[Posted 7:00 AM ET]
Finally…a rally
“Confidence is more important than gold or money. First and foremost we need very strong confidence. Only when we have confidence can we have courage and strength, and only when we have courage and strength can we overcome difficulties.”
–Chinese Premier Wen Jiabao
“I’ve never seen Americans more fearful…and confused.”
–Warren Buffett
While global equity investors at least for a few days caught a break this week, the drumbeat of bad news and forecasts continued and as the above two note, it’s as much about a lack of confidence as it is the fundamentals, worldwide. It’s also about the lack of leadership in instilling confidence.
Both Merrill Lynch economist David Rosenberg and the New York Times’ Paul Krugman lamented that the Obama stimulus plan “was too small and too cautious” [Krugman] and needed to be “a lot bolder” [Rosenberg]. Krugman worried “the Obama administration’s economic policies are already falling behind the curve.” Rosenberg said we would have been better off handing out a $1 trillion interest-free loan to the states and local governments who employ 20 million people; cops, teachers, firefighters, construction workers, rather than what we ended up with.
The World Bank ratcheted down its global forecast yet again to negative growth for 2009, the first time the economy will shrink since World War II as trade will see its worst decline in 80 years. President Robert Zoellick said, “We need to react in real time to a growing crisis that is hurting people in developing countries.” Global industrial production is expected to be as much as 15% lower than in 2008. The rate of poverty is increasing rapidly.
Over last weekend and into Monday, there was increased talk of depression. Economists started to define it more specifically than before, such as a 10% decline in per-capita GDP and consumption (Robert Barro), or a two-year period with unemployment of at least 10% (Bradford DeLong and Mark Zandi…Zandi going so far as to say 10% for more than a single year). The consensus among the depression set seemed to be that the odds are 1-in-4 or 1-in-3.
The economic news in the U.S. was light this week, though importantly retail sales, down just 0.1% for February, and up ex-autos, continued a favorable trend of seeming stability.
Globally, however, you had awful manufacturing figures out of Europe, with orders in Germany down 38% year-over-year, while exports in January plunged 20%, with an economist there saying, “The annual slump is absolutely catastrophic…the extent of deliveries terrifying.” France saw its industrial production drop 13.8% in January, and Britain’s fell 5.6% for the three months ending January. Industrial production in Sweden plummeted 23% for the month vs. year ago levels.
In Asia, Malaysia’s exports fell 28% in January, an unheard of level (they all are, actually), and in Japan 4th quarter GDP was revised to reflect a 12.1% annualized decline, actually a slight improvement on the earlier flash number, but still dreadful. Producer prices in Japan were down 1.1% for February vs. a year ago…a troubling sign of deflation.
China showed its own signs of deflation as consumer prices dropped 1.6% in February. Exactly a year ago we were talking of prices rising 8.5% there.
But otherwise China’s picture was decidedly mixed, which in and of itself provides a bit of hope. Industrial production was up 3.8% for January and February, though a decline from December’s pace, as auto sales rose 25% in February and fixed investment for January and February climbed 26.5% (copper imports were also up 42%) as the impact of the government’s stimulus plan, one that focuses on roads, railways, and housing, took hold. Retail sales for Jan./Feb. rose 15.9%, though this was actually a disappointment.
Chinese Premier Wen emphasized he still felt his government could deliver 8% growth (below which, every American schoolchild should know by now, the leaders fear instability and unrest), and Wen promised to spend more than the existing $600 billion stimulus package if necessary. Some say China is laying the groundwork for a V-shaped recovery, while some in Japan are calling for a pickup in the second quarter there because inventories are being slashed to the bone. We keep hearing the mantra, around the world, “The economy is falling off a cliff,” but in some cases it’s as if the patient is catching that tree branch, on the way down to death and depression, after which it is hoped he will be choppered out of harm’s way.
So it was against this backdrop that stocks suddenly took off, after hitting new 12-year lows on Monday, 6547 for the Dow Jones and 676 for the S&P 500 (666 as an intraday low…interestingly). By the close on Friday, the Dow had risen to 7223 and the S&P 756.
Why the rally, that for one pleased your editor who was taking a lot of grief recently for his more bullish stance in terms of ’09 asset allocation?
It started with bullish comments from Citigroup CEO Vikram Pandit who said Citi was profitable on an operating basis for Jan. and Feb. Forget that this excluded further loan loss reserves and writedowns for both its consumer and mortgage exposures, we’ll take any good news where we can find it. Pandit’s comment started a stampede (slight exaggeration) of other bank execs saying we, too, are doing just fine; with JPMorgan Chase’s Jamie Dimon needing some prodding from CNBC to give the all-clear at his shop, while Bank of America’s Ken Lewis, who always looks like his shorts are too tight, rushed to the gate to say, ‘We’re profitable, too!’
Of course they are all far from healthy and still in intensive care, as is the entire global economy, but at least the banks (save UBS it seems) offered up a ray of sunshine and the hope that further capital infusions may not be necessary, unless under the banks’ terms, which would be a pleasant switch.
General Motors then said, hey, we’ve examined the impact of all our cost-cutting and since we have just four workers left, an amazingly productive quartet I might add, we don’t need $2 billion in federal funds for March! And General Electric, which traded below $6 on March 4, rallied strongly to $9.50, even though it lost its AAA rating from S&P, because the downgrade wasn’t worse.
Then you had the growing belief that something was going to be done about ‘mark-to-market’ accounting, which if suspended or repealed should have a most positive effect on the financials, that then wouldn’t have to raise new capital and dilute shareholders further. Bottom line, for a week at least, talk of bank nationalization was set aside for another day.
I’ve been saying that as bad as things are, at some point we’d have a change in sentiment that could lead to an explosive rally. This week’s action was just a harbinger of what we’ll see at some point, but whether it is in the first or second half of 2009 I don’t know.
For now what we do know is that while for one week Washington’s impact was suspended when it came to the stock market, its impact going forward will once again be paramount. Both Wall and Main Streets demand that our government act boldly. To wit:
Jim McTague / Barron’s
“President Barack ‘Yes We Can’ Obama has proposed so many mega-programs in so brief a span, you have to wonder if he has the political superpowers required to shepherd them all past the legislative meat grinder. It looks to me as though he has spread himself too thin….
“YWC has to maintain support for his very first budget, which includes some highly controversial tax provisions, including one that curbs deductions for charitable contributions. There is also a divisive cap-and-trade regime, his solution to curbing greenhouse-gas emissions. Additionally, YWC wants Congress to pass a national health-insurance program that pricks so many well-heeled stakeholders, their collective yelp could be deafening.”
Andrew Grove / Washington Post
“I have found that to succeed, an organization must travel through two phases: first, a period of chaotic experimentation in which intense discussion is allowed, even encouraged, by those in charge. In time, when the chaos becomes unbearable, the leadership reins in chaos with a firm hand. The first phase serves to expose the needs and options, the potential and pitfalls. The organization and its leaders learn a lot going through this phase. But frustration also builds, and eventually the cry is heard: Make a decision – any decision – but make it now. The time comes for the leadership to end the chaos and commit to a path.
“We have gone through months of chaos experimenting with ways to introduce stability in our financial system. The goals were to allow the financial institutions to do their jobs and to develop confidence in them. I believe by now, the people are eager for the administration to rein in chaos. But this is not happening.
“Until the administration does this, we should not embark on attempting to fix another major part of the economy. Our health-care system may well be ripe for a major overhaul, as are our energy and environmental policies. Widespread recognition that all of these reforms are overdue contributed to Barack Obama’s victory in November. But if the chaos that resulted from imitating such an overhaul were piled on top of the unresolved status of the financial system, society and government would become exhausted. Instead, the administration must adopt a discipline; not initiating a second wave of chaos before we have a chance to rein in the first….
“First things first. Strive to achieve stability in our financial system. When the momentum is clear enough to allow trust in the system to return, then tackle the next mega-problem. As Machiavelli said, ‘One change always leaves the way open for the establishment of others.’”
Robert Samuelson / Newsweek
“Confidence (too little) and uncertainty (too much) are at the core of this crisis. All of Obama’s double-talk threatens to reduce the first and raise the second. Investors and traders have surely noticed the discrepancies between Obama’s words and actions.
“Obama says he’s focused singlemindedly on reviving the economy, but he’s also using the crisis as a vehicle to advance an ambitious long-term agenda to reengineer the U.S. economy. The two sometimes collide. The $787 billion ‘stimulus’ is weaker than necessary, because almost $200 billion of the impact occurs after 2010. Many of these extended projects (high-speed rail, computerized medical records) can’t be accomplished quickly. When Congress debates Obama’s sweeping health-care and energy proposals, industries, regions and governmental philosophies will clash. Will this improve confidence? Reduce uncertainty?
“A prudent president would have made a ‘tough choice’ – concentrated on the economy, deferred his more contentious agenda. Similarly, Obama claims to seek bipartisanship but, in reality, doesn’t. His bipartisanship consists of sprinkling his cabinet with token Republicans and inviting some Republican members of Congress to the White House to watch the Super Bowl. It does not consist of fashioning proposals that would attract bipartisan support on their merits. Instead, he clings to dubious, partisan policies (mortgage cramdown, union checkoff) that arouse fierce opposition.
“It is Obama’s conceit – perhaps his cockiness – that he can ignore these blatant inconsistencies. Like many smart people, he believes he can talk his way around any problem. Perhaps he can. In this, he has an ally in much of the mainstream media, which seems so enthralled with him that they can’t recognize glaring contradictions. During the campaign, Obama claimed he would change Washington’s petty partisanship; he also advocated a highly partisan agenda. Both claims could not be true. The media barely noticed; the same obliviousness persists. But Obama still runs a risk: that his overworked rhetoric loses its power and boomerangs on him.”
Economist David Smick / Washington Post
“In the end, at least one thing is certain: Our present position is unsustainable. The longer we delay fixing the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the ultimate bank bailout price tag for the American taxpayer, and the more we risk falling into a financial black hole from which escape could take decades.”
This recession has been brutal. Figures from the Federal Reserve this week revealed that Americans’ net worth has plunged $12.8 trillion over the last five quarters, $11.1 trillion for 2008. Real estate holdings alone are down $1.6 trillion the past two quarters. Of course these figures will only decline more in the current one.
There are also troubling signs that the credit crisis has worsened yet again after signs of improvement at the start of the year. Much of the focus is on the 3-month Treasury and Libor (London InterBank Offered Rate…a global benchmark) rates. The T’bill is discomfortingly low, back to 0.20% which shows a total lack of confidence, and a 1.32% 3-month Libor rate that is way too high over banks’ fears of not being paid back, with the spread between the two, over 100 bps, far beyond what is normal.
Then, as the esteemed Meredith Whitney points out, credit lines are being pulled at a rapid clip for both businesses and consumers. Whitney estimates that over $2.7 trillion of credit-card lines will be cut by the end of 2010. Ms. Whitney offered a simple explanation of why this is important, via an op-ed for the Wall Street Journal.
“Over the past 20 years, Americans have…grown to use their credit card as a cash-flow management tool. For example, 90% of credit-card users revolve a balance (i.e., don’t pay it off in full) at least once a year, and over 45% of credit-card users revolve every month. Undeniably, consumers look at their unused credit balances as a ‘what if’ reserve. ‘What if’ my kid needs braces? ‘What if’ my dog gets sick? ‘What if’ I lose one of my jobs? This unused credit portion has grown to be relied on as a source of liquidity and a liquidity management tool for many U.S. consumers. In fact, a relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines….
“(But) if credit is taken away from what otherwise is an able borrower, that borrower’s financial position weakens considerably. With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively.”
Lastly, as I try to separate the fundamentals in the economy from the activity in the stock market, the latter often ruled by sentiment, I can’t ignore the pain out there. I was in New York a few days last week and as anyone working there full time would tell you, the streets are largely empty during office hours, unlike anything I can remember. Even when I was working behind St. Patrick’s Cathedral, during the recession of 1981-82, streets such as Fifth Ave. were jammed.
The other thing that is very noticeable is the homeless that now appear to be in numbers not seen in decades. I took a 5:30 a.m. PATH train (the subway from Manhattan to New Jersey) on Wednesday morning and it was packed with homeless who clearly spent the night on the train, as well as a large number in each of the stations along the way, far more than what I’ve observed before. These numbers will continue to rise.
I also saw an NBC News report on the homeless in California, and issues involving their car parks and tent cities. America hasn’t seen anything like this in a generation, if not more. It’s distressing. Keep looking for those rays of sunshine, because but for the grace of God….
Street Bytes
–Stocks rocketed to their best week since November with the Dow Jones surging 9%, the S&P 500 10.7% and Nasdaq 10.6%. Nasdaq’s loss for the year is back down below 10%. But the losses for the other indices are still huge year to date.
Over the weekend there is a G-20 meeting of finance ministers ahead of a critical G-20 summit of world leaders in April. And Ben Bernanke grants a rare interview to “60 Minutes.” Anything to help educate the public is appreciated and this should be useful.
[USA TODAY had the following research from Bespoke Investment Group. As of last Friday’s close, March 6 (S&P 500 level of 683), in order to get back to the S&P’s all-time high of 1565, you would need a 25% annualized return from here through June 2012. A 10% return would get you to 1565 by June 2017.]
–U.S. Treasury Yields
6-mo. 0.41% 2-yr. 0.96% 10-yr. 2.89% 30-yr. 3.68%
China’s Premier Wen Jiabao said he was worried about the safety of his nation’s massive holdings of U.S. government bonds. “We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets.”
Wen’s veiled threat is not a concern of mine.
–Bernie Madoff pleaded guilty Thursday to pulling off the greatest Ponzi scheme in the world and was led off in handcuffs to stay in prison until his sentencing June 16. His victims applauded. Madoff read a statement that said in part:
“I am…grateful for the opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed. As the years went by, I realized my risk and this day would inevitably come.”
Whatever. DeWitt Baker, an investor who reportedly lost more than one million dollars with Madoff, said “I don’t think he has a sincere bone in his body. I’d stone him to death.” Frankly, I agree with the conclusion of CNBC commentator William Seidman, who offered “We need capital punishment…one example and this all would stop.”
It would appear there are certainly others involved, or at least with knowledge of his crimes (see wife Ruth). For example, the Wall Street Journal reported that a supervisor, Annette Bongiorno, would ask two assistants to research daily share prices for blue-chip stocks Madoff was reportedly investing in for the purposes of generating fraudulent trade tickets.
Prosecutors now estimate the fraud reached $64.8 billion (with only $1 billion recovered thus far), not the previous estimate of $50 billion, including phony profits Madoff claimed he had generated as new evidence reveals that Madoff actually promised some clients 46% annualized returns. [Madoff’s net worth, incidentally, was set at $823 million in court papers.]
But since Madoff didn’t cop to a conspiracy charge, investigators, at least until Madoff cries ‘Uncle’ in jail, will be on their own as Bernie has thus far refused to rat out others.
–Josh P. passed along a MetLife report that 50% of Americans surveyed say they are only one month – or just two paychecks – or less away from not being able to meet their financial obligations if they were to lose their jobs. Even among those making $100,000+, 29% say they couldn’t meet their obligations for more than one month. ‘Good time to tax the rich,’ Mr. P. facetiously wrote.
–In a report labeled “strictly confidential” and dated Feb. 26, AIG, in seeking further help from the Treasury and the Federal Reserve, said “What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means. Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.” Regulators soon after extended $30 billion in fresh capital.
–Freddie Mac, as anticipated, reported a fourth-quarter loss of $23.9 billion, this as Freddie and sibling Fannie Mae run through the $200 billion in total financing pledged by the U.S. Treasury.
–Honda announced that orders for its just launched Insight hybrid vehicle are triple the original target, some 18,000. The Insight is priced substantially lower than Toyota’s Prius hybrid. Meanwhile, Ford Motor expects to cut its labor costs to levels of its foreign rivals such as Toyota thanks to union contract changes.
–Merck’s $41 billion acquisition of Schering-Plough is the latest blockbuster in the pharmaceutical industry, as Roche appears to have wrapped up its eight-month battle for Genentech by raising its offer to $46.8 billion. Last January, Pfizer bid $68 billion for Wyeth.
The deals will be brutal for New Jersey. Merck and Schering have a combined 15,000 workers here, with a sizable number to be eliminated, and Roche is eliminating 1,500 in the state as it relocates its major operations to California.
–Four states now have unemployment rates over 10%; Michigan (11.6%…the tops), South Carolina, Rhode Island and California, with Oregon at 9.9%. The lowest three are Wyoming (3.7%), North Dakota, and Nebraska.
–Over the past three months, some 340 events in Las Vegas have been called off, costing resorts nearly 112,000 guests and 236,700 room stays. In January alone, 2.8 million people came to Vegas, a 12% drop from a year earlier. President Obama’s comment in early February didn’t help. “You can’t get corporate jets, you can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayers’ dime,” referring to recipients of federal cash.
–A Government Accountability Office report states that the Bush administration’s decision to halt production of an experimental power plant that was to be a model for future “clean coal” technology may have set back the project as much as a decade.
–2009 is starting off as the driest year since the U.S. began keeping records over a century ago. This is not good when looking ahead to the summer. USA TODAY quotes a cattle rancher in Gonzales, Texas, who has sold all but 30 of his 300 to 400 breeding cows because his pasture is too dry to feed them. “It might take me 10 years or more to get back to where I was. It’s so dry.”
But, compared to the Dust Bowl era, when nearly two-thirds of the U.S. was in a severe drought, today it’s 7%.
–One of the ongoing frustrations homeowners face is rising property taxes even as home values drop. Counties and cities continue to hike taxes as revenues decline. Bloomberg quotes Arthur Purves, president of the Fairfax County, Va., Taxpayers Alliance. “They’re maintaining a housing-tax bubble even though values are falling. If spending hadn’t increased faster than population growth, there wouldn’t be a budget crisis now.”
–Foreclosures in New York City rose 44% in February as the bursting of the bubble, which was late in coming to the Big Apple, has hit with a vengeance.
–Home sales in Greenwich, Conn., were down 77% in February, the worst single month since 1976 in the Land of the Hedge Fund Kings.
–The Journal ran an important story on the foreclosure process. The field of those claiming to offer help in renegotiating loans is rife with fraud. Some of the commercials I see on the air these days are outrageous…and CNBC is a major culprit in accepting the ads. Go to hud.gov before signing on with anyone. You should not be paying any fees whatsoever.
–Economist David Levy: “There is so much downward momentum in home prices, and such an overhang in the market, that we are likely to see prices overshoot on the downside.” Blackstone Group CEO Stephen Schwarzman: Real estate prices are poised to fall further. “You should keep away from that. If you think it’s cheap, it will be cheaper. So, there’s no rush there.”
I’m sticking with my prediction from last year that median home values bottom in the April/May time period out of principle. [As you’ve discovered, I don’t allow myself the luxury of changing my opinion too often. Josh P., I also recognize I’ll probably be buying you a premium on this one.]
–The nation’s 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008, or 79% of the assets needed to cover estimated long-term liabilities. The figure is undoubtedly higher after the start to 2009. Barring a huge rally, over the coming years corporations will have to make large payments to their funds at the worst possible time.
–Norway’s sovereign wealth fund, the world’s third largest, lost $90.5 billion last year, “wiping out gains since the fund started investing the country’s oil revenue 12 years ago.” [Bloomberg]
–Swiss banking giant UBS reported an $18 billion loss for 2008. UBS, as opposed to the above mentioned banks, doesn’t seem to be off to the decent start to 2009 they are touting. UBS’ chairman and CEO said in a letter to shareholders, “Even after substantial risk reduction, our balance sheet remains exposed to illiquid and volatile markets and our earnings will therefore remain at risk for some time to come.”
–Billionaire hedge fund king John Paulson may have made over $400 million shorting Britain’s Lloyds Banking Group and HBOS, shades of George Soros’ killing in the British pound years ago. Paulson made $3 billion on the U.S. housing market collapse.
–Alan Greenspan had an op-ed in the Journal on the causes and effects of the crash in the financial system and there was zero reason to read it, quite frankly. I know the truth about his role, and what happened to the system. It’s all in these pages.
–I thought it was interesting that attendance at exhibition games for the New York Mets is off 15%, yet another sign of the times.
–As is this one…three auto executives attempted to take 81 autos off the lots of Legacy Auto Sales in Scottsbluff, Neb., a place where my brother and I stayed last October, mused your editor. Last weekend, the Fords and Toyotas were loaded onto transporter trucks. All three were later arrested after tracing some of the vehicles to auto auctions in Salt Lake City and Las Vegas.
–Discounter Ryanair, once a darling of European flyers for its $20 fares, is losing popularity rapidly as it tacks on one fee after another. Now they are abolishing airport check-in later in the year, but will introduce a 5 euro per person charge for each flight, both ways, to book online. Some are saying this is “the straw that could break the camel’s back” in terms of driving customers away.
–A leading fund manager, First Pacific Advisors’ Robert Rodriguez, is taking a one-year sabbatical. He has a sterling long-term track record, but at age 60 is disgusted with the ways of institutional investing and clients’ “leeriness about the high cash level his stock fund maintains.” [Currently around 33%.] When the Wall Street Journal asked him if he would work with the U.S. government to fix financial markets, Rodriguez said: “No, the government is fundamentally broken.”
–United Technologies Corp. is slashing 11,600 jobs, which when added to last year’s announced cuts makes it 18,000 or 8% of the total work force. Oilfield services provider Baker Hughes is laying off 1,500
–On top of the payment of $3.6 billion in bonuses to selected Merrill Lynch employees prior to completion of its merger with Bank of America, you also have the case of the Merrill currency trader who supposedly lost more than $400 million in recent months trading the Norwegian and Swedish currencies.
–Mayor Michael Bloomberg, defending the rich:
“They are the ones that buy in the stores so that people that work in the stores have jobs. They are the ones that generate sales taxes. The rich are the ones that go to the expensive restaurants where, as a matter of fact, I looked at a list the other day of restaurants where the staff is unionized. They’re the expensive restaurants….
“You know, the yelling and screaming about the rich – we want rich from around this country to move here. We love rich people.”
In New York City, an incredible percentage of tax receipts come from just 500 taxpayers out of 3.4 million total…try about 30%, according to the mayor himself. Bloomberg has broken with President Obama over proposed tax hikes and cuts in charitable deductions for those families earning more than $250,000.
–Speaking of Bloomberg, Forbes’ annual survey of the 400 richest in the world has him at No. 17 with a net worth of $20 billion. The number of billionaires declined to 793 from 1,125 with Bill Gates returning to the top spot at $40 billion as Warrant Buffett saw his net worth plunge to $37 billion from $62 billion. Mexican tycoon Carlos Slim is third, followed by Oracle’s Larry (watch me sell new shares each week) Ellison and IKEA founder Ingvar Kamprad.
–Over 28,000 accounts in companies controlled by R. Allen Stanford have been unfrozen, but 4,000 remain inaccessible to clients as the investigation into Stanford Group continues. Allen Stanford himself took the Fifth.
–Thomas Clarke, long-time CEO of TheStreet.com, the company founded by Jim Cramer, abruptly resigned on Friday following Cramer’s implosion, including Thursday’s appearance on The Daily Show. Host Jon Stewart, in a disturbing performance of his own, riddled (emasculated) Cramer who was left whimpering at the desk. I felt for him because he just didn’t expect the ambush…though he should have.
–Texas Instruments, the 2nd-largest chipmaker, said demand for wireless is improving.
–Delta Air Lines is slashing capacity on international routes just six months after announcing 15 new overseas ones.
–Sign of the Apocalypse: Russia’s manufacturers of nesting dolls, the famous souvenir, are seeking a bailout, this as sales plunge, over 60% to foreign markets.
–Noted long-time bear Jeremy Grantham has been urging his clients to move their cash into stocks.
–Good news! The revival of “West Side Story” on Broadway, opening next week, has “boffo” early box office; the highest advance ever for a revival.
–My portfolio: I hadn’t made a trade all year, but when I saw positive news from my China holding on the status of its new plant that evidently will require no further funding to complete, I bought more. For those of you who know what I’m in, just understand this remains a long-term hold…well into 2010…and I am not looking for any kind of earnings turnaround before the end of the year. And when I go broke, I’ll go over there and sweep the factory floors.
Foreign Affairs
North Korea: Kim Jong-il received 100% of the vote in parliamentary elections, very strong, but the focus is on whether one of his sons emerges from the process to come as Kim’s successor.
Following the vote, the North put its armed forces on standby for war and ordered military personnel “fully combat ready” as the United States and South Korea commenced their annual war games.
Then on Thursday, Pyongyang notified international civil aviation and maritime authorities that it was proceeding with its long-range missile launch in early April, which a South Korean news agency placed between April 4 and April 8. North Korea still claims it is a satellite launch, but all agree the launch vehicle itself “is indistinguishable from intercontinental ballistic missiles,” as noted by National Intelligence Director Dennis Blair. So the clock is officially ticking on this one.
Iran: What does the Obama administration want to do here? As the International Atomic Energy Agency demands new inspections over concerns Iran’s nuclear weapons program is closer to a further breakthrough, beyond what has already been achieved, the White House has to decide how quickly it wants to initiate negotiations, against a backdrop of both the nuclear issue as well as the June presidential election.
Regarding the former, Israel’s top military intelligence officer said Iran has indeed achieved nuclear capability and thus “crossed the threshold.” Maj. Gen. Amos Yadlin added that Iran was looking to exploit the Obama administration’s intention to open discussions, thus buying more time, an issue I’ve been bringing up for the past year.
For its part, the White House has been pressing Russia to withdraw its proposed sale of the S-300 missile system to Tehran and Moscow hinted it was willing to freeze it, though some say Russia’s influence on Iran is limited, given existing commercial considerations that are critical to Russian business.
So we move to the election. Former Prime Minister Hossein Mousavi announced his candidacy for the June 12 vote, posing a distinct threat to President Ahmadinejad. Mousavi was a popular prime minister from 1981 to 1989 (the time of the war with Iraq) under the presidency of Ayatollah Khamenei, now Supreme Leader. Mousavi is thought to be a moderate, which pits him against former President Mohammad Khatami, as well as a cleric, Mahdi Karroubi. In the past, Khatami said he would not run against Mousavi so he could leave the race shortly, thus helping unify the reformers.
Candidates have to register on May 5, after which they are screened by the Council of Guardians, the 12-member vetting body.
Israel: The Obama administration is showing early on it won’t just pay Israel lip service when it comes to the issue of the settlements. And this week Secretary of State Hillary Clinton criticized Israeli plans to demolish 88 Palestinian homes. In the meantime, the U.S. has initiated discussions with Syria over their influence with Palestinian and Lebanese militants. But Syrian President Bashar Assad wants the White House to push for an agreement with Israel over returning the Golan Heights as part of any peace agreement with the Israelis. Separately, the U.S. wants to see Syria break from its alliance with Iran; all this while the UN seeks answers related to Syria’s suspected nuclear program.
And on the Lebanon front, Hizbullah leader Nasrallah reiterated he would never recognize Israel’s right to exist.
Iraq: This past week was an example of just how difficult it is going to be to leave Iraq. At least 60 died in two suicide bombings, renewing fears that tribal issues, including potential alliances between terrorists and hard-line Baathists, are returning to the forefront as the United States prepares to exit the stage; the Obama administration having announced that 12,000 soldiers will head home by this coming September. Where the Americans have been moving out thus far, the Iraqi security forces in some cases are refusing to act on arrest warrants issued by leaders of the Awakening movement. The tribes, once united, are beginning to lash out against each other, even as they have to be prepared to fight al Qaeda.
Afghanistan: As the Obama administration contemplates seeking reconciliation with some elements of the Taliban, Vice President Biden said 70% of the group are “mercenaries,” which is probably true…but hardly easy to identify which ones are which.
Pakistan: The situation is rapidly deteriorating as President Asif Zardari’s government was forced to issue bans on public gatherings in select cities due to a growing protest movement. Two issues are in play. The refusal to reinstate judges sacked by former President Musharraf in 2007, and the edict that former Prime Minister Sharif cannot run for public office, with Sharif’s supporters battling police. At least 1,000 have been arrested thus far and it’s all going to come to a head on March 16 at a planned rally in Islamabad. Most of the party leaders from Sharif’s Pakistan Muslim League have gone into hiding.
Last week FBI Director Robert Mueller flew to Islamabad pressing for better cooperation on the terror front, specifically in identifying and talking to members of the al-Qaeda affiliated group, Lashkar-e-Taiba, the organization responsible for the Mumbai attack. The FBI is concerned about Lashkar’s tentacles in the U.S., particularly on the fundraising side. But Pakistan was loath to give its support. Mueller also fears a Mumbai-type attack on U.S. soil.
China: While Washington and Beijing seek to cooperate on the economic crisis, China confronted an unarmed U.S. navy surveillance vessel while it was on routine operations 75 miles south of Hainan island, a place where China has an ongoing naval buildup, including a large submarine base. Five Chinese ships harassed the USNS Impeccable. Hainan is in the South China Sea and while China views most of the body of water as its own, the Philippines, Vietnam, Malaysia, Brunei and Taiwan also lay claim to parts of it. Nothing should come of this but it was a reminder of when George W. Bush took office in 2001 and the issue with the hot-dogging Chinese fighter pilot who collided with a U.S. Navy surveillance aircraft, after which the Americans’ 24-member crew was held on Hainan for 11 days. In response to this new incident, President Obama did send some warships to the region but it doesn’t appear to be too serious, yet.
No, China has far bigger problems on its hands, like the various anniversaries on the calendar that threaten domestic stability. Aside from the 50th anniversary of the Tibetan revolt and October’s 60th anniversary of the creation of the People’s Republic of China, the biggest potential flashpoint should be June’s marking of the 20th anniversary of the Tiananmen Square protests.
Northern Ireland: In a very disturbing development, two British soldiers were executed at their base when they came out to accept a Domino’s Pizza delivery. The gunmen, who later claimed to be from the Real IRA, the breakaway group seeking unification with the republic of Ireland and the destabilization of the current power-sharing government, also shot and wounded the delivery men for being “collaborators.” The soldiers were the first to be murdered in Northern Ireland since 1997, though sectarian violence has been ticking up the past year and authorities had put some bases on high alert prior to this attack. [But not the one then targeted.]
Two days later, another splinter group executed a police officer who was tricked by a prank distress call at a housing development. Sinn Fein labeled those perpetrating the acts “traitors to the island of Ireland.”
France: President Nicolas Sarkozy reversed four decades of French policy regarding NATO and announced his country will return to the military command. Charles de Gaulle had pulled France out of NATO’s integrated structure in 1966 as a way of showing his nation’s independence from the United States. Sarkozy said, “We have to be progressive. A solitary nation is a nation that has no influence whatsoever.” Many in France, though, are not happy with the decision, having grown quite fond of their independence and fearing France will now kowtow to the U.S.
Germany: The nation was rocked by the killing spree of a 17-year-old gunman who took 15 lives at his former high school before taking his own. An investigator said the teen was treated for depression and it seems he announced his intentions on a chat room. A search of his computer revealed violent video games. The attack could have been worse but for a well-rehearsed emergency plan that the principal of the high school immediately put in place with the first shots.
Zimbabwe: Prime Minister Morgan Tsvangirai said the auto accident that killed his wife and put him in the hospital was an accident, not “foul play.”
Mexico: The army scored a victory, scooping up 58 alleged cartel members at a mob dinner in Tijuana. One ‘lieutenant’ for a top boss was arrested and accused of killing 12 police officers. Tijuana recorded 843 murders in 2008, more than double Los Angeles’ 376. Meanwhile, the Obama administration is weighing sending National Guard troops to the border over concerns the violence is spilling over to American communities nearby.
And, Forbes’ richest 400 people in the world list has Joaquin Guzman Loera at No. 701. Mr. Guzman, who is a fugitive, is in the “shipping” business, according to Forbes, with a net worth of $1 billion. In reality he is a drug lord with the United States having a $5 million reward for his capture.
But back to the violence, “Five human heads covered with tape have been found inside coolers along a highway in western Mexico.”
Random Musings
–Like I’ve been saying….“It is simply wrong for commentators to continue to focus on President Barack Obama’s high levels of popularity, and to conclude that these are indicative of high levels of public confidence in the work of his administration. Indeed, a detailed look at recent survey data shows that the opposite is most likely true. The American people are coming to express increasingly significant doubts about his initiatives, and most likely support a different agenda and different policies from those that the Obama administration has advanced….
“Overall, Rasmussen Reports shows a 56%-43% approval, with a third strongly disapproving of the president’s performance. This is a substantial degree of polarization so early in the administration.” [Douglas Schoen and Scott Rasmussen / Wall Street Journal op-ed, March 13, 2009]
–George Will / Washington Post
“The president’s confidence in his capacities is undermining confidence in his judgment. His way of correcting what he called the Bush administration’s ‘misplaced priorities’ has been to have no priorities. Mature political leaders know that to govern is to choose – to choose what to do and thereby to choose what cannot be done. The administration insists that it really does have a single priority: Everything depends on fixing the economy. But it also says that everything depends on everything: Economic revival requires enactment of the entire liberal wish list of recent decades.
“The implausibility of this opportunistic hypothesis is deepened by Obama’s rhetoric, which says ‘catastrophe’ impends unless everything is done simultaneously. But his budget, in effect, says the danger will soon be gone and the new risk will be whiplash from the economy’s sudden acceleration. Although only a small fraction of the supposedly countercyclical stimulus will be spent by the end of the year, the budget assumes that by then the economy will have perked up, and that it will grow robustly – 3.2 percent, 4 percent and 4.6 percent – in the next three years. Growth supposedly will cut the deficit in half – growth and the $1.6 trillion ‘saved’ by first assuming, and then ‘canceling,’ a 10-year continuation of the surge in Iraq. Why, one wonders, not ‘save’ $5 trillion by proposing to spend that amount to cover the moon with yogurt and then canceling the proposal?”
On the issue of overexposure, Will writes that Obama’s “schedulers should remember what a contemporary said of Thomas Babington Macaulay, a prodigiously articulate but oppressively constant talker: ‘He has occasional flashes of silence that make his conversation perfectly delightful.’”
–A new Gallup Poll shows the approval rating for Congress has risen to 39%, up from 19% just two months ago. [57% of Democrats, 22% of Republicans] Obama’s approval rating stood at 67%, in contrast to the above Rasmussen survey but in line with other polls.
–Speaking of the president, Obama signed the $410 billion omnibus spending bill to fund the government through September, despite the fact it contained 8,500 earmarks costing more than $7.7 billion. It wouldn’t have been such a big deal except he had campaigned on a promise of reform. Obama called the measure “imperfect” in decrying the funding for the pet projects, but offered little of substance as to how he will combat the process in the future. Democratic Senator Russ Feingold and Republican John McCain are co-sponsoring a bill that would give the president a limited line-item veto. Obama and congressional Democrats would counter criticism by saying they are going to make the earmark procedure more transparent, but when one looks at it in total, one beneficiary stands out…the Pentagon.
One of my hopes after the election was for President Obama to go after the defense contractors in terms of cost overruns. It appears he is prepared to do just this and as I first noted in the fall, John McCain could be a big help. It’s about President Eisenhower’s “Military Industrial Complex” and the inherent dangers of it acquiring too much power. For decades we let the military run amok. Hopefully this is about to change, though the earmark process could blunt any real reform.
–New Jersey Gov. Jon Corzine stuck it to us with a budget proposal that calls for the elimination of the deductibility of property taxes on state income taxes, plus rolling back the property tax rebates for the middle class. And he is once again freezing aid to suburban schools, so for many of us our property taxes will go up further, because, guess what? He hasn’t proposed a wage freeze for school workers since they are one powerful union come election time, next November. [A new poll shows Corzine trailing Republican Chris Christie by nine points.]
–You’ve gotta love House Speaker Nancy Pelosi, who as Geoff Earle of the New York Post reported, prefers to fly home to California on government planes, specifically a Gulfstream G-5. A Pelosi aide wrote last year in e-mails just obtained by Judicial Watch, “It is my understanding there are no G-5s available for the House during the Memorial Day recess. This is totally unacceptable…The speaker will want to know where the planes are.” I’m ready for a coup.
–I have to admit I didn’t really follow the uproar over the nomination of Charles W. Freeman Jr. to chair the National Intelligence Council. But for the archives, the controversy over Freeman, who withdrew his name, was over his past work for the Middle East Policy Council, a Washington think-tank partially funded by Saudi money. Freeman has been critical of U.S.-Israel policy in the past, specifically Israel’s “high-handed and self-defeating policies” stemming from the “occupation and settlement of Arab lands,” which he called “inherently violent.”
In withdrawing due to intense pressure, Freeman cited “the Israel Lobby,” the aim of which “is control of the policy process through the exercise of a veto over the appointment of people who dispute the wisdom of its views.”
Time’s Joe Klein said that Freeman “was the victim of a mob, not a lobby. The mob was composed of Jewish neoconservatives – abetted by less than courageous public servants [who have] made Washington even less hospitable for those who aren’t afraid to speak their minds.” [Walter Pincus / Washington Post]
–Obama stripped funding for Nevada’s Yucca Mountain, after we the taxpayers spent $7.7 billion on what was to be our national repository for nuclear waste, without the administration offering any real alternative. The Nuclear Regulatory Commission claims to have a “dry cask storage” solution that is short-term, a few decades, but as the Washington Post editorializes, “Until the Obama administration comes up with a real alternative, the president’s promises that nuclear power will be a part of our clean energy future will remain unkept.”
[Yes, Nevada Sen. Harry Reid is a beneficiary of the stance to pull out of Yucca Mountain. Politics as usual.]
But there was an interesting op-ed in Friday’s Journal by William Tucker, who claims there really isn’t any such thing as nuclear waste.
“The supposed problem of ‘nuclear waste’ is entirely the result of a decision in 1976 by President Gerald Ford to suspend reprocessing, which President Jimmy Carter made permanent in 1977. The fear was that agents of foreign powers or terrorists groups would steal plutonium from American plants to manufacture bombs.”
Tucker points out that “France, which completely reprocesses its recyclable material, stores all the unused remains – from 30 years of generating 75% of its electricity from nuclear energy – beneath the floor of a single room at La Hague.”
–The latest American Religious Identification Survey finds that since 1990, the last ARIS study, the percentage of those calling themselves Christian has declined 11% in a generation, as reported by Cathy Lynn Grossman of USA TODAY. Other findings:
15% claim no religion at all, up from 8% in 1990, outranking all categories except Catholics and Baptists.
–President Obama reversed George W. Bush’s 2001 ban on federal funding for embryonic stem-cell research. Former First Lady Nancy Reagan, a longtime supporter of such work, said she was “very grateful” Obama allowed “scientists to move forward.”
But this isn’t the last we will hear of the controversial topic. Within 120 days the National Institutes of Health must devise guidelines that will regulate how the research is to be conducted. There are a slew of ethical and moral issues yet to come and the president will have to deal with them in both the political and scientific arenas.
–Republican National Committee Chairman Michael Steele really needs to step down, this as the party itself is becoming an embarrassment.
–George Will / Washington Post
“Much of the too-ample flesh of Americans (three of five are overweight; one in five is obese) comes from corn…A quarter of the 45,000 items in the average supermarket contain processed corn. Fossil fuels are involved in planting, fertilizing, harvesting, transporting and processing the corn. America’s food industry uses about as much petroleum as America’s automobiles do.
“During World War II, when meat, dairy products and sugar were scarce, heart disease plummeted. It rebounded when rationing ended….
“Four of the top 10 causes of American deaths – coronary heart disease, diabetes, stroke and cancer – have (as author Michael) Pollan says, ‘well-established links’ to diet, particularly through ‘the superabundance of cheap calories of sugar and fat’….the industrialization of agriculture, wherein we developed a food chain that derives too much of its calories – energy – not from the sun through photosynthesis but from fossil fuels.”
–Last week I commented that one way for the states to reduce spending was to release non-violent criminals. John Pomfret then wrote in the Washington Post:
“With state budgets facing their biggest shortfalls in decades, corrections, which eats up more than $50 billion a year nationwide, is a prime target for cuts. Last year it was the fastest expanding chunk of state budgets, and over the past two decades, its growth as a share of state spending has been second only to Medicaid….
“Time was when politicians viewed to ‘demonstrate that I’m tough on crime,’ said Adam Gelb (of The Pew Center on the States). Now they’re focusing on how to ‘get better results at lower costs to taxpayers.’ Some of the reddest states are leading the charge. Instead of building eight more prisons at $904 million, Texas decided in 2007 to commit $241 million to expand probation and parole departments as well as residential options for non-violent offenders. Mississippi Gov. Hailey Barbour has been releasing non-violent offenders well before their sentences are up. Kansas, too.”
–So I was in New York a few days and went to the New York Historical Society Museum among other places and it was a reminder just how hard hit the museums are these days, let alone other cultural institutions. In many cases it’s not just reduced attendance, it’s also about the endowments. For example, the American Museum of Natural History has lost over a quarter of its endowment through the bear market, over $170 million, plus it lost $3.1 million in city funding because of budget issues. Then, in this museum’s case, you had a ton of companies cancel holiday parties last year. 10% of staff, 100 people, are losing their jobs. [Crain’s New York Business]
And Friday’s New York Times had a story that the Metropolitan Museum of Art is laying off 74 in addition to 53 cut last year, with another 100+ on the drawing boards by summer. The museum’s endowment is estimated to have declined 28% through Dec. 31, or some $800 million.
–USA TODAY reported that due to the economy Americans are increasingly forgoing regular dental checkups. The worst state is Mississippi, with 47% of residents reporting no visits in the past year. The best state is Massachusetts, where only 24% skip it. So, of course you have more lost jobs, and, over time, more cases of serious health issues.
–I have to admit I loved this one.
“A plane that was carrying more than 2 tons of cocaine crashed Tuesday in northern Honduras, killing the pilot, Honduran authorities said.
“Authorities estimate the plane was carrying about 2,200 lbs. of cocaine, although all but 220 lbs. of the drug burned in the crash…
“Vice Minister of Security Mario Perdomo said that two U.S. Drug Enforcement Administration helicopters were pursuing the aircraft, which went down in northern Honduras.
“Perdomo said the plane left Venezuela and was heading to Honduras’ Bay Islands, a transit point for U.S.-bound cocaine.”
The U.S. Embassy, for obvious reasons, denied U.S. aircraft were in pursuit. All I thought was score one for us.
–I’ve been hearing stories in the New York area about how crowded some of the gun shops are, and when I was in North Carolina a few weeks ago heard a lot about a coming gun show in Charlotte. So an old friend, Pete S., told me that the show was absolutely packed, “thousands of attendees,” and a 45-minute wait just to get in. Some of the owners exhibiting told Pete that since Obama was elected, “business has picked up 1,000%.” And at least in this area, if you apply for a gun permit, what used to take two weeks is now two months, such is the crush.
That’s today’s America. Guns and gold.
–Well, so much for that “loving and secure environment” that Bristol Palin and Levi Johnston were to provide for their baby. Now it will have to be loving and secure without Levi, who broke off his engagement to the governor’s daughter, as a “devastated” Bristol confronts the rest of her life.
–New analysis reveals that “Peking Man” isn’t a mere 500,000 years old, but rather more like 750,000…a time when the Dow Jones was sitting around 7000…the same level as today, thereby disproving the buy and hold theory for all time. [In case you were wondering how we got from 7000 to 1929’s cycle peak of 381, the Middle Ages weren’t kind to equities.]
–Good god…that was a close call up in space with the space junk just missing the international space station.
–In defense of sponsoring golf tournaments. Ron Sirak / GolfWorld.
“Even in economic hard times, and perhaps especially then, businesses cannot stop marketing. It cost $3 million for a 30-second ad on this year’s Super Bowl. A week-long PGA Tour event costs less than 90 seconds during the Super Bowl. Seems like cost-efficient marketing….
“Tournaments bring money into communities. What would the impact on the economy of San Diego be if the Buick Invitational went away, or on the Flint, Mich., area if the Buick Open disappeared? Tens of millions of dollars are poured into local economies each year by these events.
“The Northern Trust Open has raised $3 million for charity in its two years, and since 1926 the L.A. stop has donated more than $50 million. Last year the PGA Tour raised a record $124 million for charity, despite a depressed economy, and has generated more than $1.3 billion for charity since 1938. Did I miss the story about how much money all those people buying Super Bowl ads contributed to charity last year?”
–What a disaster the upcoming Vancouver and London Olympics are going to be from a budget standpoint and for taxpayers in these two nations. That’s why I say, hey, Chicago…pull your app for the 2016 Summer Games!
—
Pray for the men and women of our armed forces, and the fallen.
God bless America.
—
Gold Closed at $930
Oil, $46.25
Returns for the week 3/9-3/13
Dow Jones +9.0% [7223]
S&P 500 +10.7% [756]
S&P MidCap +11.9%
Russell 2000 +12.0%
Nasdaq +10.6% [1431]
Returns for the period 1/1/09-3/13/09
Dow Jones -17.7%
S&P 500 -16.2%
S&P MidCap -15.2%
Russell 2000 -21.3%
Nasdaq -9.2%
Bulls 26.4
Bears 47.2 [Source: Chartcraft / Investors Intelligence…after a hiccup last week, sentiment fell as expected. It will be interesting to see what kind of change we see over the coming week or two should the rally continue.]
Have a great week. As always, I appreciate your support.
Brian Trumbore