For the week 3/23-3/27

[Posted 7:00 AM ET}

 

 

“In the sucky economic climate we’re in now, I like having TV to cheer me up.”

–Rose Tyler, American Idol fan, upon learning her favorite show was preempted by President Obama’s press conference Tuesday night.

 

Don’t we all, Rose…don’t we all. 

 

But Ms. Tyler, if she holds any equities, should be feeling a little better after the histrionics of the prior week. In fact a new USA TODAY/Gallup survey reveals that 29% now believe the economy is getting better, the best such reading since July 2007. Granted, 66% still believe it’s getting worse, but it’s a start.

 

It’s the stock market. Specifically, since the lows of March 9, the impact of the fastest 20% rally, just 13 trading days, since 1938. It was at the height of despair, in my column of March 7, that I felt compelled to defend my increased optimism in terms of my asset allocation, moving from 20% equities, 80% cash, to a 50/50 split at year end. While the market took a breather on Friday, and could yet slump anew, I think I’ve proved my point that you have to constantly separate sentiment from the fundamentals…or at least keep it in the back of your mind when you are making any kind of investment decision or forecast. I’ve long felt this market would turn well before the economy did, that’s simple market history, after all, and this time will be no different. For now, though, I see no reason to go crazy and increase my allocation further. For one thing, we have this little issue of North Korea and a rather large bottle rocket sitting on a launch pad over there. Should they indeed fire it this week (they’ve pegged April 4-8) there isn’t a single person on earth who truly knows what would happen next. Hopefully, the little urchins pull back from the brink.

 

—

 

Back to the week of March 16, the week from hell when it came to democracy in America and our beloved Constitution that was being trampled on by a bunch of idiotic elected officials, thankfully this past week cooler heads prevailed, which was no small reason for the performance in the market and perhaps a few less sleepless nights across our land. Even Sen. John McCain said what we had witnessed was “as explosive in a short period of time as anything I have ever seen.” Following is additional commentary, looking back, before we tackle the latest issues to emerge.

 

Thomas L. Friedman / New York Times

 

“I ran into an Indian businessman friend last week and he said something to me that really struck a chord: ‘This is the first time I’ve ever visited the United States when I feel like you’re acting like an immature democracy.’

 

“You know what he meant: We’re in a once-a-century financial crisis, and yet we’ve actually descended into politics worse than usual. There don’t seem to be any adults at the top – nobody acting larger than the moment, nobody being impelled by anything deeper than the last news cycle. Instead, Congress is slapping together punitive tax laws overnight like some Banana Republic, our president is getting in trouble cracking jokes on Jay Leno comparing his bowling skills to a Special Olympian, and the opposition party is behaving as if its only priority is to deflate President Obama’s popularity.

 

“I saw Eric Cantor, a Republican House leader, on CNBC the other day, and the entire interview consisted of him trying to exploit the AIG situation for partisan gain without one constructive thought. I just kept staring at him and thinking: ‘Do you not have kids? Do you not have a pension that you’re worried about? Do you live in some gated community where all the banks will be O.K., even if our biggest banks go under? Do you think your party automatically wins if the country loses? What are you thinking?….

 

“Right now we have an absence of inspirational leadership. From business we hear about institutions too big to fail – no matter how reckless. From bankers we hear about contracts too sacred to break – no matter how inappropriate. And from our immature elected officials we hear about how it was all ‘the other guy’s fault.’ I’ve never talked to more people in one week who told me, ‘You know, I listen to the news, and I get really depressed.’”

 

Editorial / Wall Street Journal

 

“On Inauguration Day, we wrote that our young President has a first-class intellect and temperament. Our question was whether he is tough enough. So far the answer is no. He has failed to stand up to a Congress of his own party on anything difficult – from stimulus priorities, to earmarks, to protectionism against Mexican trucks. Mr. Obama needs to face down the AIG mob, or his Presidency may be its next victim.”

 

Well Obama did come through on 60 Minutes when asked by Steve Kroft about the AIG bonus hysteria and the reaction in the House to levy a 90% punitive penalty on compensation above $250,000. We “can’t govern out of anger,” said our president, and that simple statement went a long way in calming the waters. That and the fact all manner of more mature senators, from both parties, echoed similar sentiments on the Sunday talk shows.

 

But we do have a tough road ahead, particularly when it comes to a critical piece of the bank puzzle, dealing with toxic debt, where the U.S. Treasury is financing up to $1 trillion to purchase distressed assets in a public/private partnership. As George Will said on This Week, “Why partner with this government? One that goes around abrogating contracts?”

 

Why partner with a government that, in the words of New York Times columnist Frank Rich, allowed AIG to “launder…$170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Societe Generale and Deutsche Bank abroad”?

 

The week of March 16, AIG’s bonuses were the prime issue, but this past week what increasingly riled some of us up was the realization that our money has been flowing through, 100 cents on the dollar, to the likes of Goldman in order to honor contracts with AIG. Sounds honorable at first blush…but upon further reflection, why are we once again bailing out these institutions? Goldman in particular. I noted last time how comfy it was to have former Goldman CEO Hank Paulson as then-Treasury Secretary, and a former Goldman board member, Ed Liddy, in place at AIG to clean the mess up…but why weren’t we raising more hell about this going back to last year?

 

Pretty simple, sports fans. There was no freakin’ transparency! We didn’t know until just the past ten days who the heck was getting $10s of billions of our money. Forget the bonus issue. As much as Congress deserves grief, the letter they just sent to the inspector general for the Troubled Asset Relief Program asks the right question.

 

“Was any attempt made to renegotiate and close out these contracts (with the counterparties) with ‘haircuts?’  If not, why not?”

 

Kaja Whitehouse of the New York Post had a piece on Goldman CFO David Viniar defending the company’s acceptance of $12.9 billion as payment for bets made.

 

“We don’t think we did anything wrong. We had commercial terms. It is our responsibility to our shareholders to make sure that we are protecting ourselves. That’s why we enter into these contracts.”

 

Ms. Whitehouse:

 

“Viniar…downplayed the notion that Goldman Sachs CEO Lloyd Blankfein had the ear of then-Treasury Secretary Hank Paulson, who was Blankfein’s predecessor at Goldman.”

 

Of course he would.

 

Michael Lewis / Bloomberg

 

“I doubt seriously we will ever understand the morality of the $173 billion payment that is the far more serious issue. For instance, Goldman Sachs, which received about 8 percent of the pile, or $13 billion, has claimed publicly that the money was, to them, a matter of indifference, as Goldman had hedged itself against a possible collapse of AIG – by making bets against AIG.

 

“This suggests that it was clear to at least one market player, before the collapse, that AAA-rated AIG was behaving in ways that might lead to its demise – which is to say that there was really no responsible place to lay off these bets. [So why bail out those who made them?]

 

“It also suggests that it is a matter of indifference to Goldman Sachs whether AIG lived or died, as either way it was protected. [So why bail it out?]

 

“Since the beginning of the crisis I’ve wondered why the government has found neither the will nor the way to attack the root of the problem – the people who borrowed money to buy homes they shouldn’t have bought.

 

“Now I think I understand. It would be too simple. People would understand a lot of small payments to the guy down the street who doesn’t deserve them, and become outraged. Far better to throw trillions at opaque corporations, the inner workings of which no one still really understands.”

 

As I’m fond of saying, corruption makes the world go ‘round.

 

—

 

As for the Public-Private Investment Program, top investors such as PIMCO, BlackRock and Carlyle have talked of taking some of the overhang of toxic assets out of the marketplace, but it still comes down to the price. The current losses are eating away the banks’ capital. If, say, Citigroup sold a security for less than current value, Citi would need to acknowledge further writedowns, and the need for even more capital. 

 

It’s still very confusing just what is going to transpire, and on Friday the heads of the leading banks got together at the White House with President Obama to broadly discuss the topic of compensation, among other items, but it appears the Public-Private Investment Program was barely touched upon. It’s kind of important, don’t you think? For starters, you still have the issue of what happens to those who participate in the auctions in terms of compensation limits, for example? If the government says, ‘don’t worry,’ I’d start worrying.

 

Paul Krugman / New York Times

 

“The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

 

“And so the plan is to use taxpayer funds to drive the prices of bad assets up to ‘fair’ levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use ‘the expertise of the market’ to set the value of toxic assets.

 

“But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets….

 

“(The) real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of hocus-pocus – for that is what the Geithner plan amounts to – will change that fact….

 

“Even more important…is the way Mr. Obama is squandering his credibility. If this plan fails – as it almost surely will – it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

 

“All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.”

 

[Both Krugman and economist Nouriel Roubini still look for bank nationalizations as the crisis deepens.]

 

Martin Wolf / Financial Times

 

“One must judge plans for stimulating demand and rescuing banking systems against this grim background. Inevitably, the focus is on the U.S., epicenter of the crisis and the world’s largest economy. But here explosive hostility to the financial sector has emerged. Congress is discussing penal retrospective taxation of bonuses not just for the sinking insurance giant, AIG, but for all recipients of government money under the troubled assets relief program…

 

“Yet it is clear why this is happening: the crisis has broken the American social contract: people were free to succeed and to fail, unassisted. Now, in the name of systemic risk, bailouts have poured staggering sums into the failed institutions that brought the economy down. The congressional response is a disaster….I presume legislators expect the president to save them from their folly….

 

“This is also the background for the ‘public/private investment program’….

 

“I think of this as the ‘vulture fund relief scheme.’ But will it work? That depends on what one means by ‘work.’ This is not a true market mechanism, because the government is subsidizing the risk-bearing. Prices may not prove low enough to entice buyers or high enough to satisfy sellers. Yet the scheme may improve the dire state of banks’ trading books. This cannot be a bad thing, can it? Well, yes, it can, if it gets in the way of more fundamental solutions, because almost nobody – certainly not the Treasury – thinks this scheme will end the chronic undercapitalization of U.S. finance. Indeed, it might make clearer how further the assets held on longer-term banking books need to be written down….

 

“In the context of a global slump, will investors be willing to put up the vast sums required by huge and complex financial institutions, with a proven record of mismanagement? Trust, once destroyed, cannot so swiftly return.

 

“The conclusion, alas, is depressing. Nobody can be confident that the U.S. yet has a workable solution to its banking disaster. On the contrary, with the public enraged, Congress on the war-path, the president timid and a policy that depends on the government’s ability to pour money into undercapitalized institutions, the U.S. is at an impasse.

 

“It is up to Barack Obama to find a way through. When he meets his group of 20 counterparts in London next week, he will be unable to state he has already done so. If this is not frightening, I do not know what is.”

 

—

 

Speaking of the G20 summit coming up, Czech Prime Minister Mirek Topolanek, who lost a no-confidence vote but remains in office and is still current holder of the EU presidency (which rotates every six months), took it upon himself to attack the U.S. for its exploding deficit that he said “is the way to hell.” Well, you can imagine cooler heads in the EU immediately tried to tamp down the furor, for as ticked off as some European nations may be at what our financial system helped wrought, they still need America to succeed for them to.

 

For its part China also weighed in ahead of the G20, with central bank governor Zhou Xiaochuan writing in an article for the bank’s Web site, the government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions.” China’s point is spend more, the rest of you lightweights. Spend on actual stimulus, and while you’re at it, reform your regulatory framework.

 

—

 

Turning to the economy, the figures for the U.S. this week were solid. Durable goods (big ticket items) for February were up 3.4% when a decline was expected, and the numbers on new and existing home sales were both better than expected, thus continuing a trend in this regard. While the housing sector is still in a deep depression, there are distinct signs of a bottom. In California, for example, median home values, now generally off 30-40% from their peak, seem to have stabilized with buyers entering the market, even if many of the sales are for foreclosed properties. It’s all part of the process. Josh P., my West Coast maven, notes that sales in San Diego County have risen eight straight months, year-over-year, after a whopping 48 consecutive months of decline. [The median price in San Diego is actually off 45% from the peak.]

 

One thing I’ve noticed in reading my own local real estate listings in New Jersey is that I’m increasingly finding myself thinking, “Gee, the price for that property seems reasonable.” Long-time readers should find that kind of startling, seeing as I was crying about how overvalued real estate was long before 99% of the rest of the world. 

 

Last September I said housing, as measured by the median home price, would bottom this coming April-May and while I was a little uncertain with this prediction earlier this year, I will be right. Just remember, I also said, and maintain, that when we hit the bottom there is no V-shaped recovery. We just sit there for a while.

 

Globally, in the month of February, exports in Japan plunged 49%. 49%! Toyota said its February sales declined a full 50%, while Honda’s were off 42%. It was the worst performance for exports, across the board, since 1957, when the first Godzilla movies were being filmed with an erector set and a large bathtub. Retail sales in Japan fell a whopping 5.8% and wages are falling furiously. Deflation is back. 

 

But in China, there are signs housing is stabilizing. Actually, one report I read said home sales were “surging” thanks to the nation’s stimulus plan. As with everything else here, however, I’d like to see some follow through.

 

In Germany, Commerzbank is estimating GDP will fall 6-7% in 2009, far worse than the government’s own projection, while in the UK, retail sales fell 1.9% in February.

 

The World Trade Organization continues to forecast a total collapse in global trade this year, down 9%, the worst year ever; after rising a slim 2% in 2008. Germany remains the #1 exporter, followed by China and the United States, with the U.S. still far and away the leading importer.

 

But with all the dire news on the production front, there is a silver lining. Store shelves are running increasingly bare as everyone slashes inventories. Ergo, you don’t have to be an Einstein to figure out that eventually these inventories will need replacing; unless the entire world takes to wearing Flintstones type clothing (you’d only need two outfits, casual and formal) and we subsist on insects.

 

—Stocks rallied for a third straight week with the Dow Jones rising 6.8% to 7776, though it’s still down 11% for the year, while the S&P 500 added 6.2% and Nasdaq finished ahead 6.0% to 1545. After Thursday’s close, Nasdaq was actually up for ‘09 before stumbling Friday.

 

The culprit on Friday was the meeting 15 bank chiefs had at the White House. Despite the polite comments afterwards, it was clearly a bit of a tension convention as President Obama struggles with the compensation issue while the bank heads said they are tired of being beaten up by Democrats. It didn’t help matters that Jamie Dimon of JPMorgan Chase and Ken Lewis of Bank of America, two who had helped launched the rally a few weeks back when they said business had been strong in January and February, conceded March was looking rather dismal. 

 

And even with the firmer tone the past three weeks, there are justifiable concerns over coming earnings reports. The rally can not last unless market participants believe analysts have underestimated earnings potential for the second half. Should current forecasts be right, however, it’s tough to rationalize existing valuations.

 

–U.S. Treasury Yields

 

6-mo. 0.38% 2-yr. 0.91% 10-yr. 2.76% 30-yr. 3.61%

 

The yield on the 10-year continued to rise after hitting 2.50% two weeks ago. Mortgage rates for a 30-year fixed hit an all-time low of 4.85% this week but that will change quickly. As I said last time, don’t dither! My friend Jimbo didn’t and refinanced at 4.80% with Quicken Loans. 

 

On the prospects for inflation, I remain steadfast this is not a concern until well into 2010. The Congressional Budget Office, incidentally, says we’ll see low inflation for years. But for those who want to dream big…I take you back to Weimar Germany.
 

In January 1919 there were 9 marks to the dollar; three years later there were 192. The Reichsbank then tried to hold the mark at a rate of about 2,000 to the dollar, but to no avail. 
 

July 1923…353,412 marks to the dollar

August 1923…4,620,455

September 1923…98,860,000

October 1923…25,260,208,000

November 1923…4,200,000,000,000…yes, trillion 

 

While I may be sanguine on inflation prospects, others such as PIMCO’s Mohamed El-Erian are not, pointing to the soaring deficits and the huge quantities of bonds hitting the market over the coming years to service it. In “printing money,” it’s a textbook case of inflation that El-Erian says will devastate the ultimate “safe” haven.

 

This is what has the Chinese all concerned, being the largest holders of our paper, but as this will be a big topic at the G20 I’ll hold off on further discussion for now except to note this bit from a Journal editorial following the comments of central bank governor Zhou.

 

“Mr. Zhou’s demarche [that the world needs a new supercurrency] is also a warning that reserve currency status carries special obligations. It means the U.S. isn’t conducting monetary policy only for itself but for much of the world. And it means that when the U.S. falls for the temptation to debase its currency, it sends shocks through the entire global trading system. The dollar’s sharp but needless gyrations during this decade are in our view one of the major causes of the housing and commodity asset bubbles that led to the financial panic and global recession.”

 

–I paid it short shrift this week, but there will be plenty of time to discuss the regulatory efforts of both Fed Chairman Bernanke and Treasury Secretary Geithner. Both would like sweeping powers to seize non-bank financials and wind them down, the same authority the FDIC has today with traditional banks.

 

–Joe Granville…yes, that Joe Granville…still plies his trade out of Kansas City, Mo. The other day he wrote in The Granville Market Letter:

 

“So that you will know exactly why I say we are in the early stages of a new bull market, that is based on the way I denote the exact time of market tops and bottoms, 100% mathematical logic which cannot be contested. The definition of a market bottom is when there is a maximum number of new stock lows. That was seen on October 10, 2008 when there were 2,901 new lows. So, until proven otherwise by a higher number, the last bear market ended on that day.” [Chartcraft / Investors Intelligence]

 

Of course he knows the averages reached successive lows in November and on March 9, but it’s getting harder and harder to dispute his overall thesis. You rock, Joe!

 

–The Swedish government is refusing to bailout national auto company Saab. Whereas in the past government aid would have seemed a sure thing, since 2006 Sweden has been ruled by more right-wing, free market forces that are siding against intervention.

 

–The latest UCLA Anderson Forecast looks for normal growth not resuming in California until late 2010. The jobless rate, now 10.5%, could peak at 11.7% and persist at a high mark for some time thereafter. That means the pictures of the homeless will only get worse, and the pressure on government to “do something” will grow.

 

Seven states now have unemployment rates over 10%…Michigan (12%), South Carolina, Oregon, California, Rhode Island, Nevada and North Carolina.

 

–The Securities and Exchange Commission and Bloomberg compiled data concerning the impact of naked short selling of Lehman Brothers shares as that investment bank went belly up. As many as 32.8 million shares in the company were sold but not delivered to buyers on time as of Sept. 11… “a 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.”

 

As former SEC Chairman Harvy Pitt said of the gross manipulation, “We had a word for this in Brooklyn. The word was ‘fraud.’”

 

The trades, combined with the rumors, were too much for Lehman to take as it collapsed into bankruptcy on Sept. 15. The same pattern was in play in the case of Bear Stearns in May ’08.

 

To reiterate what was going on, Gary Matsumoto of Bloomberg explained:

 

“Short sellers arrange to borrow shares, then dispose of them in anticipation that they will fall. They later buy shares to replace those they borrowed, profiting if the price has dropped. Naked short sellers don’t borrow before trading – a practice that becomes evident once the stock isn’t delivered. Such trades can generate unlimited sell orders, overwhelming buyers and driving down prices.”

 

Susanne Trimbath of STP Advisory Services says failing to deliver is like “issuing new stock in a company without its permission. You increase the number of shares circulating in the market, and that devalues a stock. The same thing happens to a currency when a government prints more of it.”

 

[The above is a major reason why some want to restore the uptick rule, which requires traders to wait for an increase in the price of a stock before they short it, which in turn helps prevent bear raids.]

 

–Deflation Watch: The New York Times is not only laying off 100, it instituted a 5% pay cut among management and nonunion employees. And I missed one from last Friday. Principal Financial Group is cutting pay for all workers from 2 to 10 percent depending on the level.

 

–According to a survey by Deutsche Bank, a third of hedge fund investors expect withdrawals of $200 billion this year, on top of last year’s net $155 billion. Most expect a fifth of all funds to go out of business in ’09. Many investors are demanding more transparency. [Financial Times]

 

–Meanwhile, James Simons, of hedge fund Renaissance Technologies, earned a reported $2.5 billion in 2008 according to Institutional Investors’ Alpha magazine; $500 million ahead of 2007’s leader, John Paulson of Paulson & Co. On the other side of the ledger, Citadel Investment Group founder Ken Griffin lost $2 billion.

 

–In a big blow to Bank of America, Merrill Lynch chief strategist Richard Bernstein and chief economist David Rosenberg announced they are leaving to pursue separate ventures. Both have been outstanding; particularly Rosenberg for being all over the housing bubble.

 

–IBM is laying off 5,000 in North America, with most expected to come out of the global services division.

 

–With Pennsylvania Republican Senator Arlen Specter announcing he would not support the controversial “card check” legislation, that makes 41 votes against, enough to sustain a filibuster that should kill the bill, at least in its current destructive form.

 

–Bernie Madoff’s brother Peter had his assets frozen as prosecutors zero in on his role in the massive fraud perpetuated by the former.

 

But some potentially good news for Bernie’s victims. The agency liquidating his brokerage says the $2.6 billion on hand is enough to satisfy legitimate claims by victims. However, that equates to the $500,000 SIPC limit. Most victims lost far more and the lawsuits grow. 

 

–In the latest chapter of Ireland Today, retail sales in January dropped 20% from a year earlier, the biggest decline since records began in 1974. Overall, Ireland’s economy shrank 7.5% in the fourth quarter as investment plummeted 31%.

 

–Deflation Watch, Part Deux: Zimbabwe! Say what?! Yup, Zimbabwe. They’ve gone from inflation of 231 million percent (really…but as you can see above not quite Weimar Germany levels) to deflation running at 2-3 percent a month. Slight volatility, I think you’d agree. Josh P. and I were comparing notes on the brilliant monetary authorities here who put an end to the inflation spiral and we agreed they had to be part of the pool that didn’t survive the vetting process for the Obama administration, owing to some nanny issues.

 

–Hong Kong billionaire Li Ka-Shing, the region’s Warren Buffett, said on Thursday, “If you have money in your pocket,” consider buying into the stock market. When it comes to real estate, “History tells us that if you buy in a slow market, in the medium term you get good returns.” Mr. Li advised against using leverage as much as possible. [Bettina Wassener / New York Times]

 

–When it comes to alternative energy, the shares of which began to stir again this past week, the Wall Street Journal had an interesting piece on the ties between electricity and water usage. Here’s a factoid for you.

 

“The electric-power industry accounts for nearly half of all water withdrawals in the U.S., with agricultural irrigation coming in a distant second at about 35%. Even though most of the water used by the power sector eventually is returned to waterways or the ground, 2% to 3% is lost through evaporation, amounting to 1.6 trillion to 1.7 trillion gallons a year that might otherwise enhance fisheries or recharge aquifers, according to a Dept. of Energy study.

 

“The study concluded that a megawatt hour of electricity produced by a wind turbine can save 200 to 600 gallons of water compared with the amount required by a modern gas-fired power plant to make that same amount.”

 

–General Motors offered its union workers an early retirement package valued at up to $45,000, but only 7,500 of 21,500 accepted it. GM needs the workers to leave so it can replace them with new hires earning half as much.

 

–PIMCO’s Bill Gross, in a story for the Washington Post, said there are three mega-trends these days; deleveraging, reregulation, and deglobalization (or everyone acting in their own interest).

 

–Swiss private banks have begun banning their executives from travel over fears that neighboring countries could detain them as part of a global crackdown on bank secrecy.

 

–Six weeks ago, the price of oil closed the week at $37. It has risen every week since then and now stands at $52.16 (up just pennies this past week, though). But this is despite the fact crude inventories are at 16-year highs (July 1993) and demand continues to be poor, globally.

 

However…gasoline stocks fell as refiners cut production and you’ve undoubtedly noticed your price at the pump is about 25-35 cents higher than earlier in the year, and with gasoline futures now at the $1.50 level, $2.00 could be here to stay. Gasoline demand has risen ever so slightly; as good an economic barometer as you’ll find in this current environment.

 

But I’m still not a buyer of the energy sector, though I’m getting close. After all, I’m loaded to the gills with alt energy plays. [My China biodiesel company reported late Friday. Should it dip a little Monday, I’ll buy some more. I also had a pleasant surprise this week with the geothermal issue I’m involved in.]

 

–Suncor is acquiring rival Petro-Canada to form that nation’s biggest energy company. The $13.7 billion deal is the biggest in the oil sector since 2006. Both have substantial exposures in Canada’s oil sands region which generally requires at least $40 oil to be profitable. The new entity should find it easier to diversify by pooling resources.

 

–The Port Authority of New York / New Jersey has decided in its infinite wisdom to name the edifice going up where the Twin Towers stood “One World Trade Center” rather than Freedom Tower. Debra Burlingame, whose brother was the pilot aboard American Airlines Flight 77 that was hijacked and crashed into the Pentagon, said the renaming of the tower is another example that the nation is forgetting 9/11.

 

“If we can’t say the word freedom out loud, God help us. I understand the decision from a marketing point of view. But it saddens me that it’s no longer economically viable to declare who we are.” [New York Post]

 

–A huge issue with the early days of the Obama administration is that it’s short on key staff. Newsweek pointed out some of the following.

 

There are 373 positions requiring Senate confirmation and as of a week ago 43 had been filled. The White House has received 300,000 applications, overall, for 3,300 positions.

 

A big problem is of course the vetting process and one turnoff for anyone feeling the urge to serve in government, particularly at a higher level, is that if you’re going to be vetted, you better hire an attorney. Defense Secretary Robert Gates, a known quantity if there ever was one, nonetheless had legal fees of $40,000 when he was nominated by President Bush for his current post. Former Defense Secretary Donald Rumsfeld spent $250,000 to get confirmed. That’s absurd. Who would want to go through all that?

 

–Former art dealer Lawrence B. Salander, who until recently ran a well known Upper East Side, Manhattan gallery, was “indicted on charges he stole $88 million from investors and collectors who consigned artwork to him and said they were cheated out of the sale proceeds or never saw the pieces again.” In essence, yet another Ponzi scheme.

 

For example, the New York Times reported that tennis star John McEnroe “said he had put up $162,500 for Salander-O’Reilly to buy art and then resell it at a profit. He sued, saying that Salander-O’Reilly had promised to pay him $325,000.” A hedge fund manager, Roy Lennox, gave Salander $3.575 million with the promise of a payback of $3.725 million. He received about $900,000 back.

 

Which is why here at StocksandNews, we recommend you stick to those “Starving Artists” sales held at the local Holiday Inn where you can pick up “original art for $19-$29!” [Frame included]

 

–If you are a CNBC viewer, the New York Post’s Page Six reported that “Fast Money” anchor Dylan Ratigan is not only quitting the show (he was gone, Friday), but that his contract expires Wednesday. As you’ve seen from watching the lad, he’s a bit of a primadonna. [The New York Times confirmed his departure this morning.]

 

–Anna Kournikova rang the opening bell at the New York Stock Exchange on Wednesday. I would suggest she become a permanent fixture at the Big Board and I suspect traders and market makers would have no problem being charged a slight transaction fee to pay for this new position….Ambassador of Stocks.

 

North Korea: Blaine Harden of the Washington Post reported on Friday that U.S. officials are increasingly worried about the coming long-range missile test (unless Pyongyang stands down).

 

“North Korea ‘may be able to successfully mate a nuclear warhead to a ballistic missile,’ Lt. Gen. Michael D. Maples, director of the Defense Intelligence Agency, said this month (in Senate testimony).

 

“David Albright, a physicist and nuclear weapons expert who runs the Washington-based Institute for Science and International Security, has written that North Korea is ‘likely able to build a crude nuclear warhead’ for its midrange missiles that target Japan.”

 

But the consensus is the North is still years away from putting warheads on its missiles. Every time I read something like this I think of how these same folks missed Pakistan’s nuclear weapons test years back.

 

The above aside, what then is going to happen should North Korea actually launch its ballistic missile masquerading as a communications satellite? The United States has two destroyers in the area and weeks ago announced it would shoot it down. The Japanese government said it would definitely take care of it, especially as it’s likely to fly over Japanese territory if the launch is successful. Let’s hope, for starters, that the U.S. and Japan are communicating closely.

 

Iran: Tehran and NATO held their first talks since the Iranian revolution at a confab in Brussels focusing on Afghanistan. It was a very informal affair with no second meeting lined up as yet.

 

On the nuclear program front, a top Israeli intelligence official said it doesn’t appear Iran is in a hurry to build a nuclear weapon, though it has the knowledge to enrich fissile material in a low percentage, and “whoever knows how to enrich (uranium to) 4.5 % knows also how to enrich it to 20%, 60% or 93%.” So said Maj. Gen. Amos Yadlin to Israel’s Foreign Affairs and Defense Committee.

 

A consensus in the West, however, appears to be developing and that is to cut off, as much as possible, Iran’s ability to import gasoline. While it has substantial oil reserves, it doesn’t have the necessary domestic refining capacity and thus has to import 40% of its needs. As an editorial in the Wall Street Journal puts it:

 

“Any cut-off in supply would do immediate damage to the fragile Iranian economy and could bring about social unrest, as happened in 2007 after the regime imposed gasoline rations. Here’s another fact: Iran is supplied with gasoline by a mere handful of foreign companies, all of which do substantial business in the United States….

 

“(Thus the) number of firms willing to incur legal or reputational risks to supply Iran is limited.”

 

Following President Obama’s video message to Iran the other day, Supreme Leader Ayatollah Khamenei belittled the president and the West.

 

“They chant the slogan of change but no change is seen in practice.” Khamenei added, “He (Obama) insulted the Islamic Republic of Iran from the first day. If you are right that change has come, where is that change? What is the sign of that change?…Have you released Iranian assets?…Have you given up your unconditional support for the Zionist regime?…You change, our behavior will change.”

 

Israel: Ehud Barak’s center-left Labor party has joined Benjamin Netanyahu’s right-wing coalition, though not without a big internal tussle within Labor. Netanyahu needed Barak to remain in his current position of defense minister, but Barak may not be able to keep Labor in the fold.

 

The U.S. and the Arab World are concerned over the prospects for a Netanyahu administration. He in turn has sought to reassure Palestinians they have “a partner for peace,” with a focus being on the West Bank economy. Opponents say, however, talk is meaningless unless the settlement activity stops.

 

Other issues here…

 

Israel is ignoring UN calls for war crimes investigations into the conduct of the Gaza war, including on charges Israel used the Palestinians as human shields during the fighting.

 

Palestinian elections for president and the legislature are now slated for Jan. 2010.

 

American officials claim Israel bombed a convoy of trucks in Sudan in January because the truck was supposedly carrying arms destined for Gaza. The New York Times reports that U.S. intel believes Iran was involved in arms shipments through Sudan but it was unknown if they were part of the targeted supply.

 

And Israel successfully tested an anti-rocket missile shield, “Iron Dome,” that is designed to defend southern and northern Israel from Hamas and Hizbullah rockets.

 

Pakistan: The Obama administration is approving increased use of drones in going after al Qaeda and Taliban targets, with some in the Pakistani government supportive of efforts to target those that are also attacking inside the country, as well as in Afghanistan.

 

But, at the same time, it’s so complicated. It’s Pakistan, after all. The U.S. now has strong evidence Pakistan’s intelligence agency, the ISI, has been supporting the Taliban, as long felt, and there is no doubt the drone attacks risk fueling a backlash against the very government elements the White House wants to do business with. At least Gen. David Petraeus and his Pakistani counterpart, Gen. Kayani, appear to have a solid relationship; rather critical given this hellhole.

 

Afghanistan: Along with a recently authorized 17,000 additional combat troops, President Obama is going to send 4,000 more this fall to serve as trainers and advisers as part of his just-completed review of the war. Obama will spell out all the details at a NATO summit April 3-4. Coupled with additions initiated under President Bush, the total U.S. force will likely exceed 60,000.

 

Separately, Britain is going to be sending an additional 2,000 troops, which would take their overall contribution to 10,000.

 

Iraq: Last year, 94 troops stationed in Iraq and Afghanistan (including a few in other Central Command countries) sought medical treatment for electric shock. The culprit? Showers. At least three soldiers have been killed in Iraq while using facilities that weren’t properly grounded. In fact we learned this week the military is racing to correct the problem, which it appears largely has to do with faulty surge protectors made in Iraq, if I’m reading the stories right. “About 1/3rd of the inspections (of 90,000 facilities) thus far have turned up major electrical problems,” according to interviews and documentation obtained by Kimberly Hefling of the AP.

 

But on a totally different issue, it is very disturbing that the Obama administration has nominated Ambassador Christopher Hill to replace Ryan Crocker as U.S. representative in Baghdad. Republican Senator Sam Brownback is now trying to block it.

 

Stephen Hayes had a story in The Weekly Standard that details Hill’s insubordination while ambassador to North Korea, where he obviously met with zero success. Vice President Cheney told Hayes before leaving office that Hill’s “cavalier disregard for presidential prerogatives were surely grounds for dismissal. Instead, Bush kept him in place, and now Barack Obama is rewarding Hill with what is arguably the most sensitive and important U.S. ambassadorship.”

 

We’re talking Ambassador Hill freelanced on a number of occasions, totally disregarding the wishes of President Bush and Secretary of State Condoleezza Rice, including negotiating with North Korea when he was explicitly told not to.

 

How can both Bush and Obama screw this one up? Send the guy packing. Unfortunately, Crocker and Gen. Petraeus have given their approval. Brownback came right out and said Hill lied to him in public testimony.

 

Turkey: This is going to be fascinating…President Obama’s stop in Turkey, April 6-7. The visit is expected to focus on Turkey’s role in NATO as Obama reaches out to a nation that is 98% Muslim. For all the problems we’ve had with Prime Minister Erdogan, Turkey has played a largely positive role in Middle East deliberations, with Erdogan acting as go between for Israel and Syria before those talks broke down last year. Public attitudes towards the United States, as reflected in all the opinion polls in Turkey, are resoundingly anti-American so we’ll see how any crowds he might come in contact with react. What a security nightmare, as well.

 

China: According to the annual report from the Defense Department on China’s military capabilities, “China’s ability to sustain military power at a distance remains limited, but its armed forces continue to develop and field disruptive military technologies, including those for anti-access/area-denial, as well as for nuclear, space, and cyber warfare.” [Bloomberg] A Chinese foreign ministry spokesman responded, in essence, screw you.

 

Meanwhile, officials are looking for a lead ball that contains deadly radioactive material, an object about the size of a watermelon. It’s thought that the ball was inadvertently included in some scrap sold to steel mills and then melted down.

 

Or it could have found its way into the U.S., sitting in the produce section of your local supermarket. One clue would be if you see an expiration date of Apr. 4007.

 

Russia: President Obama has been seeking Russia’s cooperation on the Iranian front, but as Anne Applebaum of the Washington Post noted the other day, Foreign Minister Sergei Lavrov said last weekend “there is no proof that Iran even has decided to make a nuclear bomb,” so don’t hold your breath, White House, in looking for any cooperation from the Kremlin.

 

As for the missile shield, Russia benefited from the collapse of the Czech government. Prime Minister Topolanek, despite his anti-American rhetoric as noted above, was supportive of components of the shield being based in his country. 

 

Britain: The Home Office is warning of an increasing threat of a dirty bomb attack. Materials are being stolen at an alarming rate and there are concerns more than 20 Britons monitored by Pakistani intelligence have returned to Britain after visiting with militant groups linked to al Qaeda and the Taliban.

 

Mexico: The United States announced it would spend $184 million adding 360 federal agents to border posts, as well as intensifying searches on southbound traffic to identify smugglers. This is on top of $700 million already handed to Mexican law enforcement. While the drugs, increasingly meth, flow north, the guns are moving south. Nine out of ten guns retrieved from Mexican crime scenes are traced back to the U.S. In the last week, the United States intercepted 997 firearms and $4.5 million in cash bound for Mexico, according to Homeland Security Sec. Janet Napolitano.

 

So Secretary of State Hillary Clinton was in Mexico as a show of support and to discuss details with President Felipe Calderon, declaring “I feel very strongly we have a co-responsibility” in the violence that has claimed thousands of lives.

 

“Our insatiable demand for illegal drugs fuels the drug trade…Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the death of police officers, soldiers and civilians.”

 

Good for you, Madam Secretary. I’ve been saying for a year that it would be nice if our drug addicts could just stop for even a day. But I’ve also said this is where President Obama’s admitted drug use comes back to haunt him…as in he has zero credibility on the topic. But that’s just my opinion.

 

Ralph Peters / New York Post

 

“After her disastrous pilgrimage to Beijing, Secretary of State Hillary Clinton appears to have gotten a big diplomatic move right: On Wednesday, she acknowledged both the seriousness of Mexico’s narco-insurgency and our complicity as a huge drug consumer and the major source of drug-cartel weaponry.”

 

The problem is that as Peters says, the issue is politicized by extremists on both the right and left.

 

“To solve it, ignore the extremists: Empower our officials, punish criminals and concentrate on the drugs that kill – not on busting aging-hippie potheads.

 

“And help Mexico every way we can. If President Felipe Calderon’s brave efforts fail, the next president south of the border will be a tool of the narco-terrorists.”

 

Brazil: President Lula da Silva, speaking in Brazil at a joint press conference with British Prime Minister Gordon Brown, said: “This (financial) crisis was caused by the irrational behavior of white people with blue eyes, who before the crisis appeared to know everything and now demonstrate that they know nothing.”

 

Brown, who must have had a pit in his stomach upon hearing these remarks, said “I’m not going to attribute blame to any individuals.”

 

Seeing as your editor has green eyes, I’m in the clear.

 

Venezuela: President Hugo Chavez called Barack Obama a “poor ignoramus” for Obama’s remarks saying Chavez exported terrorism and obstructed progress in Latin America. Why I haven’t heard that word since the 70s.

 

Zimbabwe: President Mugabe’s goons continue to take over the remaining white-owned farms. A local chairman of Mugabe’s Zanu party seized his fourth, and as Jan Raath of the London Times reported, none of the first three produce anything.

 

 

–Chris Ayres / London Times…on Barack Obama’s public appearances.

 

“After yet another week of redundancies [layoffs], corporate scandals, and presidential gaffes, what did the American people really need on Tuesday night?

 

“Was it, A) An episode of American Idol? Or, B) For American Idol to be cancelled so that President Barack Obama could – for the third time in seven days – address the nation, this time while trying to avoid giggling, insulting participants in the Special Olympics or getting his teleprompted remarks mixed up with those of the Irish Prime Minister?

 

“For Mr. Obama the answer was of course B). Whatever the justifications for Mr. Obama’s third-time lucky attempt to charm and soothe the U.S. electorate, it’s getting hard to avoid the conclusion that the Leader of the Free World simply has an obsessive need to be on television.

 

“Whether it’s the excruciating amateur diplomacy of his videotape to Iran, or his status-inappropriate bragging about the perks of the presidency on the Jay Leno show (‘I personally think it’s [flying on Air Force One] pretty cool,’ he gushed, ‘especially because they give you the jacket with the seal on it’), it’s clear that even the once Obama-infatuated press is beginning to grow impatient with the apparent constant need for media validation by the Narcissist-in-Chief.

 

“After the fawning of Leno, who declared his interview with Obama to be ‘one of the best nights of my life,’ the media honeymoon finally descended into a marital dispute on Sunday, when the 60 Minutes interviewer Steve Kroft – baffled by the President’s giggly demeanor during questioning about a bailout for America’s ailing carmakers – asked him: ‘Are you punch drunk?’

 

“Mr. Obama replied (still laughing): ‘No, no. There’s gotta be a little gallows humor to get you through the day.’

 

“Gallows humor is all very well. Just not when you’re probably the only man in the world who can save us from a fast-approaching apocalypse.”

 

–University of Virginia political science Prof. Larry Sabato, on President Obama’s press conference. “He’s a new president, but it was the same old, same old. There just wasn’t much there.”

 

–Last week I refused to pile on when it came to President Obama’s Special Olympics comment. But here are two asides…including a take on Obama’s presidency thus far from an admittedly right-wing source.

 

Editorial / Wall Street Journal

 

“Even if the joke was unbecoming, Mr. Obama was clearly trying to make fun of himself, not special needs children or adults….

 

“The Special Olympics took the opportunity to admonish that ‘words hurt and words do matter.’ Yet it’s impossible to believe that Mr. Obama doesn’t understand that these Olympians are great – and the best way to show that would have been to treat them as tough enough to get past a wisecrack.”

 

The Weekly Standard

 

“Is it just The Scrapbook, or is the new president turning out to be a bit of a jerk?”

 

Aside from the Special Olympics comment, TWS takes off on Exhibit B: “Obama’s gift to Prime Minister Gordon Brown of a cheesy set of DVDs containing 25 American movies….

 

“To review: When Brown lunched with Obama at the White House on March 3, he brought with him as a token of esteem for the president a pen holder carved from the wood of the HMS Gannet, one of the British ships that helped stamp out the slave trade in the 19th century….

 

“Brown also brought along a first-edition of Martin Gilbert’s seven-volume biography of Winston Churchill, as well as thoughtful gifts for the Obama daughters. In return, there were toy models of the presidential helicopter for Brown’s two boys, and the aforementioned DVDs….

 

“Brown, not known to be a film buff (for one thing, his eyesight is failing), finally sat down last week to have a look at the notorious DVDs. According to the Telegraph’s Tim Walker, there was a problem. ‘The films only worked in DVD players made in North America and the words ‘wrong region’ came up on his screen.’”

 

–Federal investigators have concluded the pilot of Continental Connection Flight 3407 was at fault for the crash outside Buffalo International Airport that killed 50 when he yanked the aircraft into a sudden steep climb that caused it to lose control. The NTSB said the freezing rain and snow had “minimal impact” on how the plane performed.

 

A warning device was activated as the plane approached the airport that the aircraft was going too slow and you are supposed to lower the plane’s nose while increasing power, but when the pilot pulled the nose up, that made the plane more susceptible to a stall. Within two seconds of the warning the plane rolled over.

 

Also, I didn’t know this but below 10,000 feet pilots are prohibited from discussing non-work topics and it appears the two on Flight 3407 may have been, though nothing official has come out on this.

 

–Gary Stoller of USA TODAY reported on the dangers posed by in-flight entertainment systems. There have been more than a few close calls with overheating. For example, “A JetBlue Airways Airbus A320 jet was flying on Oct. 8 when two loud ‘pops’ were heard coming from the entertainment system in row 20. A ‘strong electrical smell’ subsided after power to the in-seat TVs was shut off.”

 

Recall that 11 years ago, an issue with the electrical wiring was the probable cause of a Swissair crash off the coast of Nova Scotia, causing the banning of the kinds of in-flight systems in use on some big Swissair jets.

 

–Ben Stein / New York Times…on the hits the travel industry is taking.

 

“I understand the crusade against use of federal money for lavish parties and nauseating bonuses for executives of bailed-out companies – though I have been to a lot of parties at the White House, under previous administrations, and some of these events have been darned lavish, and financed by taxpayers. I do lament that this crackdown on corruption could spread to firing an immigrant (who was just looking for a better life) from her job as a carpet cleaner in a hotel.

 

“Maybe, with his customary precision of speech, President Obama could make it clear that he has nothing against business travel itself – but that he is only against a glaring abuse of government aid to bailed-out companies.

 

“As my pal, Phil DeMuth, notes, who would be better off if business travel for meetings ground to a halt? No one. Business meetings are not the enemy. In terms of making the nation more productive and better off, they are builders, not saboteurs.”

 

–Related to the above, Lorraine Woellert / Bloomberg:

 

“The U.S. Senate last month passed a measure limiting ‘luxury’ spending for corporate travel by recipients of federal bailout funds. Two weeks later, about two dozen senators of both parties left town for political meetings on the Florida coast.

 

“Hotel-industry leaders are seizing on those trips as ammunition in a campaign to get lawmakers and the Obama administration to tone down the rhetoric against business travel, which they say is adding to their economic difficulties.”

 

Consider that over the weekend of Feb. 27, “two weeks after the Senate passed the measure, the Democratic Campaign Committee and the National Republican Senatorial Committee, the party fundraising arms for Senate candidates, each held their annual winter meetings in Florida.

 

“About a dozen Democrats, including (Sen. Christopher) Dodd, gathered at the Marriott-operated Ritz-Carlton resort in Naples, Florida. Donors who gave at least $15,000 were invited and offered a ‘coastal view’ room at the group rate of $469, according to the Democrats’ invitation.

 

“At least 11 Republican senators held a similar retreat at The Breakers resort in Palm Beach.”

 

–Democratic Congressman Barney Frank, in an interview with the gay news Web site 365gay.com, commented on the issue of allowing same-sex marriages. “I wouldn’t want it to go to the United States Supreme Court now because that homophobe Antonin Scalia has too many votes.”

 

Oh that Barney…what a piece of work. 

 

–The older I get the more I care about the environment (I’m suspecting this is all part and parcel of the aging process), so it was good to see 2 million acres in nine states set aside by Congress as new wilderness, rendering them off limits to oil and gas drilling and other development. Most of it is in California, Idaho, Utah and Colorado. But while President Obama will get to sign the legislation, the Bush administration deserves credit for it started with them.

 

–This is disturbing. A study in the British Medical Journal concludes that drinking very hot tea and coffee could be linked to esophageal cancer, with the risk increasing eightfold if the tea is hotter than 158F. There was an especially high incidence of the disease in northern Iran, where smoking and alcohol consumption is low, but where the people drink large amounts of very hot tea. Bottom line, you may want to think about letting it sit for a few minutes. I know I myself like tea and coffee scalding hot. I also have two neighbors who recently suffered from this form of cancer (one died).

 

–Mike Allen of Politico reported on Vice President Joe Biden’s appearance at the annual Gridiron dinner. “Biden Kills…” To wit:

 

“Axelrod really wanted me to do this on teleprompter – but I told him I’m much better when I wing it.”

 

“I know these evenings run long, so I’m going to be brief.”

 

“President Obama does send his greeting…He can’t be here tonight – because he’s busy getting ready for Easter. [Whisper] He thinks it’s about him.”

 

“(The) Obama Administration really is a good team. I am the experienced veteran. Rahm can be an enforcer. And Tim Geithner is always there when you need to borrow money. And no questions asked.”

 

“I now realize that we have to be extra careful when we annunciate new policy ideas to make sure they don’t look like they’re personally motivated. For example, the other day there were a whole bunch of stories about the President’s hair going gray; the next day there’s a story about a Vice President who’s trying to grow new hair, and then the day after that, the two of us come out in favor of stem cell research. That looked bad.”

 

–Bill Carter of the New York Times reports that MSNBC host Chris Matthews signed a new long-term contract to remain with the network, thus “signaling that he had quit entertaining any plans to run for a Senate seat.” [Coincidentally, CNBC’s Larry Kudlow has decided not to run for the senate in Connecticut.]

 

But what do you think Matthews makes? Go ahead, take a guess….

….Carter said previous reports put his salary at about $5 million! Good lord.

 

–“Briny pools ‘may exist on Mars’” – BBC News

 

“Pools of salty water might be able to exist just below the surface of Mars, planetary scientists believe.”

 

Oh, baby. We’re getting closer to seeing the Martians up close and personal. I just hope our Mars Lander crafts have a disposable camera as backup. 

 

–Lastly, the wife of the late Ayatollah Khomeini passed away. She was 93. That marriage must have been a real laugh riot.

 

—

 

Pray for the men and women of our armed forces, and all the fallen.

 

God bless America.

 

—

 

 

Dow Jones +6.8% [7776]

S&P 500  +6.2% [815]

S&P MidCap +7.4%

Russell 2000 +7.2%

Nasdaq +6.0% [1545]

 

 

Dow Jones -11.4%

S&P 500 -9.7%

S&P MidCap -7.3%

Russell 2000 -14.1%

Nasdaq -2.0%

 

Bulls 28.9

Bears  43.3 [Source: Chartcraft / Investors Intelligence]

 

Have a great week. I appreciate your support.

 

*Special shout out to Ted and Kelly of Turner Corp. in Osterville, MA, (who I’ve known for over 25 years since my days at Thomson McKinnon Securities). Your support is greatly appreciated and, yes, I’m wearing your shirt instead of the AIG one.

 

Brian Trumbore