For the week 11/17-11/21

The Arrogant Hank Paulson and Wall Street’s Continuing Collapse 

In a speech on Thursday, Treasury Secretary Hank Paulson, given yet another forum to try and calm investors’ fears, chose instead to defend his legacy in signaling again that he has no plans to bust his butt these final months on the job. Rather, Paulson decided to give his version of how we got into this mess and just what a terrific job he has done thus far, including his announcement earlier in the week that he was unlikely to use what remains of the $700 billion rescue fund in fobbing off the responsibility to the next administration. 

“By proactively addressing the problems we saw coming and being pragmatic enough to change strategy in the face of changed facts and despite the inevitable criticism – we prevented a far worse financial crisis that would have severely damaged our economy and the economic well-being of all Americans. Had we executed the wrong strategy, and depleted the TARP resource in doing so, we would not have achieved our objective and would have deserved the severe criticism that would have inevitably followed such a failure.” 

So there you have it. All is well, thanks to the terrific work of Henry Paulson, even if the rest of us, including those who approved of the TARP in the first place, are left scratching our heads in attempting to discern just what the heck has happened the last two months? In the same speech, Paulson also defended himself against charges that allowing Lehman Brothers to collapse is a major cause of the ensuing crash on Wall Street. 

Such criticism, said Paulson, “is at best naïve, and at worst disingenuous. The U.S. government had no authority to rescue Lehman Brothers.” 

Of course it did… look at his other actions after; Paulson just chose not to and virtually every expert in the industry has now concluded this was a monumental mistake.  

As for opting not to go to Congress for the required permission to utilize the remaining $350 billion in TARP funds, even though the crisis deepened anew this past week, what can you say? Paulson avers he wants to leave the next administration the flexibility (and the man it appears Barack Obama has selected to replace Paulson, Tim Geithner) to use the funds as the next treasury secretary sees fit, but that’s freakin’ two months away, Hank, and if you haven’t learned anything else, it’s that global events are moving at lightspeed. No, Hank Paulson, who made his excessive riches on Wall Street, can’t wait to get the hell out. 

So as our amateur birder puts his big feet up on the desk and counts the hours until he leaves, stocks collapsed for a third straight week, this time to multi-year lows, and the credit markets seized up all over again as Citigroup, having announced it was laying off another 50,000 worldwide, saw its shares slide to below a previously unfathomable $4 amid concerns over its very future. As I write, it’s far from certain what Monday will bring for Citi, but, hey, they said they would honor the naming rights agreement for the Mets new stadium, Citi Field! 

[As for Geithner, who we are told will be part of a new economic team announced by Barack Obama on Monday, his selection led to a 494-point rally Friday afternoon, ostensibly because it shows continuity. Geithner has Wall Street’s respect from his tenure at the New York Fed, but the fact is he’s played a leading role in the TARP, as well as the likes of Lehman and AIG, and most would agree they haven’t exactly been raging successes so expect some serious questioning during his confirmation hearing.] 

This was a week that saw further dreadful news on the fundamental front as jobless claims hit a record level, 542,000, with continuing claims now at four million, while measures of producer and consumer prices turned negative, historically so, and thus fanned emerging fears of deflation. Were we to truly enter a deflationary spiral, it’s Depressionville, worldwide, no ands, ifs or buts. 

The news out of corporate America has generally been awful and, outside of Hewlett-Packard’s trying to pull the wool over our eyes by saying it knows exactly how well it’s going to do next year, no one else has a clue. I wrote last week that thanks to the news from Intel, then, that it was apparent to me the earliest we could possibly get any good news was mid-February and I certainly stick to that thesis. One thing that would help in the meantime, however, from a confidence standpoint, would be aggressive action by Barack Obama prior to his taking office on Jan. 20, and starting on Monday it seems we will see this. I am totally in the camp calling for a massive fiscal stimulus package, including for infrastructure. Injecting money directly into state coffers is one way to get a quick bang for the buck since they already have plans in place, many of which may have recently been scrapped as state and municipal budgets crater amidst plunging revenues and soaring deficits, and thus could easily be quickly resurrected. 

But before we move to the other huge topic of the week, the auto sector, the latest report from the U.S. National Intelligence Council titled “Global Trends 2025” is out, just in time for the new president. Among the conclusions of the analysts involved in the report: 

“The world of the near future will be subject to an increased likelihood of conflict over resources, including food and water, and will be haunted by the persistence of rogue states and terrorist groups with greater access to nuclear weapons.” 

“The likelihood that nuclear weapons will be used will increase with expanded access to technology and a widening range of options for limited strikes.” 

“The international system will be almost unrecognizable by 2025, owing to the rise of emerging powers, a globalizing economy, a transfer of wealth from West to East, and the growing influence of nonstate actors. Although the United States is likely to remain the single most powerful actor, the United States’ relative strength – even in the military realm – will decline and U.S. leverage will become more strained.” 

At least in terms of al-Qaeda, its “inability to attract broad-based support might cause it to decay sooner than people think.” 

I haven’t had a chance to read the full report yet, but a key is China, which we’ve learned surpassed Japan in September to become the U.S. government’s largest foreign creditor. China now owns $1 out of every $10 in U.S. public debt, with Treasury holdings of $585 billion, though its total position, including in corporates, could be closer to $800 billion. 

Niall Ferguson wrote of the U.S./China relationship in an op-ed for the Washington Post. 

“In essence, we need the Chinese to be supportive of U.S. monetary easing and fiscal stimulus by doing more of the same themselves. There needs to be agreement on a gradual reduction of the Chimerican imbalance via increased U.S. exports and increased Chinese imports. The alternative – a sudden reduction of the imbalance via lower U.S. imports and lower Chinese exports – would be horrible. 

“There also needs to be an agreement to avoid a rout in the dollar market and the bond market, which is what will happen if the Chinese stop buying U.S. government bonds, the amount of which is now set to increase massively. 

“The alternative to such a Chimerican deal is for the Chinese to turn inward, devoting their energies to ‘market socialism in one country,’ increasing the domestic consumption of Chinese products and turning away from trade as the engine of growth. 

“Memo to President-elect Barack Obama: Don’t wait until April for the next G-20 summit. Call a meeting of the Chimerican G-2 for the day after your inaugural. Don’t wait for China to call its own meeting of a new ‘G-1’ in Beijing.” 

Now on to prospects for a bailout of the auto industry and the debate that formally continues after Thanksgiving back in Washington. 

New York Democratic Congressman Gary Ackerman cut to the chase on Wednesday in hearings with the chief executives of the Big (Detroit) Three amid reports the execs traveled to Capitol Hill in three separate private jets. 

“There’s a delicious irony of seeing private luxury jets flying into DC and people coming off them with tin cups in their hands,” Ackerman observed, “saying that they’re going to be trimming down and streamlining their businesses. It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo….Couldn’t you all have downgraded to first class or jet-pooled to get here?” 

Michael Daly / New York Daily News 

“The CEOs of the Big Three should utter only two more words: ‘We resign.’ 

“Anything else they might say lost all value when they flew in private jets to Washington to beg for billions of our money. Nobody that arrogant and boneheaded can be trusted with a dime of public funds, especially in a business that requires anticipating popular response. 

“At least now we have a better idea of how General Motors, Ford and Chrysler got into such trouble. Guys who would panhandle for public money from private planes are guys who would keep building cars people don’t want. 

“If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed. 

“Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course – the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check…. 

“First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota…. 

“The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk. 

“In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.” 

Editorial / Washington Post 

“After two days of congressional testimony from the heads of the Big Three automakers and the United Auto Workers, the prospects for federal aid are anything but certain, and a big part of the reason is that Detroit is still in denial. Yes, the auto industry has cut costs and improved products more than its critics may recognize. But the companies and union must stop insisting that the financial crisis alone is responsible for their current predicament – and that federal aid should therefore not hinge on more restructuring. 

“In fact, the industry remains burdened by work rules – including a ‘jobs bank’ that pays laid-off employees not to work – and by health and pension benefits that exceed those of its competitors. Private investors evidently have no desire to buy car company stocks or bonds to underwrite better-than-usual health benefits for hundreds of thousands of UAW members, active and retired; the general public should not have to do so, either. And while U.S. companies have been making some better models of vehicles in terms of initial quality, when it comes to projected resale value, Detroit still lags far behind European and Asian firms, as Kelley Blue Book reported yesterday.” 

Jeffrey D. Sachs / Washington Post 

“First, this is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon. This achievement is closer than many suppose, with the pathbreaking plug-in hybrid Chevy Volt set to arrive in 2010 and several new hybrid models on the way. American-made fuel-cell cars may be a large-scale reality within a decade. Success would dramatically improve energy and national security, climate security, and U.S. global competitiveness, and a public-private partnership is needed to bring about this transformation. 

“Second, the sudden closure of an automaker would be catastrophic, possibly pushing our economy from recession to depression. Because of the impact on parts suppliers, the shutdown of one company would imperil domestic production across the board, and the jobs at risk include not only the 1 million in vehicle assembly and parts but millions more that would be caught in the resulting cascade of failures. The industrial Midwest – especially Michigan, Ohio, Indiana, Illinois and Tennessee – would be devastated, and the shock waves would reverberate across the world. 

“Third, any restructuring under Chapter 11 bankruptcy rules would be a death knell. Yes, in some industries, Chapter 11 can provide breathing space. For the automakers, however, it would accelerate the collapse of consumer demand and the mass bankruptcy of parts manufacturers. Consumers choose vehicles in part on their expectation of the long-term health of the companies that make them, which they rely on for parts, service and resale values. 

“The industry does not need a shakeout but a change of technology for long-term energy and climate security. The recent collapse of annual sales, from 17 million vehicles to 11 million, is not permanent but cyclical. Over time, sales will increase, especially as people in China, India and other emerging markets become buyers.” 

“In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate…. 

“No one knows what further havoc a GM bankruptcy might inflict. A study by the Center for Automotive Research estimates that 2.5 million jobs would be lost in the first year…. 

“Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent and almost a quarter of the 10 million jobless have been out of work for six months or longer? Just to satisfy a purist ‘free market’ ideal? It doesn’t make sense. But neither does it make sense simply to heave taxpayers’ money at automakers. The objective is not to rescue the companies or workers; it is to shore up the economy and improve the U.S. industry’s competitiveness. A bailout won’t succeed unless other things also happen. 

“First, auto companies existing creditors need to write down their debts. Even with federal aid, companies will shrink…. 

“Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles…But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences – to and from SUVs. 

“In bankruptcy, a judge can modify a firm’s labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process – so far – resists that desirable bargain.” 

George Will / Washington Post 

“ ‘Nothing,’ said a General Motors spokesman last week, ‘has changed relative to the GM board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry.’ Nothing? Not even the evaporation of almost all shareholder value? 

“GM’s statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more – the last subsidy until the next one. The statement uses the 11 words after ‘team’ to suggest that the company’s parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is ‘too big to fail.’ It has failed; the question is what to do about that. 

“The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a ‘rescue’ propose extending to Detroit the government’s business model for the nation – redistributing wealth from the successful to the failed, an implausible formula for prosperity…. 

“The Economist reports that as recently as 2005, Americans bought more cars than did China, India, Russia and Brazil, combined. This year those four will buy more than Americans buy, but that is, potentially, good news for Detroit. In America’s saturated market, there is almost one car for every person of driving age; in China there are three for every 100, and fewer than that in India. The Economist reports that in the next 40 years, the world’s automobile fleet will surge from 700 million to 3 billion. After being restructured through bankruptcy, the Detroit Two, or One, might flourish. Let’s find out. The ruinous alternative is to squander, in a doomed attempt to ‘save jobs,’ more scores of billions of dollars of scarce capital that will then be unavailable for job-creating investments in rising industries.” 

One last bit. In subsidizing the auto industry the U.S. risks renewed trade tensions, even after the G-20 and the tacit agreement to prevent such rows during these troubled times. But Washington would counter that other nations are putting their own aid packages together to protect their car manufacturers. As Jennifer Freedman of Bloomberg points out on Friday, this threatens to open a Pandora’s Box, “bringing to a head a long-simmering dispute over policies that U.S.-based General Motors Corp., Ford Motor Co. and Chrysler LLC say unfairly aid rivals, including state-financed health-care and retirement benefits, and currency policies.” 

–It would have been a much worse week had it not been for Friday’s Geithner/short-covering rally. As it was, the Dow still declined 5.3% to 8046, after closing on Thursday at 7552, its lowest level since March 2003. The S&P 500 was down 8.4% to 800, but on Thursday hit 752, a mark not seen since April 1997 as it blew through the October 9, 2002 closing low of 776. Ergo, the results of the great five-year bull run from 10/02-10/07 were wiped out in essentially one year. If you’re reaching for a Kleenex, I understand. 

We’ll soon see, like Monday or Tuesday, possibly, whether Thursday’s low was a bottom, but to give you more of a sense of just how bad it’s been (not to rub it in, but it’s also for the archives), here were the year-to-date returns, thru Thursday, of some well known mutual funds. 

The carnage Wednesday and Thursday was so bad, the Russell 2000 small cap index had its worst two-day performance, ever…down over 14%. 

–U.S. Treasury Yields 

On Thursday, one- and 3-month T’bill rates were essentially trading at 0.01%, and in a brief instance went negative, as the credit crisis (and crisis in confidence) returned with a vengeance. [Friday, the 3-mo. yield rose to a whopping 0.02%.] Yields on the 10- and 30-year also plummeted with record point gains in those securities. But at the same time, there was a “virtual freefall” in the high yield/junk sector, as the authority in the field, Martin Fridson, put it, with the average junk bond yielding over 20%.  

For the record, the October PPI fell 2.8%, but was still up 0.4% ex-food and energy. The CPI was down 1.0% and minus 0.1%, core. 

Housing starts for October came in at a putrid 791,000, the lowest since January 1959.  

The Federal Reserve is now expected to take the funds rate to 0.50% from 1.00% in December and possibly zero early next year. 

–One executive search firm executive, Brian Sullivan, told Bloomberg that the bloodletting in the financial-services industry will accelerate in coming months, with job cuts doubling to about 350,000 worldwide by mid-2009, or 20% of the global workforce. Sullivan said “This is the financial equivalent of World War II.” 

[JPMorgan Chase announced it was laying off another 3,000, while Bank of New York Mellon Corp. said it would hand out 1,800 pink slips.] 

–At one point on Thursday, crude oil fell to $48.25 a barrel, before settling at $49.93, the lowest since May 2005, as global demand continues to plummet. The International Energy Agency cut its 2009 demand forecast again by a whopping 670,000 barrels a day to 86.5 million. 

–The Wall Street Journal noted that utility companies are reporting an unexpected drop in consumption by both households and business. Should the trend continue, and it easily could, $1.5 trillion to $2 trillion that utilities were expected to invest in the grid by 2030 could be at risk. 

–Wal-Mart CEO Lee Scott suddenly announced he was retiring after a tumultuous, yet successful, nine years at the helm. Mike Duke, currently the head of overseas operations, will succeed him. The analyst community was taken by surprise, especially with the timing, including the fact the holiday shopping season officially kicks off next week and Scott is just 59, a year older than Duke. 

–The median home price in the six-county Southern California region is now down 41% from the peak set in the summer of 2007. 51% of homes sold here in October were foreclosed. 

–Japan officially entered recession this week, with October exports falling 7.7%. 

–The Semiconductor Industry Association forecast chip sales will decline 5.6% worldwide in 2009. 

–The G-20 summit was a non-event in terms of policy solutions for the financial crisis, but at the same time it’s never a bad thing for the players to face one another, though my above comments on potential trade tensions bear watching. That’s the last thing we need. 

–On Thursday, shares of Goldman Sachs traded at $49 a share, $4 below the bank’s IPO price of $53 on May 4, 1999. That day the shares hit $76 before closing at $70. Goldman hit $250 late 2007. 

–Goldman executives, led by CEO Lloyd Blankfein, have opted to take zero bonuses this year. UBS executives are taking the same route and undoubtedly others will follow. Of course Blankfein and his co-presidents, Jon Winkelried and Gary Cohn, all earned in excess of $67 million in cash and prizes for 2007. 

–Much has been made of the bonus issue, and rightfully so, but as Greg David of Crain’s New York Business points out, New York City gets 9% of its revenue from Wall Street, while the state relies on it for 20%. There is pain all around. 

–Back in early May, Microsoft raised its initial $31 a share bid for Yahoo to $33. Co-founder/CEO Jerry Yang said no and the rest is history. This week, as Yang was suddenly shown the door, Yahoo stock traded below $9. 

–Saudi Prince Alwaleed increased his stake in Citigroup as it plunged below $5 on Thursday. On a split-adjusted basis the Prince first purchased shares back in 1991 at $2.98. He’s basically back to even on that slug, down on the rest, at least at Friday’s closing price of $3.75. Incredible. 

–Bloomberg’s David Olmos and Rob Waters had a story on how the global economic crisis has “cut funding for biotechnology companies to the lowest level in a decade, triggering bankruptcies and threatening development of drugs based on biomedical breakthroughs.” The amount raised this year has fallen by almost $10 billion over 2007’s pace. 

Some say the Darwinian pruning isn’t all bad, and they are right, but promising breakthroughs will fall through the cracks along with those not deserving of further funding. 

–The IMF approved a bailout package for Iceland. That nation’s GDP is expected to plummet 9.6% in 2009. [There are unbelievable travel deals here, by the way, but you need to act fast.] 

–Hedge fund investors pulled a record $40 billion out in October, while losing another $115 billion through poor performance. As many funds have long notice periods for withdrawals, and allow them only quarterly, the figures at year end could be far worse. 

–Citigroup was forced to liquidate its Corporate Special Opportunities hedge fund after it lost 53% of its value last month, marking the ninth time this year that Citi had to close or rescue a fund in its alternative investment unit. Current CEO Vikram Pandit came out of that department. Investors in CSO, by the way, are expected to receive no more than 10 cents on the dollar. 

–A real estate survey in the UK reveals that one in five homes are on the market because their owners cannot afford the mortgage repayments, according to the London Times. 

–Irish homebuyers are being forced to go back to putting 20 percent down. It had been an average 8 percent to secure a mortgage. 

–Online retail spending grew only 1% in October from a year ago. The bloom is officially off the rose as online begins to act like traditional retail. 

–For the first time in its history, the California State University system is proposing to turn away qualified students due to the worsening budget crisis, with Gov. Schwarzenegger having to deal with a budget shortfall of $24 billion by mid-2010. 

–Macau casino mogul Stanley Ho said his industry there “will take two to three years to recover.” 

–Billionaire Mark Cuban was sued by the Securities and Exchange Commission over claims he was involved in insider trading as an investor in Mamma.com back in 2004 after the company told him in confidence it planned to sell stock below its trading price. Less than four hours later, Cuban sold his 6.3 percent stake, thus avoiding $750,000 in losses.  

Cuban thus becomes a candidate for our irregular “Dirtball of the Week” award, but the prize goes to Long Island Railroad executive Frederick Kreuder, who accepted money for a baseball team he ran in exchange for helping retiring employees cheat the government out of countless dollars in disability payments.  

–After 150 years of family rule at Anheuser-Busch, the maker of Budweiser’s takeover by InBev was completed. The new beer giant will be headquartered in Leuven, Belgium, though InBev has promised to keep all 12 of A-B’s North American breweries open as long as the company faces no new U.S. taxes. Budweiser is the world’s top selling beer and InBev plans to push it heavily in Asia, Latin America and Eastern Europe. 

–A study by the Sharkey Institute and Seton Hall University shows that 47 percent of golfers are likely to cut back as a result of the recession, while 49 percent of skiers said they would curtail their participation.  

Iraq: In a highly positive act that received short shrift in our media, the Iraqi cabinet approved the Status of Forces Agreement after almost six months of intense debate. Under the plan, which still needs to be approved by the Iraqi parliament, the United States will withdraw all forces by 12/31/2011, but, it will also withdraw to bases by mid-2009, at which point the U.S. would need Iraqi court permission to execute any arrests. In other words, this is little different from what President-elect Obama has called for all along. You can split the atom, but American forces will be emasculated to a large degree in six months, while Obama’s timetable has essentially been 16. 

[Moqtada Sadr’s Mahdi Army is vowing to mount a new insurgency if U.S. troops stay three years.] 

Iran / Israel: Last Sunday, Israeli Prime Minister Ehud Olmert called for a stronger international campaign against Iran’s nuclear program, to “thwart it with greater force.” 

And so days later, the International Atomic Energy Agency announced that Iran was adding 3,800 centrifuges to the 3,000 already installed, and that its stockpile of enriched uranium was growing. More than one expert has concluded Iran now has enough material for a crude bomb, while others maintain Iran is still one to two years away. The IAEA, disconcertingly, added that all communication had ceased between the agency and the Tehran government. 

Meanwhile, Israel’s election campaign is in full bloom, with the latest poll showing Benjamin Netanyahu’s Likud party with a six seat lead, while another survey has Likud defeating Kadima and Tzipi Livni 34-23. In the last election, Kadima won 29 seats and Likud had just 12. [In Israel, you then form a ruling coalition among numerous smaller parties, including Ehud Barak’s Labor, which is polling 8 to 10 these days.] 

Afghanistan: President Hamid Karzai, who has long fallen out of favor with the U.S. due to sweeping corruption in his regime, guaranteed the safety of Taliban leader Mullah Omar if he would agree to negotiate peace terms. A Taliban spokesman responded, “The Taliban’s (leadership) decided they will not take part in any peace talks with Karzai or Karzai’s administration until such a day when foreign forces leave Afghanistan. The Taliban will pursue jihad against foreign forces and (Karzai’s) government.” 

State Department spokesman Sean McCormack said the U.S., which has a $10 million bounty on Omar’s head, questioned Karzai’s security guarantee. 

“One can’t imagine the circumstances where you have the senior leadership of the Taliban – that there would be any safe passage with respect to U.S. forces. Certainly, it’s hard to imagine those circumstances standing here right now.” 

Karzai had defiantly said, “If I hear that (Omar) is willing to come to Afghanistan to negotiate for peace and for liberty so that our children will not be killed anymore, I as the president of Afghanistan will go to any length to provide him security. If I say I want protection for Mullah Omar, the international community has two choices: remove me or leave.” 

I would strongly suggest that Mr. Karzai take his drug money and leave post-haste. 

Understand that General David Petraeus is seeking to meet with Taliban ‘moderates,’ but Omar hardly fits the profile. 

[In another successful drone attack, we are learning Saturday morning that an alleged mastermind of the 2006 transatlantic airplane bombing plot, Rashid Rauf, was killed in northwest Pakistan.] 

Russia: Despite the plunging economy, which the World Bank now estimates will grow just 3% in 2009, down from a previous estimate of 6 to 6.5%, Prime Minister Vladimir Putin’s approval rating remains at 74%, while President Dmitry Medvedev comes in at 61%; this as rumors are swirling Putin is ready to come back and will force Medvedev out next year. This week Putin took charge, unveiling a sweeping stimulus program to address the financial crisis. For his part, Medvedev hasn’t established his own power base as yet to stand up to Putin. 

There is another important issue in Russia these days and that is the surge in hate crimes, a topic I’ve addressed before. The Moscow Bureau for Human Rights reports that through Nov. 15, 114 have died in Russia in racist attacks, with another 357 injured. This continues to bear watching because I have argued this type of behavior is bound to spread as the global economy craters and natives search for scapegoats, i.e., gypsies in Eastern Europe and Italy, Turks in Germany, etc. [I have to admit I’m not a big fan of gypsies myself…but I digress.] 

China: It’s no secret the government is scared to death about rapidly rising unemployment and unrest. The official jobless rate is 4%, but this doesn’t include hundreds of millions of migrant workers (out of a total 1.3 billion population). 

Separately, the chairman of the U.S.-China Economic and Security Review Commission, set up by Congress in 2000 to advise and investigate various issues between the two, said “China is stealing vast amounts of sensitive information from U.S. computer networks.” The panel also warned that Chinese satellite technology is allowing it to locate U.S. navy ships more quickly and accurately than ever before. 

Mexico: You know what I’d like to see President Bush do as one of his final public statements on foreign policy? Meet with Mexican President Felipe Calderon and with dripping sarcasm address the American public. “Just try, for one week, reducing your drug habit.” Then point to the statistics on the number of Mexican police, drug agents, and innocents losing their lives in Mexico’s drug war, which is in every respect this nation’s Afghanistan. On Wednesday night, another five police and agents were killed in Culiacan, Mexico, ambushed by cartel gunmen. 

Colombia: Even the New York Times editorial board has come around and agrees that “Congress should pass the Colombian free-trade agreement now.” 

“Rejecting it would send a dismal message to allies the world over that the United States is an unreliable partner and, despite all that it preaches, does not really believe in opening markets to trade. There is no more time to waste.” 

It is outrageous that this pact hasn’t been approved yet, after President Bush initially signed the deal two years ago.  

Somalia / Pirates: Jokes were made this week over the Somali pirates and their brazen taking of a Saudi oil supertanker, let alone eight other boats in a 12-day period, but it is far from a joking matter. I urged weeks ago that the international community blow these guys out of the water, and while I understand why NATO may be unsure over its mission in the Gulf of Aden, as well as the rules of engagement, at least the Indian navy took action into its own hands and blew a pirate ship up. NATO, and Washington, keep saying the shippers need to step up their own security, and of course they’re right to a certain extent, and I understand why some may not want to invade Pirate Island (the base) and be left with some kind of permanent mission, but at the same time it is pitiful the civilized world can’t control a bunch of Somali derelicts and thugs.  

But it finally appears this is all about to change as the Saudis are now seeking to join the current NATO force. In an announcement on Friday, the Kingdom said it would contribute “naval assets to help in pursuing piracy in the region, as this is the only way this can be dealt with. Negotiations…are not a solution.” 

South Africa: I have been building a case that in 2009, South Africa will implode.  So this past Saturday night at a bar in Hong Kong, I was watching a Liverpool football match and casually asked the fellow sitting next to me if their opponent, Bolton, was any good. 

Well, one thing led to another and Robin M. and I struck up one of those instant friendships you only get from sharing a pint. I hope to stay in touch with him. 

You see, Robin hails from a Johannesburg suburb and I asked if I was right in thinking South Africa was on the verge of collapse. I am. 

Robin, who is roughly my age, recently moved his wife and two kids to Tokyo, but business, for now, mandates he remain in his beloved South Africa. He moved the family over safety concerns. Imagine living in constant fear for your life even within your gated community. Robin said one just becomes so fatalistic, basically waiting to be shot, randomly, or kidnapped for ransom, in case you harbored any doubts about my previous discussions of ‘white flight’ in his country. The only slight hope for the future is that the ruling African National Congress is splitting along moderate/radical lines and hopefully the moderates prevail, though president-to-be in ’09, Jacob Zuma, is on the other side of the party. 

Australia: Good thing a war hasn’t broken out in Southeast Asia that might require the Aussie navy’s participation. You see, Navy chiefs there are facing such a staffing crisis that they have ordered a two-month shutdown over Christmas, “and have told personnel with child-care problems that they can work from home,” as reported by the Sydney Morning Herald. Australia is also looking to secure those ships not currently involved in operations with sensors and alarms rather than human sentries. Goodness gracious. 

–Any rational viewer of last week’s “60 Minutes” had to reach the conclusion that Barack and Michelle Obama could not have come across better. Obama’s initial approval ratings are in the 70% range, and as Peggy Noonan writes, “They’ll go higher. Part of this is people saying: We want you to do well. As you prosper, our nation prospers.” That’s my own bottom line. Give me an excuse to vote for you in 2012, Sen. Obama. 

“Young Republicans…should remember that nothing in politics is permanent. Everything in America, from businesses to families to political parties, is always rising or falling, because America is dynamic, not static, and change is the only constant. There is joy to be had in being out of power. You don’t have to defend stupid decisions anymore. You get to criticize with complete abandon. This is the pleasurable side of what the donkey knows, which is that it’s easier to knock over the barn than build it.” 

–David Ignatius / Washington Post…on Barack Obama’s journey. 

“The man who has spent his life ‘becoming’ must now ‘be.’ Obama has been the sojourner, as David Brooks of the New York Times has written, passing through places and institutions, alighting but never putting down deep roots. He has always been on his way elsewhere, in a journey of discovery and self-actualization that may be unmatched in American political history. And now he is at the doorstep of 1600 Pennsylvania Ave. 

“Obama plays on a different stage now, and it’s less forgiving. After a zero-defect campaign, the transition team has already begun to make some mistakes. The choice of Rahm Emanuel as White House chief of staff was a good one, but awkwardly handled; the news media were told he had been offered the job before he had agreed to accept it, setting both of them up for embarrassment if he refused. 

“And this week, there was the public rumination about Hillary Clinton as secretary of state. This may be another self-inflicted wound. Clinton is immensely talented, but it could be the wrong job for her since it has the potential to undermine Obama’s own transformational role in foreign policy – perhaps the greatest opportunity he has. Why subcontract this to Clinton and her entourage? 

“And yet, after the public speculation, Obama will seem to be dissing Clinton and her supporters if she doesn’t get the job. Here again, one sees a once-seamless team making little mistakes. 

“And then there’s the incredible shrinking vice president-elect, Joe Biden. Where is he these days? Do they have him in a box? He can’t be happy at the idea of considering Clinton as foreign policy tsarina – wasn’t Biden’s foreign policy savvy the reason he was picked?” 

–Alaska Sen. Ted Stevens, the longest-serving Republican in the history of the Senate, lost his bid to remain in office, thus making composition of the body 58-40 for the Democrats, with the Minnesota and Georgia races yet to be decided. I loved what the Wall Street Journal editorial board said upon official word of Stevens’ defeat. 

“Mr. Stevens…distinguished himself mainly by channeling billions of taxpayer dollars to his home state in earmarks. He was equally well-known for exacting revenge on anyone who got in his way…. 

“Over the years, he developed a sense of entitlement, which ultimately led him to accept favors that led to his conviction for lying about those gifts. He could have graciously stepped down upon his indictment only weeks before the primary, and another Republican would have surely saved his seat. Instead, he thought the voters would vindicate him, and the irony is that he was almost rescued by the large Alaska turnout for Sarah Palin, who fought his style of politics in the state. 

“Now that even Alaskans are done with Mr. Stevens, perhaps the GOP will learn the right lesson and set about the business of becoming a party of ideas again.” 

Stevens was an arrogant SOB and truly detestable. It was also pitiful watching his senate compatriots bid him farewell on Thursday, including that 91-year-old fool Sen. Robert Byrd, dribbling all over himself, who should have been put out to pasture a decade ago.  

“Bygones will be bygones – at least when the future of the Senate is at stake. Yesterday, Democrats decided not to boil Joe Lieberman in oil after all. 

“Mr. Lieberman’s colleagues are still seething about his support for John McCain and his more heretical defense of President Bush….But they ended up voting 42-13 for rapprochement. The Connecticut independent will not be stripped of his most powerful committee chair…. 

“At a press conference, Mr. Lieberman singled out an ‘appeal by President-elect Obama himself’ as the main reason he’s staying put. It was a shrewd move by Mr. Obama. Democrats picked up (seven) Senate seats this year, with Minnesota (and Georgia) still undecided. If they prevail (in the other two), they will have the 60-vote majority needed to quash any GOP filibusters – but only provided that Mr. Lieberman continues to vote with his former party. 

“As with his sit-down with John McCain on Monday, Mr. Obama is obviously trying to assemble the votes he needs to beat Minority Leader Mitch McConnell on domestic priorities such as labor, health care and climate change. The Internet left and other liberal activists are in full meltdown because a bete noire was not sent to the guillotine. Even so, Lieberman alive is of more use to the new President than Lieberman banished.” 

–Eric Holder, tapped by Barack Obama to be the next attorney general, is well liked and obviously experienced as a prosecutor, judge, lawyer in private practice, and former top official in the Justice Department, but during his confirmation hearings he will still face a headwind in explaining his role in the Marc Rich pardon on President Clinton’s last night in office. As the Washington Post opined, “Ultimately, the call was President Clinton’s, but why did Mr. Holder not object to the pardon of a fugitive millionaire politically connected to the president? After almost eight years of a highly politicized and dysfunctional Justice Department, the Senate should assure itself that the next attorney general will be beyond reproach.” 

–George Will / Washington Post 

“Hyperbole is not harmless; careless language bewitches the speaker’s intelligence. And falsely shouting ‘socialism!’ in a crowded theater such as Washington causes an epidemic of yawning. This is the only major industrial society that has never had a large socialist party ideologically, meaning candidly, committed to redistribution of wealth. This is partly because Americans are an aspirational, not an envious, people. It is also because the socialism we do have is the surreptitious socialism of the strong, e.g., sugar producers represented by their Washington hirelings. 

“In America, socialism is un-American. Instead, Americans merely do rent-seeking – bending government for the benefit of private factions. The difference is in degree, including the degree of candor. The rehabilitation of conservatism cannot begin until conservatives are candid about their complicity in what government has become. 

“As for the president-elect, he promises to change Washington. He will, by making matters worse. He will intensify rent-seeking by finding new ways – this will not be easy – to expand, even more than the current administration has, government’s influence on spreading the wealth around.” 

–Ohio State President E. Gordon Gee ‘earned’ compensation in excess of $1.3 million, No. 1 in the nation among public universities, for the 2007-08 academic year. That’s outrageous. 

“Imprisoned leaders of the Bloods street gang, with the help of corrupt corrections officers and staff as well as visitors, control their criminal organization from behind bars by using smuggled cell phones and manipulating prison phones, State Commission of Investigation agents said yesterday…. 

“ ‘The largest and fastest-growing street gang in New Jersey, the Bloods, control drugs and cell phones in an unmonitored system and control the flow of money in and out of the prisons,’ said SCI special agent Willie Byrd.” 

One expert says as many as 12,000 inmates in New Jersey’s prison system are gang members, or almost half the prison population. President-elect Obama, please add this national crisis to your to-do list. 

–Not a good week for some on the health front. What is being described as a definitive study tracking cancer risk in 14,600 male U.S. doctors found that those who took vitamin E or vitamin C supplements were no more or less likely to develop cancer than men given a placebo, thus refuting prior work that argued those with a diet rich in the two vitamins had a lower risk of cancer and could thus substitute supplements of E and C to help ward it off. 

And a study in the Journal of the American Medical Association concludes daily doses of ginkgo biloba doesn’t improve your memory in any way, nor does it then slash the rates of Alzheimer’s. Said an expert in the field, “I think this is the last chapter in the ginkgo story.” 

–It wasn’t a good week for astronaut Heidemarie Stefanyshyn-Piper, as she accidentally let go of her tool bag during a space walk when a grease gun inside it exploded. It was the largest item ever lost by a spacewalker, and clearly her fault since it should have been tethered to a larger equipment bag. She was the first woman to be assigned as lead spacewalker for a shuttle flight. 

–Speaking of space, those of us hoping a black hole would come along and put us all out of our misery (half-kidding) had reason for hope this week, albeit briefly, with the discovery of a large clump of dark matter close to our solar system, scientists said on Wednesday. One problem. It’s 3,000 light years away, a light year being 6 trillion miles. 

Well you know what this really means. Us Mets fans will have to witness another September collapse in 2009, no doubt, at Bailout Field. 

–But at least scientists have been able to decode the DNA of a woolly mammoth and some believe we are fairly close to the day when we could resurrect the species by modifying the DNA in an elephant’s egg so that over time it would progressively resemble the DNA of a mammoth, as reported by Nicholas Wade of the New York Times. “The final-stage egg could then be brought to term in an elephant mother, and mammoths might once again roam the Siberian steppes.” 

Why Siberia? I’d kind of like to see them run roughshod over the Hamptons. 

–Remember the Hadron Collider? That much ballyhooed proton smasher that was to give us insight into all kinds of secrets of the universe? Recall just nine days after it was turned on last September there was an electrical failure that shut it down. Now we’ve learned it will take $21 million to fix the freakin’ machine. The reason? A badly soldered electrical connection in one of its super-cooled magnet sections.  

Is there anything the world community can do right these days? Can’t anyone just do their freakin’ job? 

–Lastly, Friday’s Wall Street Journal had a three-page advertising supplement titled “Understanding Whiskey” that starts out “Whiskey isn’t the easiest drink to embrace.” 

Gold rallied to $791
Oil closed at $49.93 

Returns for the week 11/17-11/21  

Dow Jones -5.3% [8046]
S&P 500 -8.4% [800]
S&P MidCap -11.3%
Russell 2000 -11.0%
Nasdaq -8.7%  [1384]

Returns for the period 1/1/08-11/21/08