Wall Street…more gloom and doom
The world was in a foul mood yet again this week. Part of it was because of the World Economic Forum in Davos, Switzerland. Those who were comfortable in their own skin, and not afraid of shareholder backlash for spending $100,000 or $200,000 just to attend, were nonetheless surly, while those who stayed home found all manner of topics to take off after, including the hot button issue of Wall Street bonuses. One thing is for sure, President Barack Obama has his pulse on what will get the American people all riled up, for good or bad.
And in focusing on the economy, both in the United States and around the world, the news continued to be abysmal. First, here in the U.S., durable goods orders (big ticket items) for December were down a worse than expected 2.5%; the Chicago Purchasing Managers’ Index hit a sickly 33.3 (50 being the dividing line between growth and contraction); existing home sales may have spiked in December, thanks to foreclosures and price cuts, but the Case-Shiller index of prices in 20 major metropolitan areas fell for a 28th straight month in November, with an average decline of 18% year over year, and new homes sales for December were a record low of 331,000, down 14.7%.
Then you have the figure on continuing jobless claims, now in excess of 4.7 million and another record. And on Friday we learned that GDP for the fourth quarter, according to the first flash estimate (it gets revised two more times) declined 3.8%. Granted, a decline of 5.5% was expected but before you go cashing that last check attached to your credit card statement, understand this was still the worst quarter since 1982 and it will be revised downward.
Overseas, Spain officially entered recession as the impact of its real estate crash spreads throughout the economy there, while Ireland is now projected to contract a whopping 5% for all of 2009, though this continues to get ratcheted downward. Ireland was placed on credit watch by Moody’s, not a good thing if you’re trying to finance massive deficits at as low a rate as possible. I just have to add that I went online to check out real estate prices in an Irish town I’m most familiar with and my friends there still don’t get it; as in some homes remain outrageously overpriced.
In France and Germany, measures on consumer confidence surprisingly ticked up, but then France was hit by a massive labor protest and Germany’s unemployment rate hit 7.8%.
In Asia, Japan’s reading on December industrial production fell a record 9.6%. 9.6%! Japan is experiencing its worst recession in three decades.
The International Monetary Fund now forecasts declines in GDP for 2009 of 1.6% in the U.S., 2.6% in Japan, and 2.0% in the European Union. Contrast this with much smaller declines as projected by the IMF just last November of 0.7% U.S., 0.2% Japan, and 0.5% E.U. Additionally, the IMF forecasts the amount of credit-related losses that will be reported by financial institutions around the world will exceed $2.2 trillion, or about half what is already known.
So is it any wonder that corporations are throwing up their arms and saying they have zero visibility in looking out the rest of the year. One company after another is refusing to issue guidance on future earnings, while they announce massive layoffs. Just check out this week’s roster.
Caterpillar, 20,000 pink slips; Pfizer/Wyeth (which are indeed merging), 19,500; Netherlands-based Phillips, 6,000, and ING, 7,000; Sprint Nextel, 8,000; SAP, 3,000; Home Depot, 7,000; Corning, 3,500; Japanese electronics giant NEC, 20,000; AstraZeneca, 7,400; Toshiba, 4,500; Honda, 3,100; Allstate, 1,000; Texas Instruments, 3,400 (1,600 through attrition, TI hopes); Starbucks, a further 6,700; AOL, 700; Eastman Kodak, 4,500.
And in many cases these figures represent 12 to 18 percent of the total work force, let alone the fact salaries and bonuses are being frozen for those still around.
Morgan Stanley Asia economist Stephen Roach said in Davos that “We cannot underestimate the challenges and dangers that the world economy faces in 2009,” adding not only is the American consumer just “20% into a multi-year adjustment” due to our newfound frugality, but that any recovery will be anemic.
News Corp. Chairman Rupert Murdoch, in stressing the need for “drastic action,” observed that around the world, people are “depressed and traumatized” to see their life savings, pensions and the value of their homes get crushed. “The crisis is getting worse,” Murdoch added. “Values are still going down,” and, “There’s no hiding place.”
It also shouldn’t surprise anyone that given an opportunity in Davos, both Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin blasted the United States for dragging everyone else into the crisis. Putin said, “A year ago, American delegates speaking from this rostrum emphasized the U.S. economy’s fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist.”
Premier Wen said, “Inappropriate macroeconomic policies,” an “unsustainable model of development characterized by prolonged low savings and high consumption,” the “blind pursuit of profit” and “the failure of financial supervision” all contributed to the carnage. [New York Times]
But both Putin and Wen interjected a bit of optimism, as Putin said he was eager to work with the West on solutions, while Wen said China would attain 8% growth this year, come hell or high water.
Back to Obama, he mentioned when he took office that a reason he wanted to keep his BlackBerry was to stay connected; so that when he “messed up,” as he himself put it, his friends could let him know. The populism track he is taking in going after Wall Street is no doubt popular, but when it devolves into class warfare, which is where he is headed, then I suspect his BlackBerry could be buzzing. I’m going to ‘wait 24 hours’ when it comes to the Obama/Biden middle class initiative and get into it in more detail next time.
But for now I just have to say I worked on the Street for a long spell myself and of course the bonus system is way out of whack, especially when a firm reporting massive losses while taking taxpayer funds to stay afloat doles them out anyway. Obama said talk of such bonuses (details of which follow below) was the “height of irresponsibility.”
Britain’s City Minister Lord Myners expounded on the topic in speaking of the situation in his own country, though he could just as easily have been addressing the United States:
“I have met more masters of the universe than I would like to, people who were grossly over-rewarded and did not recognize that. Some of that is pretty unpalatable. They are people who have no sense of the broader society around them. There is quite a lot of annoyance and much of that is justified.”
As for the economic stimulus program that was passed in the House by a 244-188 margin, with zero Republicans voting for it and eleven Democrats saying ‘nay’ as well, this is a Nancy Pelosi special but, as it will be carved up in both the Senate and in conference between the two houses, I’m not going to waste any time on it today. There is no way much of what you have heard in terms of the House package ends up being in a final bill, and I expect the administration to shelve the “Buy American” provision that otherwise would lead to a trade war.
Should this, however, prove not to be the case, then the “30-day” honeymoon I talked of last week for President Obama will be shortened to 25 days (Presidents Day Weekend being the supposed target for coming up with a definitive plan).
Lastly, on the good bank / bad bank issue, here too there is little more than talk. The bottom line is banks are not lending and have no real incentive to do so, let alone the fact all the crapola on their balance sheets negatively impacts capital requirements that also impact their ability to be good citizens. That means tight credit is severely impacting consumers and firms alike.
Globally, rising unemployment compounds matters as this in turn leads to further bank losses on credit cards, auto and home equity loans; another disincentive to lend. And so the vicious circle goes round and round and round.
–Stocks edged down for a fourth consecutive week, with the Dow Jones losing 1% to close at 8000, while the S&P 500 lost 0.7% and Nasdaq a mere fraction. January proved to be the worst opening month in market history, with the S&P losing 8.6%, compared to the next worst January, 1970’s decline of 7.6%.
Caterpillar set the tone Monday morning in forecasting sharply lower results for all of 2009 and given its global footprint, it didn’t speak well of prospects for an immediate recovery. By week’s end Proctor & Gamble was also reducing its outlook. The only bright spot, it seemed, was Amazon’s solid report and the share’s rallied smartly.
About 60% of companies have reported lower revenues thus far for the fourth quarter.
–U.S. Treasury Yields
The Federal Reserve’s Open Market Committee met and with the funds rate already basically at zero there was little drama attached to the meeting. But the Fed did warn of deflation and said it will buy long-term Treasuries if necessary in an attempt to influence rates.
PIMCO’s Paul McCulley said of Bernanke and Co., “The Fed has pulled out all the stops,” adding, “The Fed’s mission has to be to bring down private-sector borrowing rates.”
But instead, due to prospects for excessive supply for as far into the future as one can see, yields are rising, not falling, despite the putrid economic activity. Not good.
–Freddie Mac and Fannie Mae are beginning to tap their respective $100 billion government credit lines, thanks to the fact the value of their assets has dropped below the amount they owe on their already existing obligations. Great job, guys.
–Alright, here’s the deal with this Merrill Lynch/Bank of America fiasco. Former Merrill CEO John Thain said some incredibly stupid things this week in an interview with CNBC’s Maria Bartiromo. Thain, in confessing that spending $1.2 million on redecorating his office probably wasn’t a good idea, maintained, “It really would have been very difficult for me to use it in the form that it was in.” Oh brother.
Thain also added the now standard shtick that if you don’t pay your people well enough they’ll go elsewhere, in defending his move to accelerate the payment of $4 billion in bonuses, in December, right before both the merger with BofA was formalized and the reporting in mid-January of losses in excess of $15 billion. No one in Middle America (or the rest of the country for that matter) understands this stilted logic, which is why President Obama pounced.
Thain has since been subpoenaed by New York Attorney General Andrew Cuomo to explain just what the hell he was thinking, while Bank of America CEO Ken Lewis is being quartered by his own board and shareholders for doing the Merrill deal in the first place, resulting in a loss of 80% in BofA shares since, as well as not coming clean on the losses before the merger was voted on. Former CEO Hugh McColl Jr., who still sits on the board, is said to be “livid.”
But if that wasn’t enough, picture Bank of America announcing it was deferring bonuses for employees in its capital markets and investment banking units, while these workers know their Merrill brethren have already been compensated at their customary higher levels. Talk about bad blood. This is a classic North-South war in the offing. Where is Fort Sumter? And who has the best generals?
[Actually, having gone to school down South, I already know the answer. “The North won the war, but the South had the best generals.”]
–There was renewed talk of bonuses on a number of fronts this week, including a report from the New York State comptroller that Wall Street, despite all the losses, paid out $18 billion, down 44% from 2007. The flipside, however, is New York’s revenues are falling off a cliff, not just because of the drop in bonuses paid, but also because tens of thousands have lost their jobs.
So on Friday, New York Mayor Michael Bloomberg announced a new budget that will slash a staggering 23,000 jobs (up to 15,000 teachers and staff) from the city work force and raise the sales tax. This is necessary to plug a $4 billion deficit and is still contingent on receiving a substantial amount of federal and/or state aid.
–Meanwhile, UBS slashed its bonus pool by more than 80%, the bank having accepted a $59 billion Swiss government aid package in October. Plus, the bonuses for senior managers will be paid solely in stock for 2008, a combination of stock and cash thereafter, and vest over three years. Additionally, if UBS doesn’t make a profit over the vesting period, the payment could be canceled. Needless to say, UBS employees aren’t exactly yodeling a happy tune.
–But AIG is paying out $450 million in retention bonuses to employees in its derivatives department, a unit responsible for about $34 billion in losses since 2007, even as AIG has required $150 billion in rescue funds. Many in Congress are rightfully disgusted.
–Morgan Stanley is laying off another 2,000, while Goldman Sachs is contemplating further cuts of its own.
–With all the trouble in Britain’s banking system, Barclays Plc offered a ray of sunshine when it came out and announced it would decline taking money from the government because rising revenues would preclude it from needing to raise more capital.
–Ford Motor lost $5.9 billion in the fourth quarter, but maintained it has no plans to seek federal aid, though it is accessing a $10 billion secured line of credit and is cutting 1,200 jobs from its finance arm.
[On a different issue, Detroit is filled with uncertainty as President Obama ordered the Transportation Department to boost fuel-efficiency standards for 2011 model cars. I don’t have any sympathy for the automakers on this one, but the larger issue is the states setting different auto emissions standards, which Obama is allowing the EPA to examine. There should be one national standard, and it should be strict, but Detroit needs to know what it’s dealing with.]
–Outstanding credit card debt fell 2.5% in November, the latest reporting period and among the largest drops on record. Revolving debt, much of it on credit cards, declined 3.4%. The average household with at least one credit card owed $10,728 in 2008, about the same as the prior year. Aside from what this all says about consumer spending, it’s also no help to the card issuers.
–The average seven-day yield on a taxable money market fund is at a record low, 0.48%. At least I no longer get questions from my condo association members as to why our reserves aren’t earning a higher yield, because everyone now gets it.
–Phil W. passed along a piece from the Boston Globe concerning Harvard and its endowment, the value of which fell from $36.8 billion last June 30 to $28.7 billion as of Oct. 31, with more losses predicted by the next reporting period.
It seems a number of members from the Class of 1969 have sent a letter to the school’s president, Drew Faust, urging her to pull back $21 million in bonuses paid to the managers of the fund. Harvard is freezing professor salaries, and cutting back in other areas, so why the heck are these Masters of the Universe being rewarded for a job poorly done?
–Many of the major airline carriers announced earnings this week and it’s quite ironic how an industry that was suffering from sky-high fuel prices last summer is now reporting big losses on fuel because they locked in prices at what they thought were good levels only to see the price collapse from $147 to $40; the same issue many homeowners are facing this winter when it comes to heating oil, for example.
–ExxonMobil earned $7.8 billion in the fourth quarter vs. $11.7 billion a year earlier, though for all of 2008 it earned a world record $45.2 billion.
–Canadian Prime Minister Stephen Harper weathered his budget crisis, for now. President Obama heads there in a few weeks for his first trip as head of state and trade will be front and center.
–Treasury Secretary Tim Geithner, having been approved by just a 60-34 margin in the Senate (pitiful considering these things are normally 98-2), forced Citigroup to scrap plans to buy a $50 million corporate jet in his first day on the job. Citi now faces a $4 million penalty for canceling if they can’t find a buyer.
–Yahoo largely met expectations for its recent quarter in terms of revenues and earnings, but now the company is Carol Bartz’s and it’s her report card we’ll be examining in the future.
–Allstate Corp. reported a staggering net loss of $1.68 billion for the quarter owing to an investment portfolio that was pummeled like Joe Frazier in Kingston, Jamaica, and its dividend, which has been increased every quarter since 1995, is in danger of being cut.
–Speaking of dividends, they are being reduced at the fastest pace in 50 years, according to S&P; income many investors, especially retirees, have been relying on to help them get through the recession and bear market.
–State Farm Insurance became the latest carrier to drop homeowner policies in Florida after its request for a 47% rate increase was rejected by the state insurance board. Since the hurricanes of 2004 and 05, the insurance industry has been in turmoil and a state-created entity is now the largest insurer of homes; meaning Florida is increasingly directly on the hook should we see another vicious hurricane season. State Farm will continue to sell car and life insurance in Florida, but is no longer considered a good neighbor.
–In looking at the housing figures this week, I was struck by the inventory data for the Miami-Ft. Lauderdale market. 29.5 months! 29.5 months! Goodness gracious. In terms of major markets, even the Tampa and Jacksonville markets are at 14-15 months. Miami also leads in the percentage of loans that are 30 days or more delinquent, 12.1%.
–Nick Timiraos had a good story in the Journal on the impact of jumbo mortgages (those in excess of $750,000) on the banks. 7% are already delinquent (90 days past due in this case), up from 2.6% a year earlier, and with unemployment rising swiftly you can see how a corresponding increase in defaults will slam the banks even further.
–Luxury home prices in London have now declined 21% over the past year.
–A Merrill Lynch research report says China’s economy will bottom in the first quarter, owing to increased domestic demand that will pick up the slack from a faltering export sector. Merrill is confident China will hit Premier Wen’s 8% GDP target for the full year. For selfish reasons, I’m praying Merrill is right.
–I always enjoy the comments of strategist Marc Faber of The Gloom Boom & Doom Report. Following is a bit from his appearance on the Barron’s Roundtable.
“I’m not optimistic about the global economy. The next Madoff case – the next Ponzi scheme – is the U.S. Government. It will go bust. It is only a question of time. The fascinating thing about asset markets today is that everything is connected – the dollar, the economy, equity and bond markets, currencies. When one thing moves, so does something else….Today the private markets are deleveraging, governments around the world are throwing money at the system, and there is huge volatility. Everybody says stocks are cheap because they’re down 50% from the peak. But Japan was at the same level four weeks ago as in 1981. Korea was at 1988 levels. These markets are relatively cheap because in 20 years there has been progress. If the U.S. went back to 1990 levels, the Standard & Poor’s 500 would be at 300.”
–In December, California’s jobless rate hit 9.3%. The only industry category out of 11 tracked by the Employment Development Department to have added jobs for the month was ‘education and healthcare.’ Separately, Michigan and Rhode Island are the first two states to report unemployment rates in excess of 10%.
–I liked trader Kevin Ferry’s description of the proposed “bad bank,” Crappy Mae, though you\’re not likely to hear President Obama or Treasury Sec. Geithner use it.
–We really need to stiffen the penalties for corporate fraud, like life without parole. I mean here you have the case of Peanut Corporation of America finding salmonella in internal tests a dozen times in 2007 and 2008, yet selling the products anyway. They were not required to divulge the results of internal tests to the FDA or state regulators, but then the Blakely, Ga., plant recklessly flooded the system with tainted products and at least eight have died as a result.
–Hackers struck Monster.co.uk for a third time in two years, stealing confidential data on some 4.5 million who use the recruitment site.
–In yet another example of “Dirtballs Gone Wild,” former Lehman Brothers CEO Richard Fuld sold a mansion on Jupiter Island, Fla., for $10 to his wife, over fears lawsuits or a possible bankruptcy could threaten his property. Florida is known for its lenient bankruptcy laws that protect residents from losing their homes.
But…Mr. and Mrs. Fuld need to prove residency and since he lived and worked in the New York area primarily, as Jesse Jackson would say, “The attempt to protect could be mute.”
–Michael Dell was on a panel in Davos with Prime Minister Putin when during a Q&A session, Dell, after singing the praises of Russia’s scientific community, asked “How can we help” the country expand its IT business?
Which reminded me of the Coors Light commercial where the two guys are at a press conference with Coach Jim Mora and he comments after one asked a question about the playoffs.
“Playoffs?! Did you say playoffs?! Playoffs?!”
And the guy who asked the question, embarrassed, mumbles to his buddy, “OK. Sorry I asked.”
–President Obama drinks Honest Tea (the Green Dragon and Black Forest Berry flavors), which could do wonders for the organic beverage makers based in Bethesda, Md. The company makes 20 varieties that use no refined sugar.
–In its announcement it was slashing jobs again, up to 6,700, Starbucks also said it would close 300 stores (100 of which are overseas), in addition to the 600 previously announced. I continue to buy my large black coffee and chocolate frosted donut from Dunkin’ Donuts. I’ve also been very happy that the donut seems to be bigger these days, thus breaking a trend in all other foods we buy.
–My heart goes out to anyone who has been swindled, but when you look at the pictures of Nicholas Cosmo, the man responsible for a $370 million Ponzi scheme as head of Agape World Inc., out of Hauppauge, New York, I can only ask, “Why the heck would you ever give that guy your money?” He’s sleaze personified.
–The Chinese are celebrating the Lunar New Year with their annual migration. It is the Year of the Ox, which on the surface should certainly be better than the just concluded Year of the Rat, one that saw awful snows, the Sichuan quake, tainted milk sickening thousands, and a rapidly slowing economy. A year that started with great hope due to the Beijing Games turned out to be a disaster.
–Rebecca Dana of the Wall Street Journal reports that ratings for hard news programs are rising. For example, “60 Minutes” has seen its ratings spike 9% this television season, beginning in September, while “Meet the Press” and PBS’ “NewsHour with Jim Lehrer” have also risen. Better this than joining the Crips and Bloods, I always say.
–My outlook: For over two years I was at a recommended 80% cash / 20% equities split. Then for this year I moved to 50/50, as noted in my column of 1/3/09, adding “I could raise it further still depending on what I see over the first quarter.” Not yet.
But I also said stocks will finish the year up 20-30%. “I remain a doom and gloomer on the economy,” I wrote,” but I’ve always said stocks trade more on sentiment than fundamentals. Most of the time.”
Well, I’m not exactly off to a good start, but the year is young.
Iraq: The provincial elections are Saturday, a major milestone that goes into the plus column of the Bush legacy. National elections are slated to be held about a year from now and while President Obama looks to stick to his campaign promise of a withdrawal from the country in 16 months, military leaders will push back, correctly saying we need to keep a sizable force on the ground at least the next 12 months until the national vote is in.
Ralph Peters / New York Post
“Tomorrow, Iraq holds its third nationwide elections and its first without American training wheels. The results may tell us more about the region’s future than any event since the fall of Iran’s shah 30 years ago.
“This round of voting chooses the Iraqi equivalents to our state legislatures, and there are going to be some ugly irregularities. This is the Middle East, after all – where cheating the system is how you survive and prosper….
“The subsequent test will be whether the parties and interest groups on the losing end will accept the voters’ verdict over time. If they won’t, Iraq could come apart again….
“Yet, if Iraq can make its hybrid, customized, raggedy-butt democracy work, there’s hope not only in Baghdad but also throughout the Middle East….
“What’s going to happen? We don’t know, because the Iraqis don’t know. Iraq’s voters are pioneers. These elections could lead to a reborn Iraq or to renewed violence. But, after the inevitable complaints and recriminations calm, the odds are that Iraq will muddle through.
On Thursday, though, three candidates were gunned down in separate incidents. 400 provincial council seats are being contested.
Afghanistan: Defense Secretary Robert Gates said Afghanistan was the “greatest military challenge” facing the U.S. “The ideology we face was incubated there when Afghanistan became a failed state, and the extremists have largely returned their attention to that region in the wake of the reversals in Iraq.”
Afghanistan is never going to be a font of democracy, at least in my lifetime, but as Ralph Peters put it, we can strive to prevent it “from again becoming a massive terrorist mother-ship.”
One other thing is certain. Afghan President Hamid Karzai must go. Related to this, this week officials conceded it is impossible to hold a presidential election as scheduled in April due to lack of security, and is postponing it until August. But this is in violation of the constitution, which states the president’s term expires May 22, so the opposition says it won’t recognize Karzai after that date.
Meanwhile, 161 U.S.-led forces were killed by roadside bombs in Afghanistan in 2008, up from 75 the year before.
And there was a disturbing story in the Herald Tribune by Hamid Shalizi concerning the plight of Afghan school girls.
“A lot of my classmates and other female students don’t come to school anymore because they fear the boys’ harassment and kidnappings,” said an 18-year-old. Shalizi writes:
“From acid attacks, murder, torching of schools and sexual assault, violence against female students is dashing the dreams of thousands of Afghan girls and women who are thirsty for an education that may help rejuvenate the fractured economy and society.”
Iran / Israel: President Ahmadinejad has demanded an apology from the U.S. for past “crimes” committed against Iran. This comes as the Obama administration is preparing to launch a diplomatic initiative with Tehran.
On the nuclear weapons front, the London Times reported Iran was running out of uranium and France, Germany, Britain and the U.S. were lobbying governments from Kazakhstan to Brazil – key uranium producing states – to not sell to Iran.
In an interview with the Wall Street Journal’s Bret Stephens, Benjamin Netanyahu, who is ahead in the polls for the Feb. 10 election in Israel, said Iran is the “mother regime” both of Hamas and Hizbullah, and that together, they are more than simply fingers of Tehran’s influence.
“ ‘The arming of Iran with nuclear weapons may portend an irreversible process, because these regimes assume a kind of immortality,’ he says, arguing that the threat of a nuclear Iran poses a much graver danger to the world than the current economic crisis. ‘This will pose an existential threat to Israel directly, but also could give a nuclear umbrella to these terrorist bases.’”
Netanyahu is encouraged that in his meetings with Barack Obama, the president seems “sober-minded.” It was Netanyahu who three years ago properly postulated that Gaza could become “Hamastan,” and that it would become a staging ground for missile attacks on Israeli cities.
“Peace is purchased from strength,” he says. “It’s not purchased from weakness or unilateral retreats. It just doesn’t happen that way. That perhaps is the greatest lesson that has been impressed on the mind of the Israeli public in the last few years.”
As for the current state of affairs in Gaza, Netanyahu says, “Sooner or later we will need to finish the job…and that we will do.”
For the Palestinians, it’s a battle between supporters of Hamas and the Palestinian Authority (Fatah/PLO). One official aligned with President Mahmoud Abbas accused the Iranians and Syrians of meddling in Palestinian affairs. “They are inciting some sick people (like Hamas leader Khaled) Mashaal to reject national reconciliation and to go ahead with their plans to form an alternative leadership. But these attempts are doomed to failure,” said Ahmed Abdel Rahman.
The problem is the PA is hopelessly corrupt and Hamas is nothing more than a bunch of terrorists, so what kind of choice do the people really have?
And just a word on the “60 Minutes” story last Sunday by Bob Simon on the settlements. I found it devastating for the Israeli cause as one who has long argued we should threaten to withhold some of our funding of Israel unless they stopped building them. Of course not one American president has had the guts to do that.
Lastly, a word on President Obama’s outreach to the Muslim world, Obama having selected Al-Arabiya for his first interview. Obama said:
“My job is to communicate to the American people that the Muslim world is filled with extraordinary people who simply want to live their lives and see their children live better lives. My job to the Muslim world is to communicate that the Americans are not your enemy.”
The move was well-received in much of the Arab world, but it’s about actions; both in getting Israel to halt its settlement activity, and in preventing the Arab world from teaching hate in its schools and on its airwaves. Now ask me if either will occur.
Turkey: I have been writing in this space the past two weeks that Turkish Prime Minister Erdogan’s behavior and statements concerning Israel were disturbing and so this week in Davos, the Islamist leader stormed out of a debate on Gaza as he sat next to Israeli President Shimon Peres when he felt he wasn’t given a chance to respond to Peres’ defense of the Gaza war.
In his return to Istanbul, Erdogan was greeted by tens of thousands of supporters, whereupon he told them, “Our hard words are not directed towards the people of Israel, not directed at the Jews, but they are totally directed towards the government of Israel.”
But in analyzing the Davos dispute, it appears the Washington Post’s David Ignatius, moderator for the session, blew it when he cut off Erdogan, who spoke for 12 minutes, but then allowed Peres to go on for 25, five times the length each of five participants was to be given for opening remarks. The secretary general of the Arab League, also on the panel, said the moderation had been “simply unfair.”
North Korea: On Friday, Pyongyang scrapped all its agreements with South Korea on the military front in yet another attempt to gain the attention of President Obama and win concessions from both the White House and Seoul. This is after previous saber-rattling, including threatening direct conflict with the South.
Russia: Prime Minister Vladimir Putin was a busy beaver, err, bear, this past week. First he blamed George W. Bush for the gas dispute with Ukraine that left parts of Europe struggling to heat homes and factories. Putin did add he was “cautiously optimistic” about future relations with Barack Obama.
Then in Davos, Putin used a 30-minute speech to put forward the position that Russia was a reliable partner in energy and trade amid the global crisis.
“We can’t afford being isolationist or economically selfish,” he said. “We are all in the same boat.”
Putin needs help, and from wherever he can get it. Despite the ultra-high approval ratings I’ve been citing in this space, the Communist Party has called for massive protests on Saturday to demand Putin’s resignation for mismanaging the economy. The Kremlin is planning a hardline response, with several of the demonstrations being banned outright.
Separately, the London-based International Institute for Strategic Studies says Russia’s military is a “paper tiger.” The group’s report states: “The Russian military has a long way to go to recover from 20 years of mismanagement and neglect.”
For example, while the Navy talks of building six carrier battle groups, “Only 12 nuclear-powered submarines, 20 major surface warships and one aircraft carrier remain in service with the Russian Navy, the last of which is routinely followed by two tugs in case of breakdown.”
Ukraine: As the political situation here continues to deteriorate, much to the Kremlin’s delight, President Yushchenko said the gas deal worked out between Russia and his country needed to be renegotiated, while Prime Minister Tymoshenko, who was the one dealing directly with Putin during the crisis, said the deal would not be revised.
Ukraine’s economy could fall as much as 10% this year and with Yushchenko’s approval rating scraping the bottom, one wonders how the current government can survive until scheduled presidential elections slated for next January. If a vote was held today, former Prime Minister Yanukovych, Russia’s butt-boy, would win, though he would still have to put together a ruling coalition.
Pakistan: President Asif Ali Zardari called on President Bush to push through legislation introduced last year that would supply Pakistan with an additional $1.5 billion in aid for social programs. “Strengthening our democracy and helping us to improve education, housing and health care is the greatest tool we could wield against extremism,” Zardari wrote in an op-ed.
That’s all well and good but, coming from a man known as “Mr. Ten Percent” because of the cut he supposedly demanded in the past on all government contracts, it’s almost laughable for anyone to suspect the funds will go where the U.S. Congress intends them to.
David Ignatius / Washington Post
“Of all the problems confronting the Obama administration, none is trickier than Pakistan – a nuclear power that has a war in Afghanistan on its western border, a tense confrontation with India on its eastern border and a deadly insurgency at home from Muslim militants who want to topple the pro-American government.
“At the crux of all three conflicts are the Pakistani army and its intelligence service, known as the ISI. The army’s pervasive power is summed up in a Pakistani joke: ‘All countries have armies, but here, an army has a country.’”
Even the man most responsible for monitoring activities there, Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, said he can’t figure the place out.
Iceland: Prime Minister Geir Haarde called for early national elections to stem the protests over the government’s handling of the economic crisis triggered by the banks’ collapse last fall. But two days later, Haarde resigned, as did the rest of his cabinet after riots reached their worst level in 60 years. The economy is slated to decline 10% in ’09.
Until elections can be held May 9, an interim government is being led by a lesbian former flight attendant, Johanna Sigurdardottir, the world’s first openly gay leader. Of equal significance is the fact she was social affairs minister and somehow survived the protests even though she was part of the government. In fact her approval rating shot up during the crisis.
Italy: Prime Minister Berlusconi has threatened to deploy 30,000 troops nationwide to combat gypsies and other immigrants. Gypsies, about the nastiest people in the world, I can say from experience, have been flooding in from Romania and the Balkans. With a spike in crime directly attributed to the influx in the major urban areas, Italy is also seeing a rise in neo-fascist groups; to the surprise of no one who knows a little history.
Northern Ireland: In a totally absurd development, the authors of a long-awaited reconciliation plan for the North threaten to reignite the old conflict as one of their recommendations is for payment of about $16,800 to families of all of the 3,700 people killed during the 30-year war, including paramilitaries killed by their own bombs.
Zimbabwe: Out of nowhere, Morgan Tsvangirai has said he would join President Robert Mugabe’s coalition government, ending a 10-month standoff, after a summit in South Africa. Tsvangirai is to be sworn in as prime minister on Feb. 11, but he would hold little actual power. This arrangement will not last.
Mexico: A report by the U.S. Joint Forces Command out of Norfolk, Va., singled out Pakistan and Mexico as potentially failing states. As pointed out by Mary Anastasia O’Grady in the Wall Street Journal, the report says “The Mexican possibility may seem less likely, but the government, its politicians, police, and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels.”
Of course Mexico’s problem is our problem and Mexican drug-trafficking organizations now have distribution capabilities in 230 U.S. cities. Former U.S. drug czar, retired Gen. Barry McCaffrey, notes:
“The outgunned Mexican law enforcement authorities face armed criminal attacks from platoon-sized units employing night vision goggles, electronic intercept collection, encrypted communications, fairly sophisticated information operations, sea-going submersibles, helicopters and modern transport aviation, automatic weapons, RPG’s, Anti-Tank 66mm rockets, mines and booby traps, heavy machine guns, 50 cal sniper rifles, massive use of military hand grenades, and the most modern models of 40mm grenade machine guns.”
It’s amazing President Calderon survives, literally. Officials in his own Attorney General’s office and federal police have been arrested in the last five months for cooperating with the cartels.
Liberia: To end on a disgusting note, “army worms” are destroying crops at a rapid clip here. The pests that measure two inches are one of the most destructive in the world. “Creeks and rivers – which some villages rely on for drinking water – are being polluted by the massive amount of feces being produced by the swarm.”
“With each female laying between 500 and 1,000 eggs, the moth caterpillars can lay waste to an entire crop in a matter of days once they reach maturity.” [BBC News]
–In the first Gallup survey of Barack Obama’s approval rating he garnered 68%. As George Will put it on “This Week,” Americans are looking at Obama and saying, “That’s a president working.” As noted above, though, the honeymoon could be far briefer than first thought.
–President Obama warned Republicans on Capitol Hill, “You can’t just listen to Rush Limbaugh and get things done.” Limbaugh then shot back that Obama is “not a unifier and not bipartisan” and is “more frightened of me” than he should be of Republican leaders. Whatever.
–I’ve been writing of an important issue that President Obama will have to face shortly, the status of the nation’s nuclear weapons. A task force appointed by Secretary of Defense Robert Gates has now found a “distressing degree” of inattention to the role of nuclear deterrence. As noted in a Wall Street Journal editorial:
“(The report) proposes educational measures to ‘enhance understanding’ of why we have a nuclear deterrent – which, put simply, is to avoid the use of nuclear weapons. If adversaries believe the U.S. deterrent is weak, they might be tempted to use nukes against us or threaten to do so.
“But there’s a proliferation point too. The U.S. provides a nuclear umbrella for 30-plus countries. If our allies lose confidence, (former Defense Secretary James) Schlesinger said at a press conference announcing the report, ‘five or six of those nations are quite capable of beginning to produce nuclear weapons on their own.’ This is precisely the opposite of what the nuclear-free-world types like to argue: If only the U.S. would get rid of its nukes, other countries would follow suit.
“It’s now up to the Obama Administration to move on the task force’s findings. But adopting the management and personnel changes the report recommends won’t be enough. ‘Strengthening the credibility of our nuclear deterrent should begin at the White House,’ the report states. If the new President makes clear his commitment to the U.S. nuclear deterrent, that attitude will echo down the chain of command.”
–The Republican National Committee elected its first black chairman, former Maryland Lieutenant Governor Michael Steele.
–New York has two big races coming up. This year it’s about the mayoral vote, with Mayor Bloomberg taking a 50-35 and 43-36 lead in two polls over Anthony “Nathan’s Famous” Weiner. Then in 2010, it’s about the governor’s race. Attorney General Andrew Cuomo leads Rudy Giuliani in a hypothetical match-up, 48-39, while current Gov. David Paterson leads Giuliani only 44-42. Paterson is on the defensive, big time, following the Caroline Kennedy fiasco.
Paterson’s aides “leaked” that Kennedy owed back taxes, had a nanny problem, and was having an affair. When Paterson then chose unknown Kirsten Gillibrand, the Kennedy clan went ballistic, at least behind the scenes, and are now out to destroy the accidental governor’s 2010 bid. [Reminder, Paterson is only in office because of Eliot Spitzer’s dalliances.] Of course the expected opponent in a primary, Andrew Cuomo, was once married to a Kennedy so it makes for great bar chat. At least Paterson knew enough not to keep his date to attend the Davos World Economic Forum, especially in light of the state’s $15 billion budget deficit.
Fredric Dicker / New York Post
“Governor Paterson yesterday insisted he had no idea who did the slime job on Caroline Kennedy – although the source of the information is about as close to him during the day as his wife is at night.
“The person responsible for the smear was an individual whose identity is well known to the press, whose full-time job is to do the governor’s bidding, and who is intelligent enough not to call reporters to damage Kennedy’s reputation without approval from the top – and that means Paterson….
“ ‘I would love to know who is responsible, but at this point, I’ve been unable to determine that,’ Paterson insisted, while maintaining a straight face….
“No word on when the State Police will arrive to administer polygraph tests to the staff.”
–A report sponsored by the U.S. Department of Energy concludes many effects of climate change are irreversible. If carbon levels in the atmosphere continue to rise, Australia for one will dry up. As noted in a report by the BBC, “The scientists say the oceans are currently slowing down global warming by absorbing heat, but they will eventually release that heat back into the air.”
–Yikes. A survey by the National Campaign to Prevent Teen and Unplanned Pregnancy reveals 20% of 13- to 19-year-olds admitted they’ve messaged explicit images of themselves over the phone and e-mail, and 48% said they’ve received sexually suggestive e-mails or text messages.
“ ‘Trust me, a lot of couples do it,’ said a 15-year-old high-school sophomore from New Jersey, who confessed to firing off 40 naked pictures of herself to her ex-boyfriend in a failed attempt to win him back. ‘It’s just like another form of sex.’”
–And this is depressing. A Justice Department study concludes 80% of crimes in this country are committed by the estimated 1 million gang members. Several are also “capable” of competing with major U.S.-based Mexican drug-trafficking organizations. The gang population estimate is up 200,000 since 2005.
“Gangs, including outlaw motorcycle groups, ‘pose a growing threat’ to law enforcement authorities along the U.S.-Canadian border. The U.S. groups are cooperating with Canadian gangs in various criminal enterprises, including drug smuggling.”
Another worrisome development is the spread of the Salvadoran gang MS-13, now in 42 states. [Kevin Johnson / USA TODAY]
I’d hasten to add the border activity makes it more likely that one day a weapon of mass destruction will be smuggled in.
–There are a lot of things I worry about these days, but losing one day of mail service is not one of them and businesses relying on the mail, including the 20-some periodicals I subscribe to, will survive; assuming the advertising market eventually pulls out of its depression, I hasten to add.
–Sarah Palin formed a political action committee as a first step towards humoring us the next four years.
–I agree with Peggy Noonan, who writes in her Journal opinion piece this week:
“In the time since his inauguration, Mr. Obama has been on every screen in the country, TV and computer, every day. He is never not on the screen. I know what his people are thinking: Put his image on the age. Imprint the era with his face. But it’s already reaching saturation point. When the office is omnipresent, it is demystified. Constant exposure deflates the presidency, subtly robbing it of power and making it more common.”
–I’m not going to participate in the ethical debate over the mother in Los Angeles who gave birth to octuplets when she already has six children. I do wonder what the level of the Dow will be in 22 years when they get out of school, though.
–We bid adieu to disgraced former Illinois Gov. Rod Blagojevich, who was summarily taken out back and shot in a 59-0 impeachment vote in the state senate. Blago said afterwards “The fix was in from the beginning” and called the verdict “un-American.” He refused to be questioned under oath and after his plea for mercy, Sen. Matt Murphy (R) commented, “He reminded us today in real detail that he is an unusually good liar.”
–Lastly, Jeff B., my man on the scene down in Tampa, tells me there were hundreds of Steelers fans and only about 3-5 Cards supporters at the Hard Rock Hotel and Casino on Thursday night. He added the people watching was terrific. Good reporting, J.B.
Dow Jones -1.0% [8000]
S&P 500 -0.7% [825]
S&P MidCap -0.5%
Russell 2000 -0.2%
Nasdaq -0.1% [1476]
Bears 38.0 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
