[Posted 3:00 AM PT…Albany, Oregon]
Wall Street…it’s a bear
On Thursday, I flew from Newark to Portland, Oregon, and the
approach into Portland is one of the more beautiful in the world,
especially if you’re on the left side of the plane, because after
crossing over the Rockies, you parallel the Columbia River and
then over the Cascade Mountains, with Mount Hood within
touching distance, and then on into Portland. I was lucky to
catch great weather in which to take in the scenery and I couldn’t
help but let the mind wander.
The Columbia River, for example, has a number of hydroelectric
projects along its path, but up on the bluffs are some of the
bigger wind farms I’ve seen in all my travels. So Oregon, as
you’d expect, has their environmental movement in high gear.
But then I glance down at the base of Mount Hood and you have
the remains of a lava flow and you can’t help but think (if you
are of the same mind) that you can do all you want to clean up
the air, but one big volcano (off to the right of the plane is Mt. St.
Helens, if you needed further reminding) can ruin it for months
or years. Or, in the case of farther down the coast, hundreds of
wildfires as is the case today in Southern California. But you
can’t stop trying to do the right thing simply because Mother
Nature may have different plans.
Which leads me back into the energy debate, overall, as last
Sunday the Saudis said they’d offer up a little more oil in an
effort to stem the surge in prices but crude kept marching higher,
hitting $142 before closing the week at a new record of $140.64.
Part of the problem with the Saudis and other oil producers these
days is a lack of real information. Or as the Washington Post
opined:
“Given the world’s dependence on their oil, it would be nice if
the Saudis provided more information about their reserves,
though we’re not holding our breath. What can be glimpsed in
these recent events, though, is a future political dynamic in the
Middle East, one in which Saudi Arabia has far less leverage
than it has now. In that future, Riyadh might no longer be the
place Western leaders come, hats in hands, to plead for cheaper
oil – and to offer gifts in return that range from indulgence of
Saudi human rights violations to arms sales to military
protection. No wonder the Saudis might be counting their
windfall profits with one hand but fingering their worry beads
with the other.”
But in a separate editorial addressing the politics of oil and our
election cycle, the Post offered:
“The mantra from the Democratic Party – from the presumptive
presidential nominee, Sen. Barack Obama on down – has been a
variation on ‘We cannot drill our way out of this energy crisis.’
Considering that the U.S. is estimated to have 3% of the world’s
oil reserves, that’s certainly true. But if it is acceptable to drill in
the Caspian Sea and in developing countries such as Nigeria,
where environmental concerns are equally important, it’s hard to
explain why the United States should rule out careful,
environmentally sound drilling off its own coasts. Like Mr.
McCain, we do not support drilling in the Arctic National
Wildlife Refuge, which Mr. Bush advocated. That pristine area,
with its varied and sensitive ecosystems, should be preserved.
“Washington has done a poor job of telling the public that energy
security will be achieved not from one source overnight but from
many over years and that there are no easy solutions and no
cheap ways to break this nation’s dependence on oil. There will
be trade-offs and sacrifices that have yet to be considered. So
far, the focus has been on biofuels, solar power and wind energy.
But all this talk of drilling, squeezing oil out of shale, as Mr.
Bush proposed, and pushing for more nuclear power is a
welcome widening of a larger and necessary discussion.”
Well I disagree with the Post on ANWR, but here is another
angle on the broad debate, courtesy of Gerald Seib of the Wall
Street Journal.
“Here then is the real energy shortage in America. The stunning
part of Washington’s reaction to $4-a-gallon gasoline is that
there has been so little reaction at all. This is as close as the
country has been to a genuine energy crisis in 30 years, yet there
has been no unifying cry to mount the ramparts as a nation, to
rally together to rid America of the curse of oil addiction, to rise
to this challenge as America has to others in its history.
“Instead, the energy ‘debate’ that has emerged is mostly a lame
repeat of 20-year-old arguments over the virtues of offshore oil
drilling and a series of congressional hearings on the role
speculators have in driving up the price of oil that have nothing
to do with actually increasing the production of energy….
“There are several possible explanations for this meekness in the
face of challenge, but the most likely, and the most distressing, is
this: America and its political leaders, after two decades of
failing to come together to solve big problems, seem to have lost
faith in their ability to do so. A political system that expects
failure doesn’t try very hard to produce anything else. If you
wonder why voters have made ‘change’ the catchword of this
campaign, that’s a pretty good explanation.”
Thomas Friedman / New York Times
“Two years ago, President Bush declared that America was
‘addicted to oil,’ and, by gosh, he was going to do something
about it. Well, now he has. Now we have the new Bush energy
plan: ‘Get more addicted to oil.’….
“It is hard for me to find the words to express what a massive,
fraudulent, pathetic excuse for an energy policy this is. But it
gets better. The president actually had the gall to set a deadline
for this drug deal:
“ ‘I know the Democratic leaders have opposed some of these
policies [on drilling] in the past,’ Mr. Bush said. ‘Now that their
opposition has helped drive gas prices to record levels, I ask
them to reconsider their positions. If Congressional leaders leave
for the Fourth of July recess without taking action, they will need
to explain why $4-a-gallon gasoline is not enough incentive for
them to act.’
“This from a president who for six years resisted any pressure on
Detroit to seriously improve mileage standards on its gas
guzzlers; this from a president who’s done nothing to encourage
conservation; this from a president who has so neutered the
Environmental Protection Agency that the head of the E.P.A.
today seems to be in a witness-protection program. I bet there
aren’t 12 readers of this newspaper who could tell you his name
or identify him in a police lineup.
“But, most of all, this deadline is from a president who hasn’t
lifted a finger to broker passage of legislation that has been stuck
in Congress for a year, which could actually impact America’s
energy profile right now – unlike offshore oil that would take
years to flow – and create good tech jobs to boot.
“That bill is H.R. 6049 – ‘The Renewable Energy and Job
Creation Act of 2008,’ which extends for another eight years the
investment tax credit for installing solar energy and extends for
one year the production tax credit for producing wind power and
for three years the credits for geothermal, wave energy and other
renewables….
“A real president…wouldn’t be using his last days in office to
threaten Congressional Democrats that if they don’t approve
offshore drilling by the Fourth of July recess, they will be
blamed for $4-a-gallon gas. That is so lame. That is an energy
policy so unworthy of our Independence Day.”
As I’ve told you many times before, I have selfish reasons for
framing the debate in this fashion, week after week, that being
my own portfolio holdings in solar, geothermal and electric cars.
I agree totally with Friedman, though I’d add that I’ve been
saying we have to do everything, today, including drilling. But
to not support the renewables industry at this moment, as is the
case with President Bush, except for his asinine call on the
ethanol front, is beginning to verge on criminal. Oil may yet
correct to below $100, and gas back to $3, or it may rise to $200
and $7. That’s short term, even as, today, there is a huge swath
of Americans that are getting killed. It’s the longer-term, though,
that scares the hell out of some of us even more so if we don’t
get real leadership, now, and get to work.
Of course it’s not just rising energy these days that has led to
record lows in consumer confidence and sentiment readings.
According to the latest S&P/Case-Shiller index of 20
metropolitan areas, our #1 asset, our home, has lost 15% in value
for the 12 months through April, with Las Vegas and Miami
down 26%. Yet if you think this means affordability is getting
better, think again because tighter credit has led to higher
mortgage rates and limited access to same.
But while home values are plummeting, the cost of everything
else is going up. Dow Chemical, for example, said it is hiking its
prices 25%, on top of a previously announced 20%, due to
increases in the costs of the raw materials it uses. DuPont’s CEO
said “inflation is here big time.” Steel producers keep raising
their prices because of the higher energy and commodity costs.
Why even the Federal Reserve, in opting to hold the line on rates
this go ‘round, offered up the following:
“Although downside risks to growth remain, they appear to have
diminished somewhat, and the upside risks to inflation and
inflation expectations have increased, (though) the Committee
expects inflation to moderate later this year and next year.
However, in light of the continued increases in the prices of
energy and some other commodities and the elevated state of
some indicators of inflation expectations, uncertainty about the
inflation outlook remains high.”
Well, I agree that inflation will moderate later this year and next,
but you look to the Fed for expertise and the above was written
by a fourth grade debater, probably owing to the fact the Fed is
light some positions on the Board so maybe they were forced to
ask Mary Frances Ellerbee’s fourth grade class in nearby
Bethesda for assistance.
The latest Washington Post/ABC News survey revealed that only
14% of Americans believe the country is headed in the right
direction, with 84% saying we’re on the wrong track, a split
matched seldom since polling for sentiment began. So what else
ails us, as if the above isn’t enough?
Try employment. You can talk all you want about how a 5.5%
unemployment rate is still historically low but few really believe
the number these days and if you’re on Wall Street or in the
financial services industry (and most of these jobs are not in the
$million class, despite what some of you may believe), you are
facing a dire future. Bloomberg News estimates by June 2009,
the layoffs we’ve seen thus far in the financial sector will have
doubled, and even this might be conservative. Bank of America
said it was cutting 7,500 positions, while Citigroup and Goldman
Sachs are paring back more, among those who have announced
or intimated in the past two weeks, but even here we aren’t
getting the true story because in today’s environment, no one
wants their competition to know just how poorly they’re doing.
No one wants to be the next target of a ‘bear raid’ on its share
price. So who the hell really knows how bad it is? At least in
the major financial centers, such as New York, follow real estate
trends. In Manhattan the market has held up reasonably well but
that’s beginning to change. [In the outer boroughs, it’s
foreclosure alley.]
As the markets collapsed anew this week, you also heard more
and more about a liquidity crisis, particularly with the likes of
General Motors, which saw its shares hit a 53-year low. Ford
closed the week below $5. Goldman Sachs issued a sell on GM
and on Citigroup, which hit a 10-year low itself; in fact, the
lowest since October 1998, the very day Sandy Weill merged his
Travelers Co. into Citicorp. Ten years of a financial
supermarket, Weill’s contribution to Corporate America, and
shareholders in Citi received nothing…nada. Nice job, Sandy.
But you do have your name plastered all over the City, being the
philanthropic sort that you are.
The Street was hit this week with rumors of a whole new round
of massive writeoffs, led by problems at Merrill Lynch which is
being forced to sell its stake in either BlackRock or Bloomberg,
at the worst possible time. Round two of the credit crisis is
beginning to bite and this time it’s about rising delinquencies on
home-equity loans, autos, and constructions loans; the latter a
huge time bomb for smaller and regional banks.
It’s just not good out there, folks, though you don’t need me to
tell you that. And, just as I’ve predicted, the world economy,
particularly Europe’s, is starting to roll over, thanks to the
bursting of the real estate bubble and soaring energy.
But I’m here in Oregon for the U.S. Olympic Track and Field
Trials, so I’m liable to see some great stories the next ten days.
You could be the beneficiaries. Maybe I’ll be in a better mood
next time. Then again, I’m going to see more than one instance
of the agony of defeat, so I might be more depressed than ever.
Street Bytes
–It was another awful week in stock land as the Dow Jones lost
4.2% to 11346 and now sits 20% below its Oct. 9, 2007 peak of
14164, the definition of a bear market. The S&P is 18% off its
own high, set the same October day, and fell 3% to 1278, while
Nasdaq dropped 3.8% to 2315. It didn’t help later in the week
when tech heavyweights Oracle and Research In Motion (maker
of the BlackBerry) came out with tepid forecasts for future
business after revealing the quarter ended May 31 was solid.
And in yet another sign of the times, UPS lowered its earnings
forecast due to rising fuel costs.
–U.S. Treasury Yields
6-mo. 2.12% 2-yr. 2.63% 10-yr. 3.97% 30-yr. 4.52%
Bonds rallied in a flight to quality and the realization it may be
tough for the Federal Reserve to raise rates anytime soon because
of the sick economy, which trumps inflation fears.
–As noted above, GM has been having a fair share of problems
these days, such as sales of its trucks and SUVs falling 37% in
May, so this week it announced it was offering a slew of new
incentives to unload its bloated inventory of everything the
country doesn’t need. It is also closing six plants for a week
longer than the traditional two-week summer shutdown. Further
shutdowns are in the offing as well. Of course the ultimate
shutdown comes if it runs out of cash.
–Homebuilders Lennar and KB Home reported revenues that
were both down about 60% in the quarter ended May 31, with
median prices for its new homes continuing to slide thanks in
large part to the inventory glut.
And symptomatic of the aftereffects of the real estate bubble,
Mark R. reports that on Maryland’s eastern shore condos that
were selling for $480,000 to $600,000 a year ago are going for
$247,000 to $380,000 today…thanks to flippers getting killed.
Of course some of you will recall that it was Larry Sanders who
first said, “No flipping!”
–Countrywide Financial was sued by the states of California,
Illinois and Washington for “misleading market practices” that
steered home buyers into risky loans without regard to their
ability to pay, i.e., fraud.
–I’m going to be a contrarian with this call, but I’ll say the U.S.
corn harvest is not as bad as expected. Not all of Iowa was
flooded, for example, just 9% of the corn crop (or 1.5% of the
nation’s normal harvest). And the global harvest, as I noted a
while back, could be more than respectable.
The problem is, however, that inventory levels are already at
historic lows so we need a series of bumper harvests, worldwide,
to begin to get back to normal. If my forecast on the U.S. is
correct, though, that means lower food prices and inflation by the
fall.
–It should have long been proved that Wall Street analysts aren’t
worth the paper their reports are written on, and a typical
example of this was Goldman Sachs having to admit it was
“clearly wrong” for recommending on May 5 that investors add
to U.S. financial stocks. It now tells investors to underweight the
sector.
–Which brings up another item. The whole concept of under- or
over-weighting. What a wimpy way to give advice. The other
day I’m watching two Street “mavens” tell the CNBC reporter
they were right all along because they advised their clients last
year to raise their cash allocation to 15%. 15%?! Big freakin’
deal. The other 85% has gone up in flames like a Philippine
trash dump. That’s why here at Week in Review, we believe in
consistency; as in I’ve consistently recommended 80% cash for
over the past 1 ½ years. Anytime I hear “we’re underweighting”
I turn the sound off. Take a real stand, by god, and then run with
it.
–In a further sign there will be no airline industry by mid-2009,
United has begun notifying 950 pilots their services will no
longer be required down the road.
–John McCain is proposing a $300 million prize to the
individual who can develop a car battery for the new generation
of plug-in hybrids or electric cars. As McCain puts it, “This is
one dollar for every man, woman and child in the U.S. – a small
price to pay for helping to break the back of our oil dependency.”
–Pursuant to my ongoing discussion of Ireland’s economy, a
headline in the Wall Street Journal on Wednesday read “As Irish
Growth Fades, Its Immigrants Depart,” referring to the Polish
plumber syndrome. They’re heading back home where
opportunities are suddenly more plentiful.
–Friday, as you are all well aware, was Bill Gates’ last day at
Microsoft. The last few years was beginning to feel like GM, so
it’s probably a good thing Gates focus on cures for malaria from
here on.
–Anheuser-Busch rejected InBev’s unsolicited $46 billion offer
as too low, but InBev is not giving up. Anheuser-Busch offered
up a restructuring program, involving layoffs and price hikes,
that would unlock more value than InBev’s $65 a share bid, so it
claims. [BUD stock closed the week around $62, off a 52-week
low of $45.50.] Busch family members, though, are split on
what the company should do. Some of us sit back, however, and
merely muse, “Budweiser just isn’t that good.” Hit the bid…
assuming the Clydesdales get to cash out as well.
–At StocksandNews we believe in taking naps, usually around
noontime, so it was good to see yet another study, this one from
Harvard, that addresses the benefits of doing so. 23,500 healthy
Greek adults were studied over six years and taking naps at least
three days per week reduced coronary mortality by 37%.
However, Professor Sara Mednick, an expert in this field,
recommends 20 minutes as the ideal length of time. Getting
between 30 and 60 minutes puts the napper into slow-wave sleep,
leaving them groggy, she offers, and, I would add, laid off.
–Wilbur Hardee, the founder of Hardee’s restaurant chain, died
at the age of 89. Back in the early 1960s, after starting with a
few drive-in restaurants in North Carolina, Hardee and two North
Carolina businessmen formed a partnership to expand the chain
throughout the South. The company then went public in 1963.
But according to Hardee, the business went south one night when
the three were drinking and playing cards and Hardee bet all his
stock during the game…and lost. The next morning, the other
two controlled 51% of the company. Hardee, wanting to be
independent, then sold his stock for $37,000 and went on to other
ventures, including 85 different restaurant chains in the
Southeast; real wieners like Hot Dog City. So let that be a lesson
to you, sports fans. Don’t drink and play cards with your
business partners.
Foreign Affairs
North Korea: I’m not going to go on a John Bolton rant here
because this story still has a long way to play out and, let’s face
it, none of us have all the facts yet. That said, here’s what we do
know.
Pyongyang was supposed to declare all of its nuclear activities,
including on enrichment of both plutonium and uranium (if any
on the latter), as well as the actual number of nukes it may be
hiding and its dealings with the likes of Syria and Iran, a full six
months ago.
This week, Pyongyang completed its version of events and none
of the above has been complied with. None. Instead, the two
documents we’ve received, one of 18,000 pages and the other a
60-page executive summary, detail its plutonium production
(but zero evidence of the amount made…kind of important, you
understand) and, as you all saw by now, the North blew up a
cooling tower at the already disabled Yongbyon facility. As
former NBA star Derrick Coleman used to say, “Whoopty-damn-
do.”
Now don’t get me wrong, I’m all for engagement, including with
Iran as I’ve stated over the years (end-running Ahmadinejad in
this instance), and I’m glad the North Koreans have begun
cooperating on a certain level and that the other four parties
involved in negotiations, Japan, South Korea, China and Russia,
remain in the process.
But for the little the Commies have actually done, President Bush
and Condoleezza Rice and a lame ambassador, Christopher
Hill, have decided it is in everyone’s best interests to take North
Korea off the terrorism blacklist (following a 45-day notice
period with Congress), as well as lifting a number of trade
sanctions.
This despite the fact we still have no idea how much plutonium
they actually produced (don’t tell me you believe the figure
they’ve given us), nor any proof they never had a uranium
enrichment program, nor what they were doing with Syria and
are doing with Iran, nor, the real bottom line for today, how
many nukes did they actually put together and where the hell are
they?
Now the administration would have you believe that we won’t
learn any of the above without rewarding them first. And that we
wouldn’t receive any cooperation from the other players without
giving in as we did.
Instead, what the Bush White House has done is just punt
another issue down the road for the next occupant. Maybe,
history will prove that Bush and Rice had the right strategy. Any
peace-loving American or citizen of the world should want this
and I will certainly hop aboard and praise them should this prove
to be the case. But for now, how can you not help but wonder
just what is going on here? Remember, none of us, including our
own intelligence agencies, truly have a picture as to the men
standing behind Kim Jong-il these days.
Or maybe the White House does know what the generals are all
about and that they will soon launch a coup against Kim and
announce to the world that North Korea seeks to join the
community of nations with an economy that is the next Asian
tiger. At which point this would scare the hell out of South
Korea because it would kill many of its jobs and the people
would revolt and then we have the next Korean War! Well I did
get you to think about all the possibilities, didn’t I?
Zimbabwe: Oh, the world is so upset at Robert Mugabe…but
does nothing. Believe it or not, I’ve actually been holding back
on this topic the last five to seven years, even as I’ve named
Mugabe “Dirtball of the Year” on three different occasions. I
could give you all kinds of talking points involving God, for
example, and wondering why we are so reluctant to take Mugabe
out, especially considering what He must be thinking of all of us,
but I’ll save that for my very last WIR, whenever that day is.
For now, as the runoff was held on Friday between the president
and, err, no one, because Morgan Tsvangirai dropped out, and
for good reason, we are left with Queen Elizabeth II stripping
Mugabe of his knighthood as a “mark of revulsion” and 90-year-
old Nelson Mandela calling Mugabe’s era a “tragic failure of
leadership.”
Neighbor South Africa, which aspires to be a real player on the
global scene, does nothing but utter a few words, including those
of the ruling ANC which blasted former white rulers more so
than Mugabe himself, while the British are looking for an
African Union Force to go in to stabilize matters, even though
this is an impossibility and it’s the British, working with the
U.S., who should be dropping a Delta-type force in to whisk
Mugabe away and then accidentally drop him in shark-infested
waters off the South African coast.
Look, you saw the pictures. I’ve been telling you for years
Mugabe’s supporters are nothing more than a street gang with far
less sophisticated weaponry.
Oh, whatever. The Brits are useless, the U.S. is useless (I don’t
want to hear President Bush talk about his goal of spreading
democracy when he’s doing nothing on this front), the U.N. is
absolutely pathetic and the majority of New Africa’s leadership
is equally worthless.
I get a real kick out of money managers and politicians who say
Africa is the next Asia, in terms of economic opportunities. Be
my guest, I’ll choose to go elsewhere.
Iraq: A quarterly update issued by the Pentagon stated Iraq and
the Iraqi Army are still very reliant on U.S. troops, though
defense officials still hope by this fall to be able to free up some
troops to move over to Afghanistan. Recent events say
otherwise, as violence has spiked the last week to include some
worrisome attacks that have taken out a number of Americans
and our allies. A suicide strike on a group of tribal leaders in
Anbar Province who back the U.S. was particularly troubling
because it was felt to be an inside job; as in just how many
leaders of The Awakening are really al-Qaeda in disguise?
But back to any hoped for troop withdrawal in Iraq, either to
Afghanistan or back home, even former Clinton defense official
Ken Pollack said it would be “reckless to withdraw all our
combat troops” before the Iraqis hold a national election in late
2009, even as political progress is taking place on the ground.
Iraq’s politicians, though, face mounting pressure from their own
people concerning the long-term security status and the presence
of U.S. troops. American commanders want sweeping powers,
but some Shiite pols, for example, believe they don’t need U.S.
troops after some recent successes, though with the recent
bombings such success looks tenuous at best, and on Friday,
because of the Anbar attack, the U.S. postponed a planned
turnover of the province to Iraqi forces.
For his part, Prime Minister Maliki, walking a tightrope, said the
“Iraqi government…has the right to demand the U.N. terminate
the presence of international forces on Iraqi sovereign soil”
which of course would mean the U.S. would have to leave.
Iran: The EU agreed on new financial sanctions on Iran, among
which is the freezing of assets for Iran’s biggest bank within the
European Union. [Though Tehran has been pulling these assets,
knowing this would likely transpire.]
On the nuclear weapons program front, the IAEA’s Mohamad
ElBaradei said he would quit his post if Iran is attacked, to which
many of us say, ‘Yippee!’ [To him leaving, not necessarily an
attack.] ElBaradei warned that if Iran’s facilities were bombed,
it would “turn the Middle East into a ball of fire.”
Even the government paper in Dubai, though, editorialized that a
strike would have “disastrous consequences for the region.” But
understand many of the United States’ allies put out one thing for
public consumption, i.e., Egypt and Saudi Arabia, but are
praying for the opposite.
Israel: The above thus leaving this key player. I didn’t realize
what a strong dress rehearsal for an attack on Iran the Israelis
held the other day…some 100 fighter jets strong. That must
have been an impressive, and scary, sight for those on a pleasure
craft in the Mediterranean.
As for the status of Prime Minister Ehud Olmert, it was a big
week for him as he escaped the holding of early elections amidst
the ongoing corruption investigation that threatens to topple him
(this heats up again on July 7, incidentally). Olmert’s Kadima
party will now hold a primary in September and, depending on
the corruption inquiry and public reaction to it over the next two
months, Olmert could yet still run for his party leadership,
assuming he hasn’t been indicted. The bottom line is that a
general election isn’t likely before November; meaning there is
plenty of time for Olmert to do all kinds of things to shore up
support. An editorial in Lebanon’s Daily Star mused:
“No country should allow the internal politics of another to
determine its course of action, but no decision-maker in the
Middle East can afford to ignore recent developments in Israel.
The prime minister, Ehud Olmert, is in deep trouble over a
corruption scandal, and the Jewish state has a long history of
making war on its neighbors in order to deal with domestic
divisions. It generally prefers to do so in the summer, too, when
clear weather sharpens the advantages conferred by its
technologically advanced air force – and when the end of the
academic year in Israel and several Western countries frees up
much of its reserve officers and enlisted personnel for combat
duty. [Ed. I never thought of this before.] In today’s
circumstances, the risk of war is even more acute because this is
the last summer when U.S. President George W. Bush, easily the
most pro-Zionist president in history, will be available to provide
presumably unconditional support for whatever depredation(s)
the Israelis choose to carry out.”
The Daily Star notes that there are three obvious targets; Gaza,
where the recently enacted ceasefire is already in doubt after a
number of rockets were fired into Israel in the past two days,
Iran, and Lebanon. The fact that Olmert won’t quit before
September now plays into this theory. The paper concludes:
“Rarely have so many factors converged so perfectly to increase
the likelihood of Israeli aggression. Rarely has it been more
important, therefore, for the region’s indigenous forces –
especially Hamas, Hizbullah and the Iranian government – to
think long and hard about anything that might give the Jewish
state an excuse to lash out. Indeed, even if an onslaught is
launched without a pretext, all of these actors should consider
turning the other cheek in hopes of preventing escalation and,
thereby, of preserving the viability of the diplomatic solutions
that such an attack would be designed to doom.”
You know where I stand. Israel will indeed launch an attack on
Iran by year end, assuming Tehran doesn’t suddenly back down
on the uranium enrichment front.
Pakistan/Afghanistan: The internal politics in Pakistan are
increasingly chaotic as former prime minister Nawaz Sharif was
barred from running in a parliamentary by-election due to his ’99
conviction on events leading to Pervez Musharraf’s coup; Sharif
having been charged with kidnapping, among other issues.
And then we have the situation where the government is losing
control of the provincial capital of Peshawar to the Taliban, as
Peshawar is in essence under a state of siege because security
forces have given ground and the supply route for NATO forces
in Afghanistan has become a scene of constant ambushes. This
can mean only one thing. The government will continue to give
in and sign new peace deals, effectively giving the Taliban even
more control. [Though today Musharraf vowed a new push to
defeat the terrorists.]
Meanwhile, the Afghan government says it has proof
Pakistan’s intelligence agencies were behind the April plot to
assassinate President Hamid Karzai. Pakistan denies this. But
what will a weakened Karzai do now? Does he try and prove to
his people he’s a real tough guy and launch some incursions into
Pakistan, perhaps against NATO’s wishes? These two countries
really do hate each other these days.
India: It appears the long-hoped-for civilian nuclear agreement
between the United States and India (at least in some circles, like
with me) is off. The Indian government of Prime Minister Singh
is dependent on the support of left-leaning parties known as the
Left Front to stay in power and the Left Front insists that any
nuclear deal is too favorable to the U.S., with these parties
against a stronger strategic partnership with Washington.
Ireland: Just a follow-up on Ireland’s rejection of the Lisbon
treaty the other week. Despite the No vote, 82% of Irish voters
believe the country has prospered from being in the EU
(compared to just three of ten Brits), and 80% of those who voted
No support EU membership. So why did they reject it? Aside
from what I said last week, that many simply didn’t understand
what they were voting on, Ireland wants its neutrality protected
in the event a Euro armed force is created, and it wanted to keep
its right to set its own corporate tax rates.
And this from Wolfgang Munchau in the Financial Times.
“After a week of what European leaders call reflection, another
Irish referendum beckons, to be held early next year. Without it,
there might well be an attempt to oust the Irish from the
European Union.
“A Yes vote in a second referendum is not certain, even if the
Irish government were to succeed in securing another rent-
extracting, treaty-amending protocol. At a time when the Irish
economy is about to fall off a cliff, enthusiasm for the EU and its
treaties will not increase. In other words, holding a referendum
would be as risky as not holding a referendum. A fine mess.
“So within a couple of weeks, the chances of Ireland ending up
outside the EU have turned from zero to a distinct possibility.
The same goes for the Czech Republic, another potential non-
ratifier….
“What strikes me the most about this extraordinary turn of events
is the perception in Ireland that a break with the EU would be no
big deal. I received a large number of letters from Ireland last
week from readers who steadfastly maintain that the country’s
economic success had nothing to do with the EU and everything
to do with domestic policy – in particular with low corporate
taxes and skilled labor.
“The view expressed by those correspondents is as wrong as it is
revealing. If so many people are delusional about their country’s
economy, then we should perhaps not be surprised about the
outcome of the referendum. It is therefore perhaps worth looking
in some detail at the nature of Ireland’s economic success over
the past 30 years to gauge what life might be like outside the
EU….
“Ireland was one of the early and enthusiastic members of the
European Monetary System in 1979, which brought much
needed macroeconomic stability. Membership of the eurozone in
1999 led to lower interest rates, which have contributed to the
economic growth ever since. Low corporate tax rates certainly
helped Ireland attract foreign investors. But never forget that
Ireland is also the only English-speaking member of the
eurozone, the one place where eurozone and Anglosphere meet.
[Ed. I feel obligated to add, if you just did a double take, that
Britain still does not employ the euro.]
“The country naturally benefited from membership of the EU’s
internal market. Without it, Ryanair, the Irish low-cost airline,
would not be able to offer its popular flights across Europe….
“So what would happen if Ireland were to leave the EU? As an
associate member of the single European market, Ireland would
probably attract less foreign investment than it does today.
Dublin’s financial center would be demonized as an offshore tax
haven and treated on par with Liechenstein. We would see lots
of Ryanair flights between Dublin and Cork and the EU would
put even more pressure on Ireland to raise corporate taxes….
“Considering that the country is now on the verge of a severe
economic slowdown, brought on by a downturn in the real estate
market and the credit market crisis, (a No vote) could not have
come at a worse time. Not only does the No vote carry risks, it is
a highly asymmetric gamble that brings no material benefit under
the best of circumstances. The No vote put Europe’s most
impressive economic miracle at stake, and the cards are not
looking good.”
Random Musings
–The U.S. Supreme Court for the first time in our nation’s
history decided that the Second Amendment guaranteed an
individual’s right to own a gun for self-defense in yet another 5-4
ruling, thus striking down a series of lower court rulings that tied
the right of gun possession to militia service. But at the same
time, in writing the majority opinion, Justice Antonin Scalia said
a person’s right to own a gun is not unlimited and that it would
not necessarily override bans on concealed weapons, for
instance, or laws that prohibit felons or the mentally ill from
possessing them, or bans in public places, such as schools.
So…the Court is leaving this up to the states and municipalities,
meaning far more lawsuits to come as, say, the NRA now files
actions against handgun restrictions in various cities. Some, such
as Chicago, which has had a freeze on handgun registration since
1982, will defend the city’s right to impose this restriction and
defend itself against the coming suits, but now there is a formal
line in the sand.
–USA Today’s lead story on Thursday concerned the repair bill
the Pentagon faces, $100 billion for equipment that is either
worn-out or destroyed from the wars in Iraq and Afghanistan;
money that the Defense Dept. failed to plan for at a time when
everyone is clamoring for increased troop levels to among other
things lessen the strains on those being deployed today (and their
families). Joint Chiefs of Staff Chairman Adm. Michael Mullen
told a Senate panel recently that “We must reset, reconstitute and
revitalize our ground force.” However, the costs “will force us to
a smaller military or force us away from any kind of
modernization that we need for the future.”
I bring this topic up because I was reading a piece in Defense
News by William Matthews on the latest supplemental spending
package for Iraq and Afghanistan, $162 billion for the balance of
this year and early ’09. This, you’ll recall, was perceived as a
win for the Bush administration because the Democrats gave up
in trying to tie the funding to a timetable on troop withdrawal.
But then in Matthews’ report I see that the House voted to add
$3.6 billion for 15 Air Force C-17 cargo planes (made by Boeing
in California and Missouri…let alone parts manufacturers that
support the plane), “that the Pentagon did not ask for.”
This little item, $3.6 billion, is classic and it’s something that
John McCain has long railed about (though I haven’t seen his
stand on the full supplemental from a Senate standpoint). It’s a
tremendous campaign issue that he needs to exploit more.
But there’s one problem…the tanker jet deal which the Pentagon
had awarded to Northrop Grumman and Europe’s EADS, only to
have the Government Accountability Office squash it.
Here are some of the GAO’s main points, as reported by Defense
News’ John T. Bennett:
“The service’s failure to acknowledge that Boeing’s proposal
provided more optional systems than Northrop’s.
“Northrop’s proposal receiving ‘extra credit’ for exceeding some
of the Air Force’s needs, effectively penalizing Boeing for only
meeting those requirements….
“ ‘Misleading and unequal discussions’ with Boeing, leaving the
company in the dark regarding its plane’s weaknesses” etc.
But Bennett quotes an analyst as saying the drawn out decision
imperil’s Boeing’s 767 line, “which was expected to close in less
than five years unless the company won the tanker contract. If
the line is to be kept open in expectation of tanker orders,
‘Boeing will have to push through with heavily discounted
planes for the airlines, or with company seed money to keep the
supply chain going.’”
Analyst Loren Thompson offered that whereas Defense Secretary
Gates thought he had an open and fair process, powerful figures
such as John McCain, fresh off his victory in killing the 2001
Boeing tanker lease deal, led the Pentagon to believe that if
Boeing lost the new tanker there would be little “political
sympathy.”
Or as an editorial in Defense News notes:
“A harsh critic of both the Air Force and Boeing, McCain…
consistently dismantled what (he) viewed as obstacles to fair
competition; removing those obstacles benefited Northrop and
EADS.
“McCain maintains all he wanted was to level the playing field,
but did his criticism push the Air Force away from the Boeing
plane?”
It’s complicated, and I recognize perhaps not of interest to most
readers, but if I’m Barack Obama I bone up on the topic because
during a debate, he could tie McCain up in knots that will make
him look like a total fool.
–From the Wall Street Journal’s Laura Meckler and a story on
John McCain’s helter-skelter (my term) energy policy.
“Later, on his bus, Sen. McCain said he had changed his position
on offshore oil drilling because of the rising price of oil. Asked
if the high price of oil tempts him to reconsider drilling in
ANWR, as well, he said: ‘No, but again, if somebody says, ‘Will
you look at this information?’…I’ll be glad to look at that
information. I think it’s incumbent on me to review it. But I
certainly haven’t changed my position.’”
Well, I beg to differ, Senator. And I’m ticked off to no end that
you support subsidies for the development of nuclear power and
clean-coal technology (which I agree with), but at the same time
continue to block them for solar and wind.
–There was a very positive, sympathetic story by Holly Bailey in
the current Newsweek on Cindy McCain that is a good read. I
would venture that if you were on the fence about her, after
reading the piece you’d be a supporter. I know I am.
–New York Mayor Michael Bloomberg, still feeling he is in the
mix to be a Veep candidate for either McCain or Obama, used a
speaking engagement in Florida to denounce the “whisper
campaign” linking Barack to Islam, calling it “wedge politics at
its worst, and we have to reject it – loudly, clearly and
unequivocally.” It seems residents of South Florida, home to the
second-largest population of Jews in America after New York
City, have been receiving e-mail claiming Obama sympathizes
with radical Islam and does not support Israel.
But Bloomberg also praised McCain for denouncing the Obama
rumors, “which speaks to his character as a stand-up guy and an
honest leader.” Alas, Bloomie had his chance to grab the
national spotlight for himself and didn’t.
–Mark R. says that the fines for exceeding the speed limit should
be quadrupled as a way of getting drivers to save gas. The
evidence is irrefutable, for example, that you save far more
driving at 55 than you do at 70. And I must say on my drive
down Interstate 5 from Portland to Albany, on the stretches
where the speed limit was 65 you didn’t see any truckers
exceeding it. It’s a matter of self-preservation these days for this
crowd.
–Interesting story in the Washington Post by Monica Hesse on
what to do with all the sandbags…some 13 million of them in
Iowa, Illinois and Missouri. Now they sit, “waterlogged and
weightier than when first filled, smelling like mold and algae and
dead fish.”
“Figuring out where to put them doesn’t feel like healing or
rebuilding, and doesn’t make for much of a feel-good,
community-building photo op.”
You don’t see a lot of volunteers coming around to remove them,
that’s for sure. As an Iowa spokesman added, if they absorb
floodwater, the bag can now contain “fuels, chemicals and other
bacteria.”
Are there any solutions? You can use the sand for covering
winter roads or for spreading on gardens, but you can’t spread it
in sandboxes or in playgrounds (not that these aren’t already
toxic waste dumps, mused the editor).
Perhaps the best use, say officials, is for fill material under
buildings, parks and roads.
–According to a British aviation study of 105 plane accidents
and interviews with almost 2,000 survivors of crash landings and
onboard fires, a distinct answer to the question “Where is the
best place to sit to survive a crash” has emerged.
You should choose an aisle seat near the front within five rows
of an emergency exit, with of course the best chance being in an
exit row or one in front or behind it. The study concluded,
though, that if you are six or more rows from an exit, “the
chances of perishing far outweigh those of surviving.”
Which is why I always recommend you wear an official
StocksandNews/NASCAR flame retardant suit while on board.
If you are concerned with the kinds of looks you might get, just
remember you’ll never see these folks again in 9,999 cases out of
10,000.
–There is a very depressing story in the current Sport Illustrated
by George Dohrmann concerning the influence of street gangs in
Oakland, Calif., including the nearby suburb of Richmond. So
many of the kids these days, particularly following a high-profile
killing of a prospective football player for Stanford, are saying
“What’s the use?” in following a path where athletics may lead
to a college scholarship and a chance out of the ghetto. As many
stories as you read of this kind, the randomness of the violence is
still unbelievable. Most gangs don’t target 12-year-olds, for
example, but many athletes look older, so maybe a 12-year-old
looks like he’s 14 and thus he’s fair game…for literally walking
in the wrong neighborhood. As more than one youth official has
said, it’s a national health epidemic, but look what happens when
someone like Bill Cosby tries to speak out on the topic…he’s
often castigated. Or, more often than not, his audience is left
shaking its heads in approval and shouting “Amen,” but then
they don’t do anything. All I have to add is, God help those
counselors and coaches who are the only remaining lines of
defense in many neighborhoods between hope and all out
anarchy, Zimbabwe style.
–Related to the above, reader Chris C. has been updating me on
the summer jobs outlook for New York City, Chris being
actively involved in programs of this kind and research, and he
told me this week there will be 6,000 fewer ones in New York
this year over last. As Chris points out often that very first job is
the most important and in so many ways our priorities are so
screwed up.
–Also, very much related to the above two bits, I couldn’t help
but notice a two-page spread in Friday’s USA Today honoring
25 high school scholar athletes across the country, as sponsored
by the milk industry and Disney. Only one of the 25 so honored
is African-American.
–But to close on a positive note, I was at the first session of the
Olympic Trials last night and saw a 10th grade girl qualify for the
semis of the women’s 800 meters. Very cool. USA! USA!
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $931
Oil, $140.64
Returns for the week 6/23-6/27
Dow Jones -4.2% [11346]
S&P 500 -3.0% [1278]
S&P MidCap -3.6%
Russell 2000 -3.8%
Nasdaq -3.8% [2315]
Returns for the period 1/1/08-6/27/08
Dow Jones -14.5%
S&P 500 -12.9%
S&P MidCap -4.1%
Russell 2000 -8.9%
Nasdaq -12.7%
Bulls 33.7
Bears 39.3 [Source: Chartcraft / Investors Intelligence…this is
good, if you’re a contrarian. For example, on 12/18/08, the
bull/bear split was 56.5/22.4 and the S&P 500 was at 1454.
Have a great week. I appreciate your support.
Next time, more from Oregon.
Brian Trumbore
