[Posted 7:00 AM ET]
Wall Street
To paraphrase Linus during the Christmas pageant, I bring you
tidings of great joy, for unto you, this week, was delivered some
historic news on sentiment…if you’re a contrarian.
You know those sentiment readings I deliver to you each week
down below, which many a time I’m forced to explain just why
I keep doing so?
This week everyone was talking about them, but I can virtually
guarantee you won’t find anyone, even the grizzled veterans,
who has been keeping these figures, handwritten, since March
1990.
The Investors Intelligence reading measures the sentiment of
newsletter writers; bullish, bearish and those calling for
something in between, a correction. But this week the figures
were 27.4% bulls, 47.3% bears, and as I’ve told you this is but
one tool any investor should be cognizant of, a contrarian one.
So here’s some information others have missed. While reporters
discussed the extremes, as in the # of bulls was the lowest since
July 1994, and the # of bears the highest since September 1998,
they didn’t give you any of the other facts.
Regarding the bulls and July 1994, the Dow Jones was about
3700 then and proceeded to run up to 4500 by June 1995, and
obviously far higher later.
As for the bears, in September 1998 the Dow was at 7800 and
two months later was 9300.
That’s how a contrarian indicator such as this one can sometimes
give you a signal. But, again, this is just one barometer and these
days there are some real fundamental reasons why the market is
now firmly in bear market territory.
First and foremost this week was uncertainty over the fate of the
two largest originators of mortgages in America, Fannie Mae and
Freddie Mac. The stocks like all the others in the financial sector
have been sliding precipitously, but then you had former St.
Louis Federal Reserve President William Poole say in an
interview, “Congress ought to recognize that these firms are
insolvent.” Uh oh……….[Put on your best Howard Cosell
imitation of the Frazier/Foreman fight]
“Down goes Fannie! Down goes Freddie! Down goes Fannie!”
And down…and down…and then on Friday morning the New
York Times ran a story that the government was going to bail out
these two giants with combined liabilities of $5 trillion, with a
‘t’, as in terrifying. At week’s end Treasury Secretary Hank
Paulson and Federal Reserve Chairman Ben Bernanke
reassured us that Fannie and Freddie were sound and well-
capitalized, though more capital would be needed we could all
guess, but suddenly the ‘implicit’ guarantee behind these
government-sponsored enterprises was likely to become an
‘explicit’ one, at least in terms of ensuring the companies’
survival, even as equity holders are left like sparrows, picking at
the dirt on the sidewalk.
Congress created Freddie and Fannie in 1970 to promote home
buying but never came close to truly supervising them and now,
in one shape or another, every single person in this nation is
paying the consequences, if nothing else in reduced share prices
of other issues that happen to be caught in the downdraft, as well
as higher mortgage rates across the board.
Of course the story of these two doesn’t end here, it’s only just
beginning and we’ll learn far more over the coming week or two,
but for now what is known is that they cannot be allowed to fail
and the American taxpayer could be paying a steep price over
time to bail them out, depending on just how much more pain we
have to endure in the housing sector, i.e., how many more
properties will fall into foreclosure.
Meanwhile, the Fed said it was extending its program of low-cost
overnight loans to the nation’s investment banks into next year, a
program that was first put into place to address liquidity
problems on Wall Street emanating from the Bear Stearns
debacle; a sign that many read to mean the Fed believes the
credit crisis is going to linger well into 2009.
Nonetheless, shares in Lehman Brothers, for one, plunged amid
rumors of a collapse, forcing PIMCO and hedge fund giant SAC
Capital to deny they were cutting their relationships with the
investment bank. The shares, $74 a year ago, were $13.30 on
Friday before closing at $14.40.
All of the above relates to the Big Picture and housing; as in
foreclosures nationwide rose another 53% in June over a year
ago levels. Josh P. was updating me on one of the Ground
Zeroes in the story, the Inland Empire of California, and not only
are prices back to 2003 levels (meaning a ton are underwater),
but sales of new homes are down 92% by one reading. [Don’t be
deceived by some of the sales figures you read. Often these
include sales of foreclosed properties. Josh notes, for example,
that 57% of Riverside County home sales are via this route.]
Separately, after a two-day downdraft in the price of crude from
roughly $145 to $136, oil resumed its uptrend and finished the
week basically unchanged, thanks largely to saber-rattling
between the West and Iran, as described below.
But last week I wrote “There is no way you can validate $145
oil, no matter what anyone says on the supply/demand front…
(and that) there is no doubt speculation has played a role in the
high price just like speculators bid up the price of some tech
stocks during that bubble.”
What ticks me off to no end is how lazy some reporters and
strategists are. There is a difference between “speculation” and
“manipulation,” as I’ve written countless times before.
Manipulation is illegal, though seldom punished. Speculation is
in no way illegal, though if there are rules in place against it, i.e.,
“regulation,” then it becomes illegal and manipulation. You can
not intermingle the two terms like they are one and the same.
Otherwise you greatly cloud the argument.
But I want you to read this, the lead from a Bloomberg piece by
Mark Shenk on Friday.
“Crude oil traded near $142 a barrel after rising more than $5 in
the last hour of New York floor trading yesterday as prices
breached a level that triggered computer-generated buying
programs.
“Prices rose earlier yesterday because Iran test-fired more
missiles in the Persian Gulf [Ed. this account isn’t entirely
accurate; initially oil traded lower on the news] and a Nigerian
militant group said it will end a ceasefire this week [Ed. an
important factor in the move back up from $136 to $145.] The
increase accelerated after futures broke through the July 9 high
of $138.28 at 2:09 p.m. after approaching it at least five times.
“ ‘The market was set to rally,’ said Addison Armstrong, director
of market research at TFS Energy LLC in Stamford, Connecticut.
‘We kept approaching the $138.20 area and when prices finally
made it through’ the high, ‘ ‘length came into the market.’
Length refers to bets that prices will rise.”
The above just proves my point, sports fans. All of those in this
business who say it’s all about supply and demand and that
speculation has nothing to do with the price movement is full of
[I’ll let Jesse Jackson pick a word.]
Longer-term, as I write ad nauseum, I’m a Peak Oil guy and, for
now, while demand is falling 4% on the gasoline front here in the
U.S., it appears it’s still being matched on the flipside by the
likes of China and India, so whether the price of crude is $140 or
a still historically high $100, we have a problem.
Enter oilman T. Boone Pickens, who is spending at least $10
million (and probably far more) of his own money on a plan to
wean us away from our crushing dependence on foreign oil,
which is currently causing the greatest transfer of wealth in the
history of man, as he puts it, some $700 billion a year going from
the U.S. to the likes of Saudi Arabia, where women still can’t
drive. [OK, that last bit is not part of Pickens’ campaign but
rather a little editorial note from moi.]
Pickens plan is centered around wind and solar power, as well as
natural gas, of which America has an abundance. I’ll have more
on Pickens’ proposal over the coming weeks, but for now let me
add this.
Boone Pickens is a hero for taking such a public stand and
putting his money where his mouth is. Some of the idiots on
Wall Street, jealous as hell of his wealth and how he achieved it
(Pickens has been both an investor and speculator), said Pickens
was “only talking his book,” i.e., trying to pump up his existing
portfolio of investments.
To which I say, “Who gives a damn if he makes a buck on it
because Boone is talking the truth!”
We have a serious energy problem…we need to deal with it….
Pickens, bless him, is at least unveiling a plan while the likes of
George Bush have their thumb up their [I call on Jesse Jackson
again to fill in the blank.]
I wrote two weeks ago of flying over the Columbia River Basin
as I headed into Portland’s airport and all the sweeping wind
farms that I saw. You know what? This past week, the wind
was so strong those wind farms threw off 20% more energy
than was required and the power authority actually had to release
more water than normal from the hydroelectric plants because
the system was overloaded. [Bad for fishermen, alas.]
And get this. On Tuesday, USA Today had a list of the top 20
states for “wind-energy potential,” with North Dakota #1, and
Oregon isn’t even on it! You don’t have to be Inspector
Clouseau to draw a rather bullish conclusion.
Back to Pickens and the money flowing out of the U.S., once
again the Wall Street Journal’s Gerald Seib nailed it.
“(Pain) at the pump is only one reason energy now should be the
central issue of this year’s campaign. Here’s the other, more
insidious one: High oil prices are shredding America’s financial
independence and producing a massive transfer of wealth from
U.S. pocketbooks into the hands of suspect actors around the
world, including Iran, Venezuela and Russia.
“The U.S., in other words, now has an energy problem that is not
only draining the bank accounts of its own citizens, but filling up
the bank accounts of some who work against American interests
around the globe. It’s hard to imagine an issue that more
deserves campaign prominence.
“To simplify the predicament, high energy prices hurt Americans
in three ways. Only the first and most obvious one, the effect of
high gas prices on voters’ economic health, gets much attention.
“The second way high oil prices hurt is by adding to the
country’s lack of economic independence. In much the same
way the country has been borrowing money from China to pay
for more Chinese imports, it increasingly is borrowing money
from oil producers to buy more of their oil….
“At the same time, oil producers are joining other foreigners in
buying the U.S. Treasury bonds that finance the federal
government’s budget deficit. Between 2004 and 2007, (a
UniCredit Markets & Investment Banking report) notes,
foreigners bought 80% of all newly issued Treasury bills.
“The outflow of petrodollars also translates into loss of financial
independence on another front. Oil-producing countries are
accumulating piles of excess cash that they can use – and are
using – to buy pieces of Western companies….
“Which leads to the third concern: that some of these mountains
of petrodollars will in turn be used to advance anti-American
political agendas. (An analysis from McKinsey) summarizes the
problem dryly but succinctly: ‘The rise of a broader range of
countries with sovereign wealth funds heightens concerns about
the potential noneconomic motives and political ramifications of
their investments.’”
While I’m not necessarily as concerned about sovereign wealth
funds as Mr. Seib may be, what is clear is that the winner of our
election must be able to hit the ground running on the energy
topic come next January.
Or as Pickens wrote in a Journal op-ed:
“We have a golden opportunity in this election year to form
bipartisan support for this plan. We have the grit and fortitude to
shoulder the responsibility of change when our country’s future
is at stake, as Americans have proven repeatedly throughout this
nation’s history.
“We need action. Now.”
Go get ‘em, Boone.
Street Bytes
**After the market closed on Friday, federal regulators swooped
in and seized IndyMac Bancorp in one of the largest bank
failures in history. IndyMac was a savings and loan with assets
of $32 billion.
Time does not permit me to write more except to add for now
that Office of Thrift Supervision Director John Reich
surprisingly blamed New York Democratic Senator Charles
Schumer as “the immediate cause” of the failure. Back in late
June, Schumer publicly raised concerns about the bank’s
solvency. It appears Schumer was acting no differently than any
hedge fund operator spreading rumors about Bear Stearns or
Lehman Brothers. This is clearly a developing story on many
levels.
For now, if you have your account here, the bank is slated to
reopen on Monday under supervision from the Federal Deposit
Insurance Corp.
–Stocks declined for a fourth straight week, with Nasdaq’s
losing streak hitting six, the longest in 4 ½ years by my records,
though a far greater percentage decline, a whopping 11.2%
during this time. Early in the week, same-store sales figures for
the major retailers generally came in better than expected for
June, owing to the ongoing influence of the economic stimulus
checks, but then everyone woke up and realized that is probably
a last gasp and not the start of something big. While on Friday,
General Electric’s 2nd quarter earnings were merely in line,
nothing more.
[Last week I wrote that thanks to the investment sentiment
readings alluded to above, “I’m turning a little more bullish and
in another few weeks just may hike my allocation to stocks after
sticking with the 80% cash / 20% equities model since 2006.”
I’m not there yet.]
–U.S. Treasury Yields
6-mo. 2.01% 2-yr. 2.61% 10-yr. 3.96% 30-yr. 4.52%
A Wall Street Journal survey of 53 economists showed “22
believed the Fed should be more concerned by economic
weakness than inflation, while 21 said inflation should be the
greater concern. The rest said the risks were equally balanced, or
declined to answer.” [Why those who declined to answer are
still on the survey list is beyond me. Fire ‘em.]
On average, the economists predicted the consumer price index
will rise 4% in 2008, up from the 2.3% they were expecting at
the beginning of the year.
But rising wages are not an issue, as was the case in the 1970s,
an era often carelessly compared to today’s. Lehman Brothers
economist Ethan Harris offered, “The average person is saying
‘I’m worried about inflation because I can’t get a wage increase.’
It’s not, ‘I’m worried about inflation and therefore I’m going to
ask my boss for a raise.’”
The economists, however, are raising their estimate of second
quarter GDP to up 1.4% from 0.5%, owing to the bigger-than
expected impact of the economic stimulus checks. But Goldman
Sachs economist Jan Hatzius says, “The stimulus package has
softened the downturn but will not change the ultimate
outcome.”
–According to consultancy RSM McGladrey, nearly 80% of
senior executives at small and medium-size U.S. manufacturing
companies are pessimistic about the prospects for economic
growth.
–Normally I’d put the following review up in my opening, but
the picture globally is not pretty. Incredibly, though, some
reporters in Britain are just learning “affordability” is an issue
and that “Home ownership is out of reach for average earners.”
This as their bubble bursts. I wrote affordability was a global
issue, especially in the U.K., years ago. Look at Spain, too,
where thanks to the bursting of the real estate bubble there
experts now say the economy will be in recession in the second
half.
Separately, Singapore’s second quarter GDP slid to 1.9% from a
6.9% pace in Q2, though to be fair this nation’s data can be very
volatile quarter to quarter as reflected here. In Japan, producer
prices, up 5.6% in June, hit a 27-year-high, while in Australia,
consumer confidence hit a 16-year low.
–Mexico announced production at its giant Cantarell oil field
plummeted by a third in the past year, while total Mexican
production has dropped 10%. President Felipe Calderon is
urging his Congress to allow more flexibility in the awarding of
outside third-party contracts to work with state-owned Pemex in
developing new sources. This is critical for our own energy
security.
At the same time, the other big source of oil with withering
production, the North Sea, has seen its output fall by an average
of 7.5% a year since 2002 and due to rapidly rising costs and the
difficulty of projects in this area, investment has been on the
decline. One industry association believes production in the
North Sea could be finished by 2020, though it believes the rate
of decline could be lessened with sustained investment.
–In an op-ed for the Washington Post, Gal Luft, co-founder of
the Set America Free Coalition, a bipartisan alliance of groups
promoting U.S. energy independence, notes that Iran’s President
Ahmadinejad seems to get it more than we do in America; as in
Ahmadinejad issued a mandate for Iran’s domestic automakers to
make “dual-fuel” cars that can run on both gasoline and natural
gas, “a crash program to convert used vehicles to run on natural
gas and a program to convert Iranian gas stations to serve both
kinds of fuel.” More than 100 conversion centers have already
been built. “Iranians can drive in with their gasoline-only cars,
pay a subsidized fee equivalent to $50 and collect their newly
dual-fuelled cars several hours later. Ahmadinejad’s plan, which
has been largely ignored by the West, means that within five
years or so, Iran could be virtually immune to international
sanctions.”
Luft adds that Brazil is already there in terms of energy
independence. 90% of new cars sold this year in Brazil will be
flex-fuel vehicles that cost an extra $100 to make but can run on
any combination of gasoline and ethanol. [Brazil, as you know,
being a proponent of sugar-based ethanol.]
Luft: “Lest anyone think that can’t be done in the United States,
many of those new cars are being made by General Motors and
Ford.”
Of course you won’t find any natural-gas vehicles on the road
here, and Brazilian sugar-cane ethanol is impeded by a 54-cent-
per-gallon import tariff, thanks to ethanol’s protectionists in
Congress.
“The hard truth is that real energy independence can be achieved
only through fuel choice and competition. That competition
cannot take place as long as we continue to put 16 million new
cars that run only on petroleum on our roads every year, each
with an average street life of 16.8 years – thereby locking
ourselves into decades more of petroleum dependence.
“So let’s remember the old saying: When in a hole, stop digging.
If every new car sold in the United States were a flex-fuel
vehicle and if millions of Americans could plug in their electric
cars, gasoline would be facing fierce competition at the pump
and the socket. Moreover, our money would have migrated from
Exxon to Pepco, from the Middle East to the Midwest – as well
as to scores of poor, biomass-producing countries in Africa,
Latin America and South Asia, including the few countries that
don’t yet hate our guts. This, and no other, is the road to
independence.”
–Along the lines of the above, China’s President Hu Jintao made
sense at a speech to the Group of Eight on the issue of trade,
particularly when it comes to agriculture.
“All countries, the developed countries in particular, should
display greater sincerity in the Doha agricultural negotiations,
remove trade barriers, demonstrate flexibility over such issues as
the reduction of agricultural subsidies, give full consideration to
the special concerns of developing members, and deliver duty-
free and quota-free market access for the least developed
countries.”
Trade talks on Doha resume July 21 in Geneva after nearly seven
years of prior negotiations.
–Josh P. and I have been exchanging notes on the property tax
front. Josh, living in San Diego, appealed his tax bill and won
and we were talking about how each such success then impacts
all the neighbors. Arden Dale, writing in the Journal, had some
good advice.
“Residents of many communities have 30 to 60 days to
challenge; the short time frame is intended to protect the
municipality from too many challenges…
“When challenging an assessment, it is important to come up
with a price you think is fair and not just pick a number out of
the air….[One expert] suggests checking with a local real-estate
agent and estimating whether a home’s assessed value matches
the current market value.
“The next step is to gather evidence supporting your argument.
Proof may include documents that show the sales prices of
nearby homes that sold around the same time as the assessment.
Many property-tax records are public, so homeowners can find
out how other homes are valued.
“It is good to keep in mind that an assessment is just an opinion.
Some assessors get too stubborn about their valuations,
according to Mr. Kramer, who said that his toughest negotiations
have been not with homeowners but with staff members who are
too inflexible in the face of solid evidence from a homeowner.”
–The news out of GM and Ford has been awful these days, but
in terms of China, GM’s sales there have risen 13% in the first
half of the year, while Ford’s increased 21%.
–After initially saying ‘no’ to a takeover bid, Anheuser-Busch
appears set to embrace an enhanced bid by Belgian brewer
InBev, at a higher price, $70, than the $65 a share first offered as
one of Bud’s largest shareholders, Warren Buffett, is on board
according to reports. For those worried that America is losing
control of one of its iconic brands, fear not. This just isn’t that
big a deal; except a nice pop for shareholders.
–Mr. Buffett was in the news on another deal this week, that
being the $19 billion takeover by Dow Chemical of rival Rohm
& Haas, as Buffett and Kuwait’s sovereign wealth fund help pay
for the transaction, leaving him as the single largest shareholder.
Berkshire Hathaway will provide $3 billion and Kuwait $1
billion. But some are questioning why Dow Chemical offered
$78 a share, or a 74% premium over Rohm’s previous share
price. Germany’s BASF was said to be looking at Rohm as well.
–There is a major security glitch with the new iPhone that
prevented buyers from activating them. Seeing as I don’t have
one, I have to smile.
–Citigroup sold its German retail operations for $7.7 billion to
Credit Mutuel in yet another move by Citi to raise capital.
Embarrassing.
–Foreign direct investment in China rose 45.6% in the first half
from a year earlier, much of which is viewed as ‘hot’ money
which stokes inflation, while also putting the country at risk of
“massive outflows” if expectations for currency gains reverse.
–Revenue at Atlantic City’s casinos declined 11% in the month
of June. But I thought this was a recession proof business?
snickered the editor.
–In a CNBC annual survey of the best states to do business,
using 40 different measurements, the top five were:
1. Texas 2. Virginia 3. Utah 4. Idaho 5. Colorado
The bottom five are:
46. Mississippi 47. West Virginia 48. Rhode Island 49.
Hawaii 50. Alaska
–The Weather Channel was finally sold to NBC Universal
(80% owned by GE) and private-equity firms Bain Capital and
Blackstone for $3.5 billion. Storm chaser/anchorman Jim
Cantore is now in line to replace GE CEO Jeffrey Immelt.
–US Air is removing inflight entertainment systems on its planes
in an effort to reduce weight 500 pounds and thus save on jet
fuel. For its part, Northwest is eliminating 2,500 jobs, which at
an average weight of 160 lbs. (combined male and female)
equals savings of 400,000 lbs.
–Hedge funds turned in their worst performance ever*, losing on
average 0.75% for the first six months of 2008. [*Since Hedge
Fund Research first started tracking the data in 1990.]
–Be glad you aren’t a broker in Pakistan. Their Securities and
Exchange Commission, in an effort to halt a slide in share prices
that had seen the benchmark Karachi index fall 29% in two
months, instituted a rule whereby shares can fall by a maximum
of only 1% a day. Since then trading volume has totally dried
up, some 90%, after driving away fund managers concerned
about an exchange where rules can change overnight. These
days brokers sit around and make vacation plans for the Tribal
Regions. “Don’t forget your flak jacket.” “No way. I always
bring the green one.”
–For the month of May, tourism in China and India both grew
21% over the same month a year earlier, but declined 18% in
Japan and 13% in Korea.
–My portfolio: I’m not hiding anything, I simply have not made
a move for months now. And I have to tell you, I could be on
hold for another 18 months because that is my revised timetable
for the few stocks I own. Those of you wondering what I’m
doing with my China play, for example, only need to know that
whereas I was hoping for good things by this coming December,
now I plan to hold on until Dec. 2009, if need be. It could take
that long for the story to straighten itself out, particularly on the
biodiesel side as China continues to cut back on the subsidies for
consumers that have made biodiesel unprofitable at existing
levels.
I also have a solar play I’ve long mentioned. The stock has
gotten creamed. But I’m holding it, again, for probably another
18 months. My geothermal and electric car battery stocks?
Ditto. They’ve gone down (though I still have small profits in
each as opposed to the other two), but I’m not selling.
Of the four just mentioned, however, I recognize that if the credit
crisis lingers well into 2009, all could be in deep trouble. This is
my gamble, and there’s a decent chance I’ll pay for taking it. In
the meantime, don’t expect a lot more out of me unless I make a
move. One thing is for sure these days, I’m not drinking
premium. It’s Coors Light.
–Legendary fund manager and financier Gerald Tsai Jr. passed
away at the age of 79. Tsai put together the building blocks of
what would become Citigroup, though he is better known for
being one of the early proponents of “momentum investing”
while starting Fidelity’s first aggressive growth fund in 1958. By
1965, when he established the Manhattan Fund, he was able to
raise $247 million, at the time the biggest offering in investment
company history. In 1968, he sold it to CNA just as the bull
market was ending, making a reported $30 million.
Then in the 1980s, Tsai took stodgy American Can Company and
turned it into a financial-services juggernaut, changing the name
to Primerica in 1987, making him the first Chinese-American to
lead a Dow Jones industrials company. Then, a year later,
Primerica and Sandy Weill’s Commercial Credit Group merged
to become what would later be called Citi Smith Barney. [Brian
Stelter / New York Times]
–But another giant of Wall Street passed away, the great John
Templeton, 95, and I was astounded how CNBC didn’t even
mention his death.
John Templeton, in my mind, was the greatest single investor of
the 20th century, more so than Warren Buffett. John Templeton
was the man who single handedly taught us about opportunities
outside our own land. And John Templeton, just as importantly,
was one of the world’s greatest philanthropists, founding the
Templeton Prize in 1972 which recognizes achievement that
enriches religious experience.
This was a truly great man. I’ll always remember his
appearances on Louis Rukeyser’s “Wall Street Week,”
particularly after the Crash in 1987, and he was consistently a
voice of reason…and optimism. No doubt, today if he were on
the air he would still be very optimistic on the future and I’d take
issue with him, short-term, but who could argue with him
otherwise?
This is a man who when war broke out in Europe in 1939,
borrowed money to buy 100 shares each in 104 companies that
were selling at $1 per share or less, including 34 that were in
bankruptcy, and only four turned out to be worthless. When he
founded the Templeton Growth Fund in 1954, if you had
invested $10,000 in it, with reinvestment, it would have grown to
$2 million in 1999.
Finally, on a personal note, the Templeton Fund Group,
including through its incorporation with Franklin, was always a
first-class operation, and rival, while I was in the fund business.
I admired and respected them, as I did their founder. You were a
true titan, John Templeton, and a tremendous teacher for us all.
Rest in peace.
Foreign Affairs
Iran: President Ahmadinejad, speaking at a meeting of Islamist
nations in Malaysia, said “Don’t worry, there won’t be any war
in the future.” Then Iran launched a number of short- and long-
range missiles in a display of force, though, laughably, they
doctored the photos and who in their right mind believes Iran’s
missiles (even if the technology has come from North Korea),
would be truly accurate? The problem is, however, that if you
stick a nuclear or chemical warhead on them, what difference
does it make if the missile is ten miles off target? [During the
Gulf War the Scuds were incredibly inaccurate, but one slammed
into a U.S. National Guards barrack, delivering the single biggest
blow of that conflict.] Therein lies the dilemma for Israel and the
West.
After a flurry of diplomatic statements that led one to believe
there may be some wiggle room on Iran’s stance with regards to
uranium enrichment, last weekend Iranian officials of all stripes
seemed to say that actual cessation is off the table, despite the
Group of Six’s package of incentives. And the fact it was the
Revolutionary Guard behind the missile tests tells you that
hardliners are still very much in control.
So I continue to maintain, as was a prediction of mine last
December, Israel will be forced to launch a preemptive strike by
year end. Israeli Defense Minister Ehud Barak said his country
“had proved in the past that it won’t hesitate to act when its vital
security interests are at stake” and there is zero reason to feel
otherwise at this point. On Monday, Barak begins a tour of
Pentagon officials and meetings with the likes of Vice President
Cheney where actual Israeli attack plans will clearly be discussed
along with the possible repercussions and Washington’s support
role, such as in keeping the Strait of Hormuz open to oil traffic.
Speaking of oil, Iran suffered a serious blow this week when
French energy giant Total became the last Western company to
pull out of a key development project for Iran’s natural gas
holdings, calling it “too risky.” Iran desperately needs Western
know-how.
Former Clinton administration National Security Council
member Daniel Benjamin had the following thoughts in a
Washington Post op-ed.
“For all his insistence on moral clarity, Bush has failed to bang
heads and create clear policies…
“The outstanding example here is Iran. More than seven years
into Bush’s tenure, it’s still not clear whether he advocates
regime change in Tehran or favors a negotiated deal to stop the
ayatollahs’ suspected nuclear program. The failure to decide has
been a guarantee of failure. After all, we can’t have it both ways:
The Iranians are hardly going to bargain with us to stop
developing the ultimate weapon if they think we want to do away
with their government.
“But this is just what the Bush administration expects them to do.
The United States has joined with European countries to
jumpstart a set of negotiations with Iran, even as Washington is
appropriating $75 million for democracy-promotion programs
that underwrite opponents of the regime in Tehran – which the
Iranians understandably view as promoting regime change. The
confusion goes to the very top: Last month, Bush derided the
notion of talking to the Iranian leaders as appeasement, while
National Security Adviser Stephen J. Hadley insisted that the
administration was pursuing a ‘diplomatic strategy’ with Iran.
Go figure.”
[Benjamin goes on to say there has been a similar dysfunction,
my word, with regards to our policy over North Korea.]
Israel: Iran isn’t Israel’s only worry these days. The government
stated that UN Security Council Resolution 1701, passed to end
the 2006 war with Lebanon, is on the verge of collapse as Syria
continues to rearm Hizbullah. Sources told the Jerusalem Post
that Hizbullah now has three times the amount of missiles it had
prior to the war, some 40,000 short- and medium-range weapons.
[Friday, Israeli police issued serious new allegations of
corruption against Prime Minister Olmert, who is now suspected
of obtaining $100,000 from multiple sources before he became
leader. Police also announced they were widening the
investigation. Olmert has previously said he will resign if
indicted. Most experts agree, however, that the disposition of
this case will not impact any designs to attack Iran.]
Iraq: As expected the Senate confirmed Gen. David Petraeus as
the top commander in the Middle East while elevating his right-
hand man, Lt. Gen. Odierno, to replace Petraeus as the chief
military officer in Iraq, both having done a superb job. [The only
dissenters were Democratic Senators Robert Byrd of West
Virginia and Tom Harkin of Iowa.]
The purge of al-Qaeda in the north of Iraq has been “one of the
more spectacular victories of the war on terror” in the words of
London Times reporter Marle Colvon. There are also far fewer
terrorists crossing into Iraq from Syria, though you could say
they are heading to Afghanistan and Pakistan’s Tribal Region
instead.
But an emboldened Iraqi Prime Minister Maliki caused a stir this
week when he spoke of a “timetable” for withdrawal of U.S.
troops as part of any “status of forces agreement” between the
two parties. Far more on this in the coming weeks as the White
House had initially sought to wrap up an agreement in July, but
obviously without a timetable. Iraqi elections are slated to be
held this fall and the actual timing vs. our own presidential vote
could make this event even more interesting.
I also have to add that as a supporter of the war from the
beginning, as well as a supporter of the surge, while many now
want to paint the war as a success now that violence is way
down, the reporting has to be balanced. And believe it or not,
cartoonist Garry Trudeau and his “Doonesbury” strip has been
spot on this past week in highlighting the ethnic cleansing that
has taken place in Iraq since the war began, particularly in terms
of cleansing the country of Christians. Of course Mr. Trudeau
and I normally wouldn’t see eye-to-eye when it comes to our
respective politics, but in its simplicity, Doonesbury has hit the
nail on the head. Calling Iraq a success or failure at this point is
still very much an open question, and will remain so for at least
another few years.
Afghanistan: Violence continues to shift from Iraq to this front it
would seem; the latest example of which being a suicide attack
on the Indian Embassy in Kabul that killed over 40, while there
was a serious similar attack in the Pakistani capital of Islamabad.
North/South Korea: According to a report in Defense News,
there are some critics of the Bush administration who firmly
believe Pyongyang’s nuke declaration was “ghostwritten” by the
United States. Can you imagine if this later proves to be true?
Bush would be impeached in a nanosecond if he knew of it. It’s
not that far-fetched, actually, seeing as how the administration is
overly eager to strike a deal to cement some kind of legacy, even
though it is straining relations with the likes of Japan. Recall, for
starters it will take months to begin to verify the amounts of
fissile material actually produced, let alone the key issue for
some of us; whether Kim and his Orcs will give up the actual
weapons produced.
But as for South Korea, President Lee Myung-bak has offered to
resume a dialogue with the North, indicating he was willing to
reopen the spigots on the humanitarian aid front, but just as he
was saying this, you had the report a South Korean female tourist
was gunned down by North Korean soldiers after strolling into a
restricted area while visiting the North’s lone tourist area,
Diamond Mountain. South Korea immediately suspended the
tour program. For his part, Lee had run on a hardline platform in
dealing with the North.
China: Have you seen reports from Beijing recently and the air
quality? The Olympic Games open in four weeks and there is
little sign the air is clearing up, this despite a ton of rain you’d
think would help cleanse the skies as well as intense government
efforts to curb industrial pollution by closing factories. Yet by
most reports, the level of particulates in the air is still around
seven times the maximum allowable level. That can be
downright deadly. Clearly, authorities are shocked their efforts
haven’t been working, though officials continue to issue
ridiculous denials. Seriously, assuming the air quality doesn’t
improve in a big way, who watching the Games will want to
travel there? Who will feel truly optimistic about the nation’s
future and want to invest there? Ironically, the Games could be
the worst thing to happen to China, not the best.
Plus you have the ongoing concern over terrorism. This week
authorities killed or arrested 15 suspected Uygur terrorists for
plotting attacks
At least leadership received some good news as both Japanese
Prime Minister Fukuda and French President Sarkozy have
joined President Bush in announcing they would attend the
opening ceremonies.
Zimbabwe: Further evidence of Mugabe’s torture camps was
brought to light, with reports detailing how teenage girls were
impregnated by Mugabe’s thugs, many contracting AIDS in the
process. The life expectancy for women in the country is now
34, the lowest in the world.
The United States and Britain pushed for a travel ban and asset
freeze on Zimbabwe’s leadership as well as an arms embargo,
but then incredibly, both Russia and China wielded their veto in
the Security Council to kill the proposal. Russia’s ambassador
to the UN said “This draft is nothing but the council’s attempt to
interfere in the internal affairs of a member state.”
Friends, in all seriousness this is huge, and immensely
frightening on a number of levels. What makes this move any
different than any made by Russia or China during the height of
the Cold War? What does it say about the prospects for
inhibiting Iran? I’ll have far more on the ramifications next
week.
Russia: Yes, it’s also a joke that Russia is a member of the G-8,
though it’s impossible to boot it at this point. New Russian
President Medvedev met with President Bush, after which Bush
called him “a smart guy who understands the issues very well.”
Good god, our president can be truly embarrassing. And look
what then happened with regards to Zimbabwe. Today, even
John Templeton would be depressed.
Russian dissident Garry Kasparov, in an op-ed for the Financial
Times.
“Recently we have witnessed a flurry of high-profile and
contradictory statements on the Russian state. In a role reversal,
Russia’s leaders have been abnormally candid while several
prominent western politicians and pundits have lavished
undeserved praise.
“Russian President Dmitri Medvedev was bold enough last week
to state that democracy is irrelevant to the Group of Eight leading
nations. It is sad to see that some of Europe’s leaders seem to
agree with him. He also accidentally told the truth by saying that
while political competition could be a good thing. It must be
‘competition correctly built,’ a phrase of which George Orwell
would have been proud.
“Despite broad acknowledgement that our March presidential
elections were neither free nor fair, Terry Davis, the Council of
Europe secretary-general, recently expressed his admiration for
Prime Minister Vladimir Putin and President Medvedev. His
comments about ‘growth’ and ‘progress’ make it clear that, to the
council, the importance of liberty and democracy in Russia is
inversely correlated to the prices of oil and gas. Such behavior
helps legitimize fraudulent elections and the dictatorial regime
that runs them.
“It is a pity for Robert Mugabe that Zimbabwe does not enjoy a
surplus of oil and natural gas. Without those assets his election
victory is denounced as a sham and nations around the world call
for him to be ousted. At this week’s G-8 summit, George W.
Bush, U.S. president, denounced Mr. Mugabe while sitting next
to Mr. Medvedev, whose hold on power is similarly counterfeit
….
“An EU-Russia Centre survey has found that 50% of Russia’s
best-educated and most prosperous citizens would emigrate if
they could. The top reasons were instability and danger from
law enforcement. Some 83% said they did not believe they had
the ability to influence the political direction of the country.”
But the White House did conclude an agreement with the Czech
Republic to house part of the U.S. missile defense shield, after
which Russia’s Foreign Ministry office said “If the real
deployment of an American strategic missile defense shield
begins close to our borders, then we will be forced to react not
with diplomatic methods, but with military-technical methods.”
So what has already transpired? In yet another still developing
event, Russia appears to be cutting off the oil supply to the
Czechs.
Our friends the Russkies….members of the Group of Eight.
Sudan: The International Criminal Court is prepared to seek an
arrest warrant on Monday for Sudanese President Bashir,
charging him with genocide and crimes against humanity related
to the violence in Darfur. It would be the first time the tribunal
in The Hague charged a sitting head of state with such crimes.
Some, though, believe this would only complicate matters,
possibly triggering a military response against the 10,000
peacekeepers in the region. At least seven were killed in an
ambush on Tuesday.
India: In a sudden reversal, it now appears the U.S. and India will
sign a nuclear technology cooperation agreement after all, a good
thing, as Prime Minister Singh was able to find a new coalition
partner to replace the Communists, who were blocking approval
and have now withdrawn from the government. After a number
of steps, the U.S. Congress will vote ‘yes’, hopefully in early
September.
Turkey: Gunmen killed three policemen outside the U.S.
consulate in Istanbul (the Embassy is in the capital of Ankara),
with police then taking out the three gunmen in a worrisome
development amid heightened political tensions in Turkey;
sparked by an investigation into an alleged plot to overthrow the
government, at the same time the Supreme Court has sought to
ban officials from the ruling Islamist AKP party.
Mexico: Depending on what article you are reading, killings
related to the drug war have taken anywhere from 1,400 to 2,000
lives already this year. In Tijuana 14 were gunned down in three
days. In another attack on Thursday in the state of Sinaloa,
gunmen killed 12 in broad daylight, including three police
officers.
Britain: In the first survey of attitudes in the British Armed
Forces, 47% said they are ready to quit, owing to repeated tours
in Afghanistan and Iraq and the stresses these place on families.
The British military is 5,000 troops short of where it should be
which only compounds matters.
Meanwhile, the war of words between Britain and Russia
continues over the murder of Kremlin critic Alexander
Litvinenko. A British security agent, appearing on the BBC, said
“We very strongly believe the Litvinenko case to have had some
state involvement.” The BBC also reported that MI5, one of
Britain’s intelligence agencies, had thwarted an attempt by
Russian security services to murder exiled Russian tycoon Boris
Berezovsky, another Putin critic, in 2007.
The G-8 Summit: Who cares? The first day these guys said they
had a climate change agreement to reduce greenhouse emissions
by half come 2050 and the next day we learned that China and
India balked so it was ‘never mind.’
Random Musings
–In a Pew Research Center survey, Barack Obama leads John
McCain 48-40. Separately, the economy handily remains the #1
issue and the race between the two on this front boils down to
one of McCain’s tax cuts vs. Obama’s stimulus plans, though
realities on the fiscal and geopolitical front at the time either
takes office will call the tune, not any sound bytes uttered during
the final months of the campaign.
–Oh, you sure had to get a kick out of the musings of key
supporters of both candidates this week. First, Jesse Jackson, not
realizing he was on a ‘hot mike,’ in his words, said Barack
Obama should have his nuts cut out because of his speeches
where “he talks down to black people.” Jackson apologized as
defenders of the reverend said ‘all he was trying to say is that
you can’t just knock the people, such as in the number of black
children growing up without a father, without at the same time
talking about how government has to provide opportunity for this
segment of the population.’ In other words, you have to tie the
moral and the social.
What a crock. Even fake Rev. Al Sharpton questioned Jackson’s
belief that blacks need more than a lecture in saying “I think
(Obama’s words are) about lifting people up,” not bringing them
down.
Black columnist Leonard Greene of the New York Post:
“If you’re wondering where Jesse Jackson got the idea to cut off
someone’s nuts, consider this theory: It probably came from his
wife.
“No doubt Jacqueline Jackson had the same thought when she
was hit with the news that her philandering husband had a
daughter with a woman who wasn’t her.
“It was in 2001 that word surfaced that the civil-rights leader had
had an affair with a Rainbow PUSH Coalition staffer, a
relationship that resulted in the birth of a baby girl.
“Seven years later, a black politician from Chicago not named
Jesse Jackson, who’s on the verge of making history by claiming
the Democratic nomination, gets on a stage and talks about
responsible fatherhood.
“Well, he had to hit a nerve….
“Since when is it ‘talking down’ to black people to give a speech
about responsibility?
“Since when is it bad for a black man to say black men should be
good fathers?….
“But perhaps we’re overreacting. After all, it could have been
worse – Jackson could have used the n-word.”
As for McCain supporter and advisor, former Senator Phil
Gramm, who holds a PhD in economics, he told the Washington
Times that the U.S. is in a “mental recession” and that we are
basically a “nation of whiners.” McCain was livid over his
friend’s remark and it’s going to cost his bid big time.
–Obama is now slated to give his acceptance speech before
76,000 at Invesco Stadium in Denver, while McCain will be
giving his to a stuffy gymnasium crowd of 250 in Kentucky…or
so it will seem by comparison.
–Republicans have to defend 23 Senate seats this fall, while
Democrats defend 12, only of whom, Sen. Mary Landrieu of
Louisiana, is said to be facing a tough fight.
–Peter Nicholas of the Los Angeles Times had a piece talking
about how tired the two presidential candidates are becoming. It
really is absurd that these guys feel like they have to campaign
virtually non-stop all summer. No one needs to hear them every
freakin’ day, for crying out loud.
But what Nicholas doesn’t note is there is an obvious result of
being this tired…mistakes…and McCain will make the bigger
blunders as the campaign goes on.
–It appears that Barack Obama isn’t the only one talking about
‘responsibility’ these days. David Cameron, Conservative (Tory)
leader in Britain, declared that some people who are poor, fat or
addicted to alcohol or drugs have only themselves to blame. As
a story in the London Times put it, “(Cameron) said that society
had been too sensitive in failing to judge the behavior of others
as good or bad, right or wrong, and that it was time for him to
speak out against ‘moral neutrality.’”
Cameron added “We talk about people being ‘at risk of obesity’
instead of talking about people who eat too much and take too
little exercise,’ he said. ‘We talk about people being at risk of
poverty, or social exclusion: it’s as if these things – obesity,
alcohol abuse, drug addiction – are purely external events like a
plague or bad weather.”
–A report in Defense News by Bryan Mitchell and Andrew
Scutro addresses some of the dangers in the new MRAPs (Mine-
Resistant Ambush Protected) vehicle. In late June, for example,
three U.S. Green Berets drowned when their MRAP rolled into a
river in Afghanistan.
“Of the 38 MRAP accidents between Nov. 7 and June 8, only
four did not involve a rollover,” according to a report by the
Marine Corps Center for Lessons Learned. Additionally, a
common condition appears to be that the weight of the vehicle,
up to 30 tons, can lead to the road collapsing underneath it,
especially because road shoulders are no way near as stable as
they are in the U.S.
The report also highlights problems associated with the MRAPs’
height, which can reach 16 feet when including antennae.
“Power lines, sometimes hung as low as 11 feet off the ground,
can snag on a MRAP and may lead to electrocution.” And yet
another danger is contained in the safety glass, which can
“dissolve into a harmful powder when exposed to the extreme
heat associated with certain bombs…. ‘Hazardous materials
(can) cause cancer and other long-term diseases [as well as lesser
issues],’ the report said.”
–The rate of melanoma among young women has jumped 50%
since 1980 but did not increase for younger men during that
period, according to the National Cancer Institute. One big
potential cause (none of which have as yet been quantified) is the
preponderance of young women frequenting tanning salons.
–Another Sign of the Apocalypse…sniffer dogs in the U.K. have
to wear boots when entering Muslim homes where authorities
suspect bombs or explosives.
–I have to thank the city of Eugene, Oregon for putting on a
great show at the U.S. Olympic Track and Field Trials. The
security as well as the work of the volunteers was top notch.
–Oregon is certainly Obama territory and I didn’t notice one
single sign for McCain. Back here in New Jersey, I can’t
remember seeing one either. Passion? There is no stinkin’
passion when it comes to John McCain and his supporters.
–I just got a note that for $5,000 I can play a round of golf at
Kennebunkport and meet McCain and President Bush. I’ll pass.
–Commentator George Will, Washington Post, on the role of
beer in civilization, using a 2006 book “The Ghost Map: The
Story of London’s Most Terrifying Epidemic” by Steven
Johnson as his guide.
Johnson’s book is a detective story about a horrific cholera
outbreak, which was later traced to a particular neighborhood
pump for drinking water. Johnson begins “a mind-opening
excursion into a related topic this way”:
“The search for unpolluted drinking water is as old as civilization
itself. As soon as there were mass human settlements,
waterborne diseases like dysentery became a crucial population
bottleneck. For much of human history, the solution to this
chronic public-health issue was not purifying the water supply.
The solution was to drink alcohol.”
Beer, like wine, has antibacterial properties, and despite its
hazards, Johnson observes, “Dying of cirrhosis of the liver in
your 40s was better than dying of dysentery in your 20s.”
But as Will further points out, “Johnson notes that historians
interested in genetics believe that the roughly simultaneous
emergence of urban living and the manufacturing of alcohol set
the stage for a survival-of-the-fittest sorting-out among the
people who abandoned the hunter-gatherer lifestyle and, literally
and figuratively speaking, went to town.
“To avoid dangerous water, people had to drink large quantities
of, say, beer. But to digest that beer, individuals needed a
genetic advantage that not everyone had – what Johnson
describes as the body’s ability to respond to the intake of alcohol
by increasing the production of particular enzymes called
alcoholdehydrogenases.”
Those who lacked this trait (certain genes) couldn’t, “as the
saying is, ‘hold their liquor.’” So many died early and childless,
either of alcohol’s toxicity or from waterborne diseases.
“The gene pools of human settlements became progressively
dominated by the survivors – by those genetically disposed to,
well, drink beer,” writes Will.
Johnson adds, “Most of the world’s population today is made up
of descendants of those early beer drinkers, and we have largely
inherited their genetic tolerance for alcohol.”
Or as Benjamin Franklin once said, “Beer is living proof that
God loves us and wants us to be happy.”
George Will: “Or, less judgmentally (and for secular people who
favor a wall of separation between church and tavern), beer is
evidence that nature wants us to be.”
–Sign of the Apocalypse, Part II. “Free” tickets to Bon Jovi’s
concert in Central Park on Saturday, designed to be the band’s
“gift to the city and the metropolitan area,” are being scalped for
as much as $750.
–I normally don’t read Bob Herbert in the New York Times, for
no particular reason, but a column of his last weekend caught my
eye after my own closing screed on patriotism last review.
Herbert cites a new book by former Oklahoma senator David
Boren, who is now president of the Univ. of Oklahoma, titled “A
Letter to America.”
Herbert: “His sense of alarm in the opening paragraph could not
have been clearer. ‘The country we love is in trouble,’ he said.
‘In truth, we are in grave danger of declining as a nation. If we
do not act quickly, that decline will become dramatic.’
“I couldn’t agree more. The symbols of patriotism – bumper
stickers and those flags the size of baseball fields – have taken
the place of the hard work and sacrifice required to keep a great
nation great.
“You know that matters have gotten out of hand when, as we
learned this week, American instructors at Guantanomo Bay,
Cuba, gave classes on torture techniques used by the
Communists to extract false testimony from American prisoners
during the Korean War.
“Talk about defining deviancy down!”
Now Mr. Herbert goes on to give a bunch of classic liberal
reasons for our downfall, but then he says of our presidential
campaign, instead of getting an honest discussion on the serious
issues we face, “we’re getting hour after hour and day after day
of trivia: Who’s up? Who’s down? Who’s patriotic? Who’s
not?”
David Boren, on the other hand, “worries about the neglect of the
nation’s infrastructure, about the growing divide between the
very wealthy and everyone else, and about ‘the catastrophic drop
in the way the rest of the world views us.’”
Herbert: “The U.S., with its enormous economic and military
power, is still better-positioned than any other country to set the
standards for the 21st century. But that power and leadership
potential were not granted by divine right and cannot be wasted
indefinitely.
“Patriotism has its place. But waving a flag is never a good
substitute for serious thought and rolling up one’s sleeves.”
Or as I put it last week, when speaking of Congress, “Dammit,
get to work!”
–But this time I’ll leave you on a more uplifting note. Last
Sunday, the final event of the U.S. Olympic Track and Field
Trials was the men’s 1500 meters. Us track addicts had been
looking forward to this race all week, as there were four or five
great runners, and characters, vying for just the three spots on the
Olympic team.
The race didn’t disappoint and in the end the three qualifiers
were Bernard Lagat, Leonel Manzano, and my main man, Lopez
Lomong…all foreign-born.
There was a little of a buzz afterwards, in no way vicious, but a
bit of frustration over the fact none of the three were native-born.
I told those around me that I was just psyched over the race itself
and was especially happy for Lomong.
So there they were…gold went to Bernard Lagat, a favorite now
in both the 1500 and 5000 and a former Olympian from Kenya
who gained his U.S. citizenship in 2004 after winning a kind of
lottery. Silver went to Manzano, whose father brought the
family to Texas from Mexico when Leonel was four. Bronze
went to Lomong, one of the Lost Boys of Sudan.
You never saw three happier individuals on a victory stand
afterwards. And you never saw a group of three more excited to
be representing America. So while I myself was disappointed
native-born Alan Webb didn’t make the squad heading to
Beijing, I was super proud of the effort put out by the others.
Their stories are the kind that remind us all of our greatness, as
well as our heart.
There’s a lot to be depressed about these days, but as Ronald
Reagan frequently said, we remain the last best hope of man on
earth.
—
Pray for the men and women of our armed forces.
God bless America.
—
Gold closed at $960
Oil, $144.80
Returns for the week 7/7-7/11
Dow Jones -1.7% [11100]
S&P 500 -1.9% [1239]
S&P MidCap +0.1%
Russell 2000 +1.4%
Nasdaq -0.3% [2239]
Returns for the period 1/1/08-7/11/08
Dow Jones -16.3%
S&P 500 -15.6%
S&P MidCap -8.2%
Russell 2000 -11.9%
Nasdaq -15.6%
Bulls 27.4
Bears 47.3 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
