% and wheat 256%. Yet when Mr.
Bush proposed the genuine change of limiting farm welfare to
those earning less than $200,000 a year, he was laughed out of
town. The bill purports to limit subsidies to those earning a mere
$750,000, but loopholes and spousal qualifications make it closer
to $2.5 million. As Barack Obama likes to say, it’s time
Washington worked for ‘the middle class,’ which apparently
includes millionaire corn and sugar farmers.”
Both parties share the blame in this fiasco, with some Republican
leaders urging their colleagues to oppose Bush or face electoral
disaster in November. Rep. Tom Davis (R-Va.) said, “If I was a
farm-belt guy, I would be all over my district now, saying, ‘I
stood with you, not the party of the president.’” Davis added in a
letter to GOP leaders, “Anytime you can separate yourself from
someone with a 28 percent favorability rating, that’s a good
thing.”
[The Senate overrode the president’s veto, 82-13, while the
House did 316-108; including 100 Republicans in the House and
35 in the Senate.]
–Russian natural gas giant Gazprom warned the European Union
that it was endangering energy security with proposals forcing
the break up of energy production, transmission and distribution.
“Which companies will be able to plan long-term investments
under those conditions?” said a Gazprom official. The Kremlin
wants to maintain full control of Europe’s natural gas supply, of
course.
–What’s this? Southern California’s home sales jumped 22% in
April from March? Before you get too excited and see this as a
sign of a reversal, just understand the surge is due to bargain
hunters snapping up foreclosed or deeply hit lower-end homes.
Sales compared to April 2007 are still down 19%.
–Maurice “Hank” Greenberg, former CEO of AIG, is facing
civil fraud charges for his role in inflating the company’s
financials while he was at the helm, 2000, specifically, having
been advised by the SEC he is under formal investigation.
Separately, AIG announced it is in the process of raising $20
billion in capital to protect its deeply impaired balance sheet, this
following its recent report of $15 billion in writedowns on
derivatives and mortgage-related securities holdings. Analysts
now wonder what level of further writedowns are in the offing
with the latest capital raise.
–The Journal reported on the problems created by Citigroup’s
Falcon Strategies hedge fund, a fixed-income vehicle whose
value has plummeted, causing steep losses for at least three large
U.S. banks including Wachovia and Fifth Third of Cincinnati.
But this is what caught my eye. The hedge fund hoped to
generate big returns off a type of employee life insurance. David
Enrich of the Journal wrote:
“In such bank-owned life-insurance programs, banks buy
policies on their employees. When employees die, the banks
collect. Because the income is tax-free, some critics contend that
BOLI [bank-owned life insurance programs] is a tax shelter.
“Last year, nearly 700 banks reported holding a combined $117.5
billion in their BOLI accounts…
“In recent years, many banks have grown aggressive with their
BOLI programs, putting premiums into investment vehicles that
let the banks record quarterly profits – or losses. Quarterly
profits or losses are tax-free, and the policies still pay when
employees die.”
I had never known about this situation until I read this. This is
classic Wall Street financial engineering, taking advantage of our
absurd tax code, as BOLI serves zero purpose whatsoever but to
in most cases artificially impact balance sheets and hoodwink
investors into the true operations of a bank or securities firm.
–The SEC filed civil lawsuits against eight former AOL
executives for participating in illegal accounting practices that
inflated AOL’s reported revenue by more than $1 billion going
back to the period 2000 to 2002. In the formal complaint, the
SEC contended that the former execs “knowingly or recklessly
engineered, oversaw and executed a scheme to artificially and
materially inflate the company’s reported online advertising
revenue.” An SEC official told the Washington Post (which first
exposed the chicanery), “From our perspective, this is one of the
most egregious accounting frauds in recent memory.”
–So I’m tooling down the historic desert highway in Jordan, a
road said to be about 5,000 years old, and my driver points out a
car carrier…a carrier filled with Chinese autos.
–In another sign of the growing crisis in commercial real estate,
office leasing activity in the Washington, D.C., market is at its
lowest level since 1995.
–Inflation Watch: McDonald’s revised upward its estimate of
food- and paper-cost charges for each of its domestic restaurants
this year to a range of $32,000 to $35,000 from an earlier
forecast of $22,000 to $26,000. Franchisees are ticked of at
some of the prices they’ve had to eat, including with the Dollar
Menu, which is now about to become the McValue Menu
because you can’t make money on a double cheeseburger at a
buck anymore.
–The International Air Transport Association says first-class air
travel dropped 4% in March compared with the same period last
year, with the biggest drops being in the inter-Europe and
Europe-Far East markets. Air travel across the North Atlantic
remained strong, according to the IATA, though I’d add my own
anecdotal note that on my return Continental flight from Paris on
Tuesday, there were more empty seats in coach than I’ve seen in
some time.
–Crain’s New York Business had a devastating report on the
local television ad market. For six English-speaking stations,
advertising revenues were down 11% in April alone over March.
The big culprits? Aside from the seemingly ever-present auto
dealers that are pulling back in a big way, GEICO’s advertising
has virtually dried up.
–In an interview with the Financial Times, former Citigroup
chairman Sandy Weill, architect of the financial services
supermarket model, admitted the selection of Chuck Prince to
replace him was flawed and not the “right thing” for the
company. But he defended the supermarket model for Citi and
the financial services industry. Weill is delusional.
–Shares in Anheuser-Busch surged on a report that it may
receive a hefty bid from InBev NV, the maker of Stella Artois
and other assorted adult beverages. Whether it’s true or not, I
was happy for one day at least because in sympathy, my Mexican
beverage company rose smartly, like the head on a freshly
poured beer.
–30 years ago, Memorial Day 1978, the first casino, Resorts
International, opened in Atlantic City. The entertainer to toss the
first dice to signify the kick off of legalized gambling was Steve
Lawrence. Since then, casino gambling in AC has created tens
of thousands of jobs and a flood of money for state coffers (much
of which was then wasted), but has done zero for Atlantic City
itself.
–Finally, I think AIG needs to change their ad campaign, “The
strength to be there.” You know that commercial of theirs with
the little kid who enters his parent’s bedroom and states “I’m
worried about this family’s financial future”? Here’s my new
ending.
“What about car insurance, estate planning?”
“Relax, Buddy, we’re with AIG.”
“Aaagghhhhhhhhhhhh!!!!”
Foreign Affairs
Iraq: First, the good news. General David Petraeus told
Congress he is confident the improving security situation will
lead to troop reductions in the fall, though just how many is not
known today. What we have seen is a much better effort by the
Iraqi government as it grows in confidence thanks in no small
part to an improving Army. This week, 10,000 Iraqi troops,
acting without U.S. support, moved into Sadr City and secured
areas that were once war zones, this after the successful
campaign to restore order to Basra. The peace is due to a
ceasefire agreement with Shia cleric Moqtada al-Sadr. But the
two million residents of Sadr City are not happy at the
destruction of their shops and offices. Nonetheless, relative
peace is a good thing.
Iran: Defense Secretary Robert Gates backed up President Bush
in saying stepped up pressure, not negotiation, was the way to
gain leverage with Tehran. “I think the key here is developing
leverage either through economic, or diplomatic or military
pressures on the Iranian government so they believe they must
have talks with the U.S. because there is something they want
from us, which is the relief from the pressure,” the secretary told
a Senate panel. Under questioning, though, Gates had to admit
that the administration probably missed a window of opportunity
in 2003 and 2004 when the more moderate Mohammed Khatami
was president. “At a time when we had overthrown the Taliban,
and when we had overthrown Saddam Hussein, the Iranians were
clearly very worried about what we would do next in 2003-
2004.” [AFP]
Iran itself has proposed new talks on security issues, including its
nuclear program, which is nothing more than a stall tactic and
laughable. As reported by Robin Wright of the Washington Post,
“A European official characterized Iran’s proposal as ‘detached
from reality.’ Iran rejects talks based on U.N. resolutions, the
envoy noted, but then appeals to the world body to consider
negotiations on its terms. ‘It’s all a bit of a game,’ he said.”
Others say it is a mistake to dismiss Iran’s proposals for direct
negotiations on a wide range of issues.
Back to Robert Gates, he told the above referenced Senate
committee that while al-Qaeda in Iraq is in a greatly diminished
state, the Islamic extremist movement in some ways posed a
more daunting challenge today than on Sept. 11, 2001. Gates
described the movement as being more diffuse and less reliant on
a single figure like Osama bin Laden.
“It has become an independent force of its own, capable of
animating a corps of devoted followers without direct contact,”
and that the adversary is now “capable of inspiring violence
without direct orders.” [Robert Burns / AP]
Lebanon: And now the week’s awful news. An Arab-mediated
agreement gives Hizbullah more power than it ever had before,
even as the government crisis over selection of a new president
has ended. General Michel Suleiman, always viewed as the
consensus pick to be head of state, will become president on
Sunday. This part is good.
But here’s the deal. As part of the new power-sharing
agreement, Hizbullah now gets 11 of 30 cabinet positions, 11
being the number required to block any government initiatives.
Hizbullah also won’t be disarmed, this despite two existing U.N.
resolutions to do so. Sound familiar? Iran has been defying
U.N. resolutions to dismantle its uranium enrichment program.
Incredibly, the Bush administration is claiming victory and both
the U.S. and Britain said that Hizbullah had been weakened by
the past month’s mini civil war. Secretary of State Condoleezza
Rice said “Hizbullah lost something very important, which is any
argument that it is somehow a resistance movement on behalf of
the Lebanese people. What it is, is a militia that, given an
opportunity, decided to turn its guns on its own people. It is
never going to live that down.”
Earth to Condi…Hizbullah is far stronger, even if it alienated a
segment of the population through its thuggery and vicious show
of force. They got exactly what they wanted, plus, they get to
keep the new communications network, directly tied to Syria,
that will aid it in its next war with Israel. So while the Lebanese
people, particularly those in Beirut itself, get to take a breather
and attempt to get their businesses up and running again, the
longer-term outlook has never been worse and it bears repeating,
the failure of the Bush White House to massively aid the
democracy forces and the military in 2005 has come back to
haunt it.
Israel: The Air Force came within moments of shooting down
Tony Blair’s plane, which would have been a rather cataclysmic
mistake, thanks to the fact Blair’s pilot failed to contact air traffic
control as the plane flew from Sharm el-Sheikh to attend a donor
conference in Bethlehem. The controllers spotted a suspicious
aircraft heading into Israeli airspace from the Sinai peninsula and
made several attempts to establish contact and when the pilot
failed to respond, aircraft were scrambled. Thankfully, the
Israeli fighter pilots exhibited cool judgment and it wasn’t until
they were above the Blair plane that the pilot figured out he was
a suspected target and made contact. Alas, the Lebanese ‘peace’
agreement was bad enough for Israel.
Meanwhile, much was made of the disclosure Israel and Syria
have been holding preliminary discussions, with Turkey as the
go-between. Israel is constantly talking to everyone, but the
significance here is Syria on many levels does desire peace, of
this I’m sure, and, Turkey is the perfect negotiator, as stated in
this space before. Turkey is far more an honest broker than the
U.S. has been in the region and Turkey has long had solid
relations with Israel.
There is also some truth to reports that Syria is concerned about
its reliance on Iran and sees how Tehran has become the prime
force in the region, while Syria suffers in isolation. But there is
also little doubt Israeli Prime Minister Olmert went public with
the low-level talks as a way of deflecting attention away from the
ongoing corruption investigation that could force him to resign in
a moment’s notice should he be indicted.
As for the Israeli-Palestinian peace talks, Palestinian President
Mahmoud Abbas said he was frustrated at what he heard from
President Bush during the latter’s trip to the region and that all
Abbas wants is a “minimum level of neutrality,” adding the U.S.
role as an honest broker was tarnished.
China: I had a phone conversation with my friend Gary in
Fuzhou, China, on Wednesday and he was giving me a more
localized update on the quake’s aftermath. What I found
interesting is that the people genuinely are pleased with the
government’s efforts thus far and this pride, if it holds (a big ‘if’
because the post-quake issues are just taking hold now), is
critical in preventing the nation’s economy from rolling over. If
the people feel confident, the resultant problems will be
overcome and the economy will keep chugging along.
Otherwise, there are huge ramifications for the global economy,
as well as prospects for major unrest across China itself.
But there is another big issue here taking center stage, that being
the inauguration of Taiwan’s new president, Ma Ying-jeou, and
Beijing’s very positive response thus far. Chinese President Hu
Jintao is going to meet with Taiwan’s ruling party chairman
soon, a major step, and China has pledged to take a hands-off
approach for the time being when it comes to talk of
reunification. For his part, in his inaugural address President Ma
said he would not engage in an arms race with China, though
Taiwan would continue to procure defensive weapons. I would
add that if China really wanted to send a strong signal, it would
begin removing many of the 1,000 missiles targeting the island.
[I’ll say this does indeed become a reality by year end.]
I also have to admit I have a very real personal interest in strong
China-Taiwan relations as my China investment, with its new
facility being built at a major port initiative near Fuzhou, could
benefit greatly down the road. Thus far, investors haven’t been
focused at all on the fact that the shortest distance between
Taipei and the mainland leads here.
North Korea: The U.S. resumed food aid, 500,000 tons worth, as
much on humanitarian grounds as supposed cooperation on the
nuclear weapons negotiation front, so we’re told, while it is
possible that nuclear fuel rods removed from the Yongbyon
facility could end up in reactors in South Korea.
Russia: Moscow accused Georgia of fomenting violence in
Chechnya as it holds a Georgian who has allegedly been
supporting militant efforts to destabilize the Kremlin’s puppet
governments in the Caucasus.
On the change in government, with Vladimir Putin shifting over
to the prime minister post and Dmitry Medvedev moving into the
presidency, Alexander Golts, a newspaper editor, had the
following comments in an op-ed for the Moscow Times.
“Putin’s power vertical is being replaced by a new system of
authority based on personal agreements. This is unfolding in a
government where a clear pecking order based on the rule of law
is needed. The outcome could be a dangerous power vacuum
instead of two centers of power. Anybody who has worked in an
organization with too many bosses knows that a struggle for
subordinates inevitably develops between them.
“All of this is occurring amid what seems to be the start of rather
serious changes to the Defense Ministry. There are plans for a
significant reduction in the number of officers, including
generals. If that happens, a conflict will inevitably erupt, with
one group of officers appealing to the president for help, and the
other group to the prime minister.
“This is especially dangerous given that all of the highest posts in
the law enforcement agencies are held by people who entered
service during the latter half of the 1980s and early 1990s. In
contrast to officers cast in the Soviet mold, these men do not
respect or fear their political leaders.
“There is nothing to indicate that the new system of governance
is being created under a clear and well-considered plan. More
likely, it is an improvisation, with its authors hoping that
everything will fall into place by itself. But Russian history
contains grim examples of leaders who relied on ‘manual
control,’ personal charisma and a loud voice to rule the country.”
Jordan: Like I said when I was there, this place may formally be
a friend of the U.S., but it is a beehive of would-be and wannabe
terrorists. On Wednesday, a court in Amman sentenced eight to
life in prison for plotting to attack the U.S. Embassy and other
sites in Amman. The suspects have links to al-Qaeda and the
plot included the release of toxic chemicals that could have
caused tens of thousands of deaths. Zarqawi was the
mastermind in one of his last, luckily ill-fated, attempts before he
was taken out.
South Africa: Anti-immigrant violence has exploded across the
country this week as mobs attacked Somalis and Zimbabweans
who are seen as having taken jobs from native South Africans in
fleeing turmoil in their own homes. At least 40 have been killed
(though by the time you read this the toll could be much higher),
including some brutal killings that were filmed. Troops have
been deployed as President Thabo Mbeki flounders. Tourist
officials are deeply concerned visitors will now avoid the
country. [You’d have to be nuts to go there today.]
The unrest is of course tied to a great extent to the turmoil in
Zimbabwe and Robert Mugabe’s regime, which has forced the
exodus into South Africa. The Wall Street Journal Europe
editorialized:
“By failing to condemn Robert Mugabe’s murderous
dictatorship, Mr. Mbeki has done more than any other outsider to
keep him in power. He has also perpetuated the flood of
Zimbabwean refugees who now comprise three fifths of South
Africa’s foreigners. They seek shelter and livelihoods in an
economy burdened further by systemic corruption and sharply
rising food prices. The results include lynchings and looting that
have left one Johannesburg district looking ‘like a war zone.’….
“Zimbabwe should be booming thanks to soaring world cereal
and commodity prices. Instead, it is acting as a brake on the
entire regional economy and flooding South Africa with workers
willing to accept a fraction of average local wages. Mr. Mbeki
could still reverse much of the damage by abandoning Mr.
Mugabe….His record inspires little confidence, but at least the
effects of his complacency are now in plain view on his own
streets.”
But remember, sports fans, Mbeki’s eventual successor, Jacob
Zuma, is a certifiable idiot.
As for the coming electoral runoff in Zimbabwe, opposition
leader Morgan Tsvangirai is returning home on Saturday to begin
the campaign for the June 27 vote amidst assassination threats.
Burma: It appears that the top military leader is finally letting
foreign aid workers in for cyclone relief, but, if true, it took a
personal visit from UN Secretary-General Ban Ki-moon to
accomplish this. At least 78,000 have died and another 56,000
are missing.
Italy: Naples’ trash crisis is an unmitigated disaster and Prime
Minister Silvio Berlusconi, back in office, faces an immediate
crisis. Berlusconi has vowed to clean up the trash with a
military effort, though there is no designated place to dump the
now 45,000 tons of rotting garbage.
The other issue Italy faces is illegal immigration and the
government announced a sweeping program to punish illegals
with up to four years in prison. The problem here is the huge
influx of Gypsy, or Roma, many from Romania. But
Romanians, as new members of the European Union, have rights,
as in all EU citizens have the right to move freely between EU
countries. Italy is walking a fine line here if it seeks to
specifically crack down on Romanians.
Random Musings
–It’s almost official…Barack Obama as the Democratic Party
nominee for president. For the archives, Hillary won in
Kentucky, 65-30, while Obama took Oregon 58-42, but aside
from three remaining primaries, there is still the issue of what to
do with Florida and Michigan.
–Sen. Joseph Lieberman, on Obama’s and the Democratic
Party’s foreign policy as expressed in an op-ed for the Wall
Street Journal:
“When total victory did not come quickly in Iraq, the old voices
of partisanship and peace at any price saw an opportunity to
reassert themselves. By considering centrism to be collaboration
with the enemy – not bin Laden, but Mr. Bush – activists have
successfully pulled the Democratic Party further to the left than it
has been at any point in the last 20 years.
“Far too many Democratic leaders have kow-towed to these
opinions rather than challenging them. That unfortunately
includes Barack Obama, who, contrary to his rhetorical
invocations of bipartisan change, has not been willing to stand up
to his party’s left wing on a single significant national security or
international economic issue in this campaign.
“In this, Sen. Obama stands in stark contrast to John McCain,
who has shown the political courage throughout his career to do
what he thinks is right – regardless of its popularity in his party
or outside it.
“John also understands something else that too many Democrats
seem to have become confused about lately – the difference
between America’s friends and America’s enemies.”
But from the other side, Democratic Sen. Joseph Biden, also in a
Journal op-ed.
“The president had a historic opportunity to unite Americans and
the world in common cause. Instead – by exploiting the politics
of fear, instigating an optional war in Iraq before finishing a
necessary war in Afghanistan, and instituting policies on torture,
detainees and domestic surveillance that fly in the face of our
values and interests – Mr. Bush divided Americans from each
other and from the world.
“At the heart of this failure is an obsession with the ‘war on
terrorism’ that ignores larger forces shaping the world: the
emergence of China, India, Russia and Europe; the spread of
lethal weapons and dangerous diseases; uncertain supplies of
energy, food and water; the persistence of poverty; ethnic
animosities and state failures; a rapidly warming planet; the
challenge to nation states from above and below.
“Instead, Mr. Bush has turned a small number of radical groups
that hate America into a 10-foot tall existential monster that
dictates every move we make.
“The intersection of al Qaeda with the world’s most lethal
weapons is a deadly serious problem. Al Qaeda must be
destroyed. But to compare terrorism with an all-encompassing
ideology like communism and fascism is evidence of profound
confusion.
“Terrorism is a means, not an end, and very different groups and
countries are using it toward very different goals. Messrs. Bush
and McCain lump together, as a single threat, extremist groups
and states more at odds with each other than with us: Sunnis and
Shiites, Persians and Arabs, Iraq and Iran, al Qaeda and Shiite
militias. If they can’t identify the enemy or describe the war
we’re fighting, it’s difficult to see how we will win.
“The results speak for themselves.
“On George Bush’s watch, Iran, not freedom, has been on the
march: Iran is much closer to the bomb; its influence in Iraq is
expanding; its terrorist proxy Hizbullah is ascendant in Lebanon
and that country is on the brink of civil war.
“Beyond Iran, al Qaeda in Afghanistan and Pakistan – the people
who actually attacked us on 9/11 – are stronger now than at any
time since 9/11. Radical recruitment is on the rise. Hamas
controls Gaza and launches rockets at Israel every day. Some
140,000 American troops remain stuck in Iraq with no end in
sight.
“Because of the policies Mr. Bush has pursued and Mr. McCain
would continue, the entire Middle East is more dangerous. The
United States and our allies, including Israel, are less secure.”
Let’s face it….it’s going to be a helluva campaign. Americans
can’t complain about one thing this go ‘round. We do have a
choice.
–John McCain has a real problem with the lobbyists that are
peopling his campaign, at least five of whom have been forced to
leave. McCain can’t have it both ways. But in the race between
Obama and McCain, Obama is foolish to attack the former POW
on anything having to do with military service, as Obama did in
questioning his lack of support for a bill involving G.I. benefits.
–Syndicated columnist Marie Cocco wrote the following in a
Washington Post op-ed.
“A woman? Yes. But not that woman.
“It is the platitude of the moment, an automatic rejoinder to any
suggestion that Hillary Clinton has struggled so desperately –
and so far unsuccessfully – to grasp the Democratic presidential
nomination in some measure because she is female.
“It isn’t the woman part, the rationale goes. It’s the Clinton part:
that ‘polarizing’ persona and ‘unlikable’ demeanor. The
unappetizing thought of President ‘Billary.’ The more
inspirational quest by Barack Obama to become the country’s
first black president.
“Yet the question remains: If not now, when? If not Hillary,
who?….
“No woman on the political horizon possesses the portfolio that
Clinton brought to this campaign: National name recognition. A
record as a prodigious fundraiser – for herself and scores of other
Democrats. Winner of two Senate races in New York, a rough-
and-tumble state with a trove of 31 electoral college votes and
Democratic donors with deep pockets. And a huge, loyal base of
support within her party.
“Who can compare?….
“Clinton cleared the hurdles often cited as holding American
women back, yet she is unlikely to surmount the final barrier. So
you have to wonder.
“Is it something about Hillary, or something about us?”
Oh, give me a freakin’ break. Just like America would have
elected Colin Powell had he run back in 2000, the first African-
American president, America is ready for a woman president,
too.
But if you read Ms. Coco’s entire piece, you’d see there was no
mention how Hillary treated us all like chumps over the Bosnia
incident.
I’m amazed in this political season how so many want us to
believe that items such as Hillary’s incredible Bosnia tale, or
Obama’s relation with Rev. Wright, don’t matter. They do
matter. It’s not an issue of the game of politics, past votes on
taxes and such. It’s an issue of character and trust that these two
referenced items, for example, bring to the fore.
So good riddance, Hillary. [Maybe……………….you don’t
think Barack would really pick her, do you? No, he couldn’t
possibly do that, not after Friday’s assassination comment
……………would he?]
–Staten Island Republican Congresman Vito Fossella finally
decided not to seek reelection following disclosure of his DWI
arrest, the love-child, the mistress and all manner of other sordid
details.
So Fossella defender, Rep. Cong. Peter King (N.Y.), wrote an
op-ed for the New York Post and I’m taking this space to
respond to some of King’s points.
“(Did) Fossella’s transgressions really warrant endless days of
front-page coverage with color photos? Was this saga that much
more newsworthy than the more than 100,000 innocent people
who were killed in Myanmar or whatever number of New
Yorkers who were murdered, raped or robbed during this time?”
Yes, Cong. King, it was. Vito Fossella isn’t some schlep
working for the city, he’s a congressman. But he not only broke
the law, he’s now under a formal congressional ethics committee
investigation for allegedly duping taxpayers while he was flitting
around Europe with his mistress.
“Let’s get some perspective: Presidents such as John Kennedy
and Lyndon Johnson had extramarital affairs….Objective
journalists would look at the entire person and not present a
trivialized, prurient caricature.”
Congressman, times have changed, in case you haven’t noticed.
I’d also say that every story the news media first put forth has
turned out to be true in this instance. And, again, Fossella was
doing his philandering on the taxpayers’ dime! This isn’t about
defending a friend. Our elected officials have to be above
reproach. And it’s about far more than Fossella having an
affair he hid from his wife. Like Hillary, he treated his district as
a bunch of chumps and just because some idiots, of which there
are many, continue to support him doesn’t make it in the least bit
right or excusable. Fossella is getting everything he deserves.
Peter King: “Bottom line: Vito Fossella is a good man – and far
better than many of his self-righteous detractors.”
Speak for yourself.
–Here in New Jersey, we have a fascinating primary for the
Senate seat currently held by Democrat Frank Lautenberg.
Congressman Rob Andrews is opposing Lautenberg’s bid for
another six years by focusing on Lautenberg’s age. The senator
is 84 and will be 91 if he lived to serve out another term.
I hope Andrews wins the June 3 vote but the odds aren’t in his
favor. Without any viable Republican opposition, the winner
here wins in November and if we reelect Lautenberg, it will be a
true embarrassment.
I’m assuming many of you saw 90-year-old West Virginia Sen.
Robert Byrd’s performance the other day in commenting on Sen.
Ted Kennedy’s announcement he had brain cancer. Byrd was a
sniveling fool. Just how the hell can we as a people allow
someone like this to remain in such a powerful office?! And
while I support and will vote for John McCain, concerns over his
age, even at 72 on Inauguration Day, are very much warranted.
–I saw a disappointing item in the London Times while overseas.
U.S. and Canadian soldiers serving in Iraq and Afghanistan are
being welcomed home by the citizenry with open arms (as are
the dead given full honors), but that is not necessarily the case in
Britain. As Ben Macintyre writes:
“As many ex-servicemen will attest (angrily, but usually off the
record) it is not the outright hostility of the few, nor the anti-war
sentiment that pains them, but something far more damaging: a
casual public indifference that makes this war different from any
that has preceded it.”
–A Justice Department audit found that when it came to terror
interrogations, FBI agents refused to participate when detainees
were questioned under questionable and potentially illegal
methods. I give FBI Director Robert Mueller a lot of credit for
emphasizing that his agents will continue to be trained and be
made fully aware of FBI policy against participating in coercive
interrogations. I agree with Sen. John McCain’s take on torture.
–After posting my column last week, I hopped in the car with
my driver and we headed three hours south of Amman to Petra.
Ishaq and I had lots of time to chat and if you’ll recall he’s
Palestinian. He also has 8 kids and 13 grandchildren, which is a
pretty typical size unit for his people; ergo, just an example of
what Israel has been worried about on the demographic side.
At one point we were talking about the trip he and his wife took
to Saudi Arabia to go to Mecca and Medina. Ishaq, not knowing
I understood what the Hajj was all about, proceeded to tell me
“Only Muslims can go to these places; kind of like Christians
going to the Vatican.” I opted not to say, “Yeah, but you can go
to the Vatican, too. So why can’t I go to Mecca?”
–You know that polygamist ranch in West Texas and the seizure
of over 400 kids? An act I praised? Never mind…………….
–I have long maintained in this space that the issue of global
warming needs to be more accurately reframed as one of “global
pollution.” So I noted with interest two studies, one by the Univ.
of Southern California and the other by the American Cancer
Society, that have concluded as many as 24,000 deaths annually
in California are linked to chronic exposure to fine particulate
pollution, triple the previous estimate of 8,200. As reported by
Janet Wilson in the Los Angeles Times, “The revised figures are
based on a review of new research across the nation about the
hazards posed by microscopic particles, which sink deep into the
lungs.”
So I rest my case…..and I repeat, “Clean air and water are our
birthright.” That’s what this is all about. Not whether the earth’s
temperature rises another few degrees over the coming century
and the deltas in Bangladesh are flooded, forcing millions to
relocate. If you tackle the pollution problem, folks, you then put
a dent in global warming. But a large percentage of people
around the world can’t identify with the warming debate so
reframe it so that everyone does understand.
Oh well, enjoy your charred meat this holiday weekend. I plan
on enjoying mine and will deal with the consequences, and the
fine particulate matter, later.
—
Pray for the men and women of our armed forces.
On Memorial Day….Think not only of their passing but
remember the glory of their spirit.
God bless America.
—
Gold closed at $925
Oil, $131.90
Returns for the week 5/19-5/23
Dow Jones -3.9% [12479]
S&P 500 -3.5% [1375]
S&P MidCap -2.9%
Russell 2000 -2.3%
Nasdaq -3.3% [2444]
Returns for the period 1/1/08-5/23/08
Dow Jones -5.9%
S&P 500 -6.3%
S&P MidCap +0.0% [0.03]
Russell 2000 -5.5%
Nasdaq -7.8%
Bulls 47.3
Bears 30.8 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
