For the week 3/30-4/3

[Posted 7:00 AM ET]

 

 

Yet another crazy week on Planet Earth, what with some real movement to finally resolve the fate of Chrysler and General Motors, for better or worse, and an economic summit that actually mattered, the G20 in London.

 

But in the end the mood, at least in London as world leaders of 20 leading industrialized and developing nations met, was perhaps best encapsulated in the interaction between Michelle Obama and Queen Elizabeth II. The horror! Michelle touched the Queen! Michelle touched the Queen!

 

Ah, but Queen Elizabeth came through and made sure the world knew it was quite alright. In fact, she’s rather fond of Barack and Michelle…and thus another crisis was averted.

 

In the same fashion, what was initially deemed to be a testy affair, the G20, turned out to be just the right gathering for these times. Don’t get me wrong. Nothing of substance was accomplished, save additional funds for the IMF, but it reminded me of a Christmas party I had years ago for my condo complex, for adults only, when my neighbors brought their very cute little three-year-old and I was horrified as Daisy proceeded to run roughshod all over the place, threatening my few valuable possessions. I mean she touched and handled everything, but what was I to do? I couldn’t correct her. I wanted the parents to do that. But in the end Daisy didn’t break anything…much to my relief.

 

That’s how it looked this week in London. With the likes of French President Sarkozy threatening to take his toys and go home if he didn’t have his way, and German Chancellor Angela Merkel’s incessant pouting and foot-stomping of her own, the meeting could have devolved into a shouting match with competing press conferences, with all then pointing to President Obama and the nation he represents.

 

“They did it…it was them! America ruined the world!”

 

Alas, with some last minute negotiations on how to handle tax havens, brokered by President Obama, a very bland communiqué was issued and everyone went home satisfied that their constituencies wouldn’t immediately throw any of them out of office, at least until the next crisis. And for Barack Obama, it’s still early days but this was his finest hour. He played the role of humble American, much of that which has transpired in the financial world truly being our fault, yet he managed to walk the tightrope in defending the United States while issuing apologies some of the other leaders wanted to hear.

 

But the above is just my opinion. What do others think of this “new world order,” as British Prime Minister Gordon Brown (who had the most to lose) called it.

 

Editorial / Washington Post

 

“The meeting in London of leaders of 20 top world economies produced a number of pledges of useful action to cope with the global recession. Increased economic coordination, a reaffirmed commitment to open trade and assistance to developing nations – these are all hugely important, if leaders follow through. And the conversations among the 20 countries are useful in and of themselves – the type of coordination that must accompany a tightly linked global economy. But the summit would have benefited from a greater focus on the U.S. priority of fixing the crisis we are in before moving on to protecting against the next one.

 

“Entering the summit, there was a tension between the U.S. desire to focus on economic repair and France and Germany’s interest in using the summit as a launching pad for a more coordinated financial regulatory regime. Perhaps President Obama could have pushed harder; on the other hand, he was handicapped by worldwide belief in U.S. culpability for the crisis and residual resentments of perceived U.S. high-handedness under the previous administration. Mr. Obama wanted to represent U.S. interests without appearing to bully other participants….

 

“When asked how he thought he did, Mr. Obama said, ‘I think we did okay.’ That sounds about right.”

 

Peter Kammerer / South China Morning Post

 

“Hands up anyone who thought that there was going to be a dramatic announcement at the Group of 20 summit. I hope that you are now feeling satisfied. It should have been obvious as soon as the schedule of proceedings was released that nothing more than vague promises were in the offing. The best we could have expected was for everyone to show up, compliment the host and go home with a prominent place in mind to display the happy snaps.

 

“Four hours and 35 minutes is not much, after all, to save the world. That was all that was left for the leaders after time for breakfast, lunch and the celebratory banquet was taken out. They most likely chatted away during meal times, of course, but we will never know exactly how much was spent talking about fiscal stimulus and how much about the quality of superstar chef Jamie Oliver’s Welsh lamb and vegetables….

 

“World leaders are busy people, of course….

 

“Regardless, just showing up in London was necessary. The agenda was about reshaping the global financial and trading system to get us out of the hole that it put us in….

 

“(But) pop star presidents aside, the financial crisis has the world’s economy on the brink of implosion. Teams of officials are on the case, but it is at the leader level that over-arching agreements must be made.   It is a shame that they could find so little time for so important a problem.”

 

In the end, Obama didn’t get his pledge for further stimulus spending from his compatriots, but at the same time Sarkozy and Merkel weren’t able to trample on the proceedings by screaming about stricter financial regulation. Instead everyone agreed on broad generalities and each nation is once again left to their own devices. A disappointment for some, but better than the alternative.

 

[One other note. I was right not to make much of the China-Russia cries for a new super currency. Forget it. We have bigger concerns than this dead duck.]

 

—

 

Before we get to the status of GM and Chrysler, a roundup of the economic news on the week.

 

In China, there were conflicting reports on manufacturing. One day an independent survey said manufacturing in March was below the 50 line, meaning further contraction, but then the government’s official figure had it above 50 at 52.4, the strongest such number since May 2008. As I’ve noted before the last thing you can do is rely on one data point when it comes to China. No doubt some good things are happening here in terms of stabilizing the situation…but real growth at 8%+? That’s for the second half of the year, at best.

 

In Japan, the Tankan survey of business sentiment found the mood of manufacturers at a record low in March, industrial production down 9.4% in February, and unemployment still on the rise. But inventories have been slashed at a record pace which bodes well for the future. The inventory picture is the same around the world and eventually will lead to greatly increased economic activity. The question is for how long will it then be sustained?

 

Turkey reported GDP collapsed 6.2% in the fourth quarter and the first quarter could be worse. And Spain’s unemployment rate is 14% on its way to a staggering 20%, while consumer prices have begun contracting…deflation. Nowhere in the world, including in the U.S., was there more overbuilding than here.

 

Germany’s unemployment rate hit 8.6%, and Russia’s GDP is now estimated to plunge 5.6% in 2009.

 

But the picture was mixed in Britain, and that could be a good thing as there were signs housing was stabilizing with home prices actually up in March for the first time since October 2007 as homebuyers rushed to take advantage of low interest rates, while as an aside, others are paying down their mortgages at record levels in order to get back into positive equity. [For the record, the London luxury market, however, is still seeing declining prices, as it should.]

 

Overall, the OECD, the organization for advanced economies, sees unemployment hitting 10% over the next year and GDP down 4.3% in ’09.

 

As for the data in the U.S., while the trend has been for receiving better than expected news, even if the actual numbers were still largely putrid, this week the picture was decidedly mixed. Manufacturing, as represented by the Chicago PMI and the ISM, was still very much in recession territory, with Chicago’s 31.4 reading downright dreadful, but construction spending, while negative, was better than expected and factory orders were up 1.8% when a 1.4% increase was forecast.

 

But then we had this payroll number for March, another 663,000 lost jobs and an unemployment rate of 8.5%, the highest since November 1983. You can’t sugarcoat it in any fashion, unless you are an insensitive dolt. We also know the 8.5% understates the real picture. Since the recession officially started in December 2007, five million jobs have been lost.

 

As for housing, the S&P / Case-Shiller index for 20 major metropolitan areas had home prices down 19% for the three months ending in January compared with a year earlier, another record drop. The damage in Phoenix and Las Vegas remained the worst, down 35% and 32%, respectively. We also learned defaults and delinquencies continue to rise rapidly and the condition of commercial real estate has been downgraded to critical from serious.

 

But the Case-Shiller data is for January and there have been more recent signs that residential housing is stabilizing in some areas. I’m liking my April/May bottom in terms of median home values more and more, but each time I bring this up I feel compelled to add once the bottom has been reached, we sit there, as in don’t expect a sudden surge in traffic at the lemonade stand you’ve set up to bring in a few extra coins. 

 

Which brings us to the auto sector. First off, the March sales numbers were awful…GM down 45% over year earlier levels, Ford down 41%, Chrysler down 39%, Toyota down 39% and Honda off 36%. But…sales were up 25% over February…so have we bottomed? In Germany, auto sales rose 11.9% over a year ago thanks to a highly successful “cash-for-clunkers” incentive program whereby one receives $3,300 for their old car. Don’t be surprised to see a similar incentive here in short order. It makes too much sense, though some would argue, particularly environmentalists, I imagine, that we wouldn’t necessarily be then buying the right kind of cars. To which I’d say, it’s about jobs…I’ll worry about the polar bear next month.

 

Anyway, on Monday we had a classic case of ‘wait 24 hours’ as a hue and cry went up in some quarters over the dismissal of General Motors CEO Rick Wagoner. The heavy-hand of government at work, an “extraordinary intervention of the federal government into management of a private company.” At the same time the White House’s Auto Task Force gave Chrysler 30 days to wrap up a deal with Fiat, while GM was given 60 days to come up with a final solution.

 

Gerald Seib / Wall Street Journal

 

“On one side of President Barack Obama runs a growing populist opposition to bailing out any more big companies. On the other side runs an equally powerful desire to stop a generation-long hemorrhaging of manufacturing jobs.

 

“As it happens, both currents are most powerful within the president’s own Democratic Party, which makes his search for that narrow middle ground all the tougher, and all the more politically sensitive.

 

“Facing this quandary, Mr. Obama has chosen to deliver a dramatic dose of tough love to General Motors and Chrysler. The tough part of the plan he outlined Monday includes the ouster of GM Chief Executive Rick Wagoner, the threat that the government might force GM into bankruptcy if the auto maker doesn’t radically restructure within two months, and the virtual demand that Chrysler align with Fiat or be left destitute.

 

“The love part comes in the form of 60 days’ worth of capital infusions into GM while it charts a new future, and $6 billion in taxpayer money for Chrysler if it closes a deal with Fiat.”

 

The political risk on the left is quite evident. On the right, Seib comments “the risk is that the Obama team will be seen as involving the government too deeply in running giant companies and making strategic decisions for them. The administration’s aggressive attempt to shape the two auto makers’ futures will invite charges that it has wandered into the dreaded land of ‘industrial policy,’ in which the government decides winners and losers in the private sector.”

 

Regardless, as Seib correctly concludes, “doing nothing was never one of the options on (Obama’s) list.”

 

Editorial / Wall Street Journal

 

“(The) taxpayer commitment to the Obama autoworks is only getting started. We’re glad the Administration is at least talking a tougher line on bankruptcy than Mr. Bush. But the better route would have been to use Mr. Obama’s political capital now, at the start of his term, to use bankruptcy to force the companies and their union to make the hard decisions that politics may still let them avoid.

 

“From now on, GM and Chrysler are Mr. Obama’s companies, and taxpayers should hold him accountable for every dollar they are forced to spend to save jobs for the UAW and to make cars that Americans don’t necessarily want.”

 

Editorial / Washington Post

 

“It is important that the president did not flinch in demanding even deeper concessions from workers. And he was right to keep on the table the possibility of a court-supervised bankruptcy, in which contracts can be ripped up and debts erased with little input from unions and little promise of creditor payback. All sides should work to avert this possibility by making tough decisions that will keep the company alive and preserve as many jobs as possible.”

 

Paul Ingrassia / Wall Street Journal

 

“I’ll have to confess initial skepticism about the president’s Automotive Task Force, but so far I’m impressed. Business executives are supposed to be hard-nosed realists, but we heard more realism from Mr. Obama yesterday than we’ve heard from Detroit in years.

 

“Speaking of unreality, Michigan Gov. Jennifer Granholm said that Mr. Wagoner is a ‘sacrificial lamb,’ but that’s only if you don’t look at his record. Since Mr. Wagoner became CEO in June 2000, GM’s stock price has declined from more than $70 a share to under $3.”

 

From 2005-2008, Wagoner oversaw some $73 billion in losses. I’m with Ingrassia. The move was warranted. But will the bondholders now cooperate? The clock is ticking, and this time it’s in earnest. All parties, including new interim CEO Fritz Henderson, a lifer at the company, are conceding bankruptcy is probably the appropriate course of action. In the ‘for what it’s worth’ category, I said last fall Chrysler should have been folded into GM, but in light of the collapse since, it’s doubtful that would have worked. So Chrysler should find a way to work out a deal with Fiat (Americans will love Fiat cars), while GM puts its fate into the hands of the bankruptcy courts. I don’t believe the situation with GM will go on and on as some say. 

 

—

 

So to sum up all the above, the jobs and manufacturing picture around the globe is awful, and in the case of the former only going to get worse the rest of 2009. But the improved tone for equities has clearly helped sentiment, though for those who only open quarterly statements, just remember that despite the recent rally, the year-to-date picture through March 31 isn’t a good one.

 

But perception can lead to reality, over time, and as much as I disliked the stimulus package because I still maintain we missed a huge opportunity, the fact is some of the provisions are now beginning to work their way through the system and that’s a positive, another plus for confidence.

 

Housing appears to be in an authentic bottoming phase and in most markets the big losses are in…but, again, the recovery will be long and slow.

 

The lows in the stock market are definitely in. Oh sure, there will be corrections from existing levels – we’ve now had four straight up weeks for the first time since Sept./Oct. 2007, after all, which happened to be when we hit the all-time highs – but ask me if I’m changing my forecast from 12/31/08 that we will finish significantly up in 2009? Of course not. After the awful start to this year, I kind of thought of the market as a basketball game. Down 20 (20+ percent), just try to make up a lot of ground by June 30, halftime, and then go from there. That’s my feeling today, and in terms of Nasdaq, which I said would outperform the Dow and S&P, it’s now already in positive territory.

 

I won’t change my 50/50, cash/equities allocation yet, however. There’s still a ton of uncertainty, including the geopolitical scene as well as the coming bank stress-test results. And then you have earnings. The news for the first quarter won’t be good, and it’s not likely to be in the second, either, but if I’m right, sometime in the May/June time period, you’ll hear the first real positive statements from key CEOs that had previously been down in the mouth, talking of some semblance of recovery in business by early 2010. 

 

 

–Morgan Stanley CEO John Mack’s comment that 2009 was going to be a “difficult year” didn’t hurt the market, even as Mack said there is still a ton of toxic debt on bank books and it’s thus no time to give back $10 billion Morgan Stanley received from the TARP fund. Treasury Secretary Geithner added last weekend on “This Week” that the banks will require more capital, “large amounts of assistance.” Yet again, this was already baked in the cake it seems.

 

Stocks instead rallied largely on the positive vibes from the G20 summit, as well as a bullish interpretation of the economic data and the change in mark-to-market accounting. 

 

For the week, the Dow Jones rose 3.1% to 8017, while the S&P 500 added 3.3% to 842 and Nasdaq 4.9% to 1621. In the case of the S&P, the rally off the March 9 closing low of 676 is now 24.5%, not only the best four-week performance since 1938, but also the best closing mark in two months for both the Dow and S&P. Nasdaq is now up 2.8% on the year, though the Dow and S&P are still off 9% and 7%, respectively. Quite an improvement nonetheless.

 

On mark-to-market, the real impact on equities, particularly the banking sector, took place about three weeks ago when it first seemed likely some provisions would change in early April. When the ruling came down, giving banks more flexibility in how they valued some of their toxic, illiquid paper, it was anticlimactic. As for future bank earnings, it is unclear what the true impact will be.

 

Lastly, March ended up being the best month since October 2002, up 8.5% for the S&P 500, though the index was still down 11.7% for the quarter. 

 

–U.S. Treasury Yields

 

6-mo. 0.40% 2-yr. 0.95% 10-yr. 2.91% 30-yr. 3.70%

 

Treasuries fell, yields rose, as bond traders worried about a renewed flood of supply coming on board next week, some $59 billion worth. Earlier, it was announced mortgage rates had hit another new low, 4.78%, but this won’t last.

 

–Honda Motor said it is slashing production in North America further, as well as reducing pay and forcing workers to take unpaid leave. Honda will reduce output some 62,000 vehicles beginning May 1. 

 

But here’s what I think when analyzing the above. The first time you see any automaker increase production, that will be a screaming buy signal.

 

–In light of the news on General Motors this week, bondholders saw some of their holdings reduced to 20 to 25 cents on the dollar due to the feeling they will have to take huge hits to satisfy the government and/or a potential bankruptcy court. The bondholders want to avoid bankruptcy, but can’t agree with company officials on terms for a debt swap. One idea reported on by Bloomberg would have bondholders getting 90% of the equity in a reorganized GM.

 

–The most common objection to the Treasury department’s Public-Private Investment Partnership plan, or PPIP, is that the large private investors that the Treasury is depending on, players such as PIMCO and BlackRock, will overpay for some securities offered by the bank to attempt to influence the pricing of existing assets in their massive portfolios.

 

–I had to post my review last time without being able to read all the accounts from the meeting President Obama had with the bankers the previous Friday at the White House so I just want to add what Obama wanted to make clear, that being “Excess is out of fashion,” and understand what the public is saying. For their part, the bankers said they want consistency of policy. They need to know the rules of the game.

 

–France has now seen at least three “bossnappings” in the last 30 days as angry factory workers take out their frustrations on their employers over layoffs and meager severance pay. The latest incident involved Caterpillar, where top officials were held for 24 hours in a meeting room.

 

–Massachusetts officials charged Fairfield Greenwich, a feeder fund for Bernie Madoff’s Ponzi scheme, with fraudulently misrepresenting its relationship to the con man. Fairfield had 95% of its $7.2 billion Sentry Fund with Madoff, and the state accuses it of failing to conduct proper due diligence. Meanwhile, U.S. Marshals seized Madoff’s $11 million Florida mansion as well as two large boats, including a 55-footer worth $2.2 million.

 

–Donald Trump, on what should happen to Ruth Madoff. “The wife should be put in jail on the other side of the hallway from him. I think she’s guilty, his sons are guilty, and I think that many of the people in the firm are guilty. He had 16,000 clients, and he’s one man. What, he’s going to send out every envelope each week?” [Deborah Solomon / New York Times]

 

–Keith Bradsher of the New York Times had a story on China’s efforts on the electric car front. The government wants to raise annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011, up from 2,100 last year.   “By comparison, CSM Worldwide, a consulting firm that does forecasts for automakers, predicts that Japan and South Korea together will be producing 1.1 million hybrid or all-electric light vehicles by then and North America will be making 267,000.”

 

–Internet-based crime rose 33% in 2008, with one in three complaints for nonpayment or nondelivery. But the Conficker computer worm proved to be largely a bust, a victim of its own success as the rapid spread across the Net drew the attention of computer security companies.

 

–And now…Ireland Burning, part XIX. S&P stripped the country of its AAA rating, a big setback for the government, due to S&P’s estimate Ireland would continue to do worse than the rest of the eurozone the next five years. The unemployment rate hit 11% in February, the highest since 1996, with GDP projected to shrink 6.6%. The government also forecast an “absolutely catastrophic” drop in tax revenues.

 

–A helicopter transporting workers from a BP-operated oil platform in the North Sea crashed, killing all 16 on board, the second such accident in six weeks, though in the previous incident all 18 were saved. Both were operated by the same company, Bond Offshore.

 

–3M Corp. is cutting its workforce by another 1,200, after last year’s elimination of 2,400.

 

–Good news! The drought in the Southeast is over, except for South Florida, though water restrictions throughout the region will remain in effect for another few months until the water tables are officially back to normal.

 

–According to Reis Inc., the office vacancy rate nationwide rose to 15.2% from 14.5% in the first quarter, and will likely hit 19%+ in the coming 12 months; or above the rate of the bust in the early 1990s, the worst on record. Separately, the National Association of Realtors reports that sales of vacation homes and investment properties slid 30% last year; not that this is any great surprise.

 

–Important story in the New York Times by Susan Saulny concerning how banks are increasingly walking away from properties at the end of the foreclosure process, “most often because the cost of the ordeal – from legal fees to maintenance – exceeds the diminishing value of the real estate.”

 

“The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often entail additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan.”

 

So now the municipalities are going back to the property owners, forcing them to maintain the property, or face legal action.

 

–As suspected, especially when Goldman Sachs co-chief operating officer Jon Winkelried recently resigned, we’ve now learned that the firm had to bail out a number of top executives, including Winkelried and the general counsel. Loans were offered to at least 1,000 employees who invested in internal investments that were once viewed as a huge perk, but whose values plummeted. The bailouts, and loans, are needed to allow employees to meet contractual obligations to the funds, but with the slide in Goldman shares, many were hit with margin calls as they levered up. Others held onto their shares because they didn’t want to pay huge tax bills by selling. And then the situation was compounded for the very top when Warren Buffett bought into Goldman last fall, with some being prohibited from selling stock as a condition of Buffett’s investment. Not that I feel in the least bit sorry for anyone impacted here.

 

–Former AIG CEO, and founder, Hank Greenberg, now 83, continues to attempt to get anyone who will listen to believe he had nothing to do with today’s problems. It’s truly pitiful. Just leave, Hank.

 

–By most accounts, bar business in New York City is up 10% to 15%, while in the fourth quarter, prescriptions for anti-depressants rose 3% over a year earlier. [Crain’s New York Business]

 

–Due to the economic crisis, Russians will consume 20% less pork and beef this year, according to the head of the “National Meat Association.” [I bet the lunches are good at this shop. At least you’d think the meat would be fresh.]

 

–My portfolio: So two weeks ago I decided to buy a little in my China holding’s main competition in the biodiesel field, in case the economy there begins to pick up in earnest. Well the new play is up a full 65% in that brief period while my much larger position is still dead in the water. But at least my geothermal stock continues to make noise. Overall, however, I’m sticking with domestic.

 

 

North Korea: At last word the missile hadn’t been fired yet, as some believe the rocket sitting on the launch pad does indeed have a satellite on top, but any test would be totally missile related, and not for putting a legitimate satellite in orbit. It’s also clear Pyongyang has Iranian advisers on the ground, this while a 2006 UN Security Council Resolution strictly forbids the North from conducting any further ballistic missile or nuclear tests.

 

One emerging concern is the feeling among some in the intelligence community that North Korea could have 5-8 nuclear warheads capable of being fitted on a medium-range missile with a range of 800 miles, or more than enough to hit Japan, let alone anywhere in South Korea.

 

Separately, Pyongyang announced it was holding two female American journalists and would put them on trial for spying. The women will be used as bargaining chips, which is why the White House is ignoring the situation in public so as not to give the Americans a higher profile.

Israel: Benjamin Netanyahu took office as prime minister, saying, “These are irregular times. Today Israel is faced with two tests – an economic crisis and a security crisis. The source of these crises are neither our past actions nor past mistakes….Our [current] actions, however, will determine the results of these crises.”

 

But Netanyahu continues to talk only of limited Palestinian rule, and has not endorsed a goal of sovereignty, or a two-state solution, putting him at odds with the White House, the European Union and the Arab world.

 

As for his new foreign minister, right-winger Avigdor Lieberman, he said there will be absolutely no peace talks until the Palestinians clamp down on terrorists. “Those who wish for peace should prepare for war.”

 

Lieberman, a vile sort, was questioned for 7 ½ hours on suspicion of bribery and corruption, though in ten years of such investigations he has yet to be charged.

 

As Palestinian leader Mahmoud Abbas said, “How can we deal with him?” This is the same Lieberman who has also continually insulted Egypt, including President Hosni Mubarak, and Egyptian Foreign Minister Ahmed Aboul-Gheit said he would not shake Lieberman’s hand until he retracted previous statements, such as the threat to blow up the Aswan Dam and Lieberman’s declaration that Mubarak could “go to hell” if he didn’t want to visit Israel.

 

So we’re off to a great start on the diplomatic front, sports fans!

 

On the issue of Iran, though, I can not help but side with Netanyahu, who also said in his initial speech, regarding Iran’s vow to “erase Israel from the map,” “The Jewish people has experience with dictators and it cannot overestimate megalomaniac dictators who threaten to destroy it.”

 

General David Petraeus warned Congress this week that Israel could conduct a preemptive strike on Iran, and that Tehran’s “obstinacy and obfuscation” could cause Israel to take matters into its own hands.

 

“The Israeli government may ultimately see itself so threatened by the prospect of an Iranian nuclear weapon that it would take preemptive military action to derail or delay it.”

 

Secretary of Defense Robert Gates argued for increased sanctions against Iran, though it seems clear the White House is looking for no breakthroughs on the diplomatic front any time soon, especially prior to the presidential election in June.

 

Afghanistan / Pakistan: With the announcement of President Obama’s new strategy for Afghanistan, it’s clear these two are now formally intertwined. Obama called for “a clear and focused goal (to) disrupt, dismantle and defeat al Qaeda in Pakistan and Afghanistan, and to prevent their return to either country in the future.” Include the Taliban in that statement, as this week it continued to reach further and further into the heart of Pakistan with its attack on a large police academy in Lahore. Pakistan’s Taliban leader then called for an attack on Washington that will “amaze everyone in the world,” this as there were growing signs the more radical Afghan and Pakistani Taliban elements were merging.

 

Gen. Petraeus, as part of the same testimony noted above, said extremists in Pakistan “could literally take down their state” if left unchallenged, with a top Defense Department official, Michele Flournoy, reiterating that Pakistan’s intelligence arm, the ISI, has elements that “are certainly a problem to be dealt with.”

 

On the political front in Pakistan, opposition leader Nawaz Sharif is regaining some power now that his favored Supreme Court justices are back in place (after having been removed by former President Musharraf), though Sharif has vowed not to attempt to retake power in a coup; rather he will wait another four years before the next slated election. Sharif slammed Obama’s new strategy of aggressively going after terrorists in Pakistan proper, if necessary, along with tying development assistance to benchmarks, but was happy about the consultative process. As for President Zardari, he has basically been marginalized.

 

On the topic of Afghanistan, specifically, a meeting was held in The Hague, attended by Iran, with the Iranians telling the U.S. they would help on the drug trafficking front. Secretary of Defense Gates reiterated that on the troop front, Europe/NATO must do more, and this weekend President Obama is following up at a NATO summit (though with zero success as I write). The United States has 38,000 troops in country, but a further 21,000 are on the way, and possibly a further 10,000 beyond that. [Congressional Democrats are not going to like this last bit should it come to fruition. They didn’t want the other 21,000 to be deployed in the first place.]

 

12 U.S. soldiers lost their lives last month in Afghanistan, vs. just nine in Iraq, the lowest total there of the war.

 

Libya: Moammar Gadhafi stormed out of an Arab summit on Monday, owing to his longstanding dispute with Saudi King Abdullah, as Gadhafi called him a “British product and American ally.” The summit was held in Qatar and when the emir there tried to calm Gadhafi down, he took the stage to say, “I am an international leader, the dean of the Arab rulers, the king of kings of Africa and the imam of Muslims and my international status does not allow me to descend to a lower level,” before walking out of the hall. [Jerusalem Post]

 

While Moammar needs a chill pill, in all seriousness part of his rantings the past few years at these summits has to do with the fact the U.S. has really given him zero in return for his giving up his WMD program, while he sees other Arab leaders getting all kinds of cash and prizes from the U.S. and Europe. [I’m not advocating a change in U.S. policy…just stating some facts that bear watching. He could always revert to his old ways.]

 

Russia: Presidents Obama and Medvedev met in London and agreed to reinvigorate the Strategic Arms Reduction Treaty discussion as START, negotiated back in 1991, is set to expire this coming December. So in July we’ll be treated to lovely pictures from Moscow at a formal summit. I’ll feel more comfortable if Medvedev and Obama do vodka shots, as opposed to the tee-totaling George W. Bush and Vladimir Putin.

 

For you see, the Kremlin much likes the situation it finds itself in these days (forgetting the seriousness of its economic crisis) because the West is kowtowing to Russia. Look at Georgia, for example. Russia was to have long ago removed its forces from South Ossetia and Abkhazia, yet troops remain. Russia continues to put pressure on Ukraine, in what I’ve called a creeping coup there (and this weekend there are increasing anti-government demonstrations in Kiev). Russia will do little in terms of cooperation on issues ranging from Iran, North Korea, Afghanistan and terrorism. And then you have the thorny issue of missile defense, which President Obama will be addressing in full when he visits the Czech Republic today and tomorrow.

 

But there were a number of other issues this week…examples of more of the same, unfortunately.

 

A former general in Chechnya, and foe of Kremlin-backed dictator/nutcase Ramzan Kadyrov, was gunned down in Dubai. Last January a Chechen opponent of Kadyrov’s was assassinated in Vienna while another was shot dead in his car outside the offices of President Putin in September. The Kremlin is allowing Kadyrov to build up a cult of personality in Chechnya and thus it has blood on its hands.

 

And another prominent human rights leader in Moscow was seriously beaten, Lev Ponomaryov. In January, you’ll recall a human rights lawyer and a journalist were gunned down on a Moscow street near the Kremlin. Needless to say, human rights campaigners are in constant fear for their lives.

 

Separately, Russia announced it plans to establish a military base along its northern coastline to enhance its claims on natural resources known to be in the Arctic seabed, as well as to monitor the increasing ship traffic in the Arctic due to the reduction in sea ice.

 

Lastly, and on a mildly lighter note, it’s well-known that President Obama’s official limousine is said to be the most secure in the world, with its reinforced steel plating, but in London, Russian President Medvedev unveiled his vehicle, which an official said “is ready for a war.” With 12-centimeter-thick titanium plates on the roof, for example, it is said to be so strong, a T-72 tank can drive over it without causing any real damage. The windows are made of glass so thick, they are designed to withstand a direct hit from a rocket-propelled grenade.

 

In fact, officials at the factory where the car was assembled were so confident, they had the designers sit in it while soldiers fired grenades at the vehicle. How very Russian. [Moscow Times]

 

China: President Obama will be visiting here probably in the fall, as we learned this week that a Canadian study has concluded China has infiltrated 1,300 highly-sensitive computers in 100 countries, including those of the Dalai Lama’s center in India, as well as numerous embassies. Intelligence officials in Britain have warned China could shut down the U.K. by crippling the telecoms and utilities.

 

But hacking goes both ways.     Hackers in Taiwan broke into a senior Chinese official’s computer containing drafts of Premier Wen Jiabao’s economic plan. Top officials are given two computers, one for the Internet, the other for sensitive information and this poor guy put the sensitive stuff on his Internet PC. Yup, he is in a heap of trouble, folks, as in “severely punished after secret service agents monitoring Internet data flow detected the hackers as they were downloading the files.” According to the South China Morning Post, the process is called ‘shuangkai,’ whereby the party member is stripped of his government and party posts, and in most cases demoted to entry-level rank. Ouch! Can’t imagine too many are buying him drinks at party confabs in the future, eh?

 

Turkey: As I wrote last time, President Obama’s upcoming trip here will be interesting, especially in terms of the public response. In parliamentary elections last weekend, however, Prime Minister Erdogan’s Islamist party saw their vote decrease to 40% from the 47% level of two years ago. Erdogan could have a big announcement shortly, however, that being reestablishment of relations with Armenia and a reopening of the border, closed since 1993. This would be a hugely positive sign, and a success for Washington which has been pressing the issue.

 

Lebanon: The government here has been going after drug dealers in the Bekaa Valley, home to Hizbullah, and has killed two of them recently. That takes some guts in this fragile place.

 

Northern Ireland: Following the killings of the two British soldiers and the policeman two weeks ago, statements were made by officials that the remaining hard-core IRA types were merely “micro-groups” with no real support and could be handled easily. So the terrorists decided to prove they couldn’t be taken so lightly and on Monday initiated a reign of terror in Belfast, setting off explosions, calling in bomb threats, and attempting to bring the province to a standstill through a series of carjackings that forced authorities to close all the main roads. As reported by the London Times, “Scores of people would have been required to organize and coordinate” such action.

 

Mexico: Authorities continue to make progress in the drug war, arresting two leading cartel leaders in the past week. One fellow who was paraded before the cameras was seized while jogging in a Mexico City park. I’d say that was rather brazen, and stupid. President Obama is heading here this month following Secretary of State Clinton’s trip.

 

 

–Two major polls give President Obama solid job approval ratings, 65% in the latest Washington Post/ABC News survey, and 64% in the USA TODAY/Gallup poll. In the latter, 42% approve of the job Democrats are doing in Congress and 30% approve of the Republicans’ efforts, both considerable improvements over last summer. I can guarantee that if the stock market hadn’t rebounded some, all of the preceding figures would be much, much lower.

 

–The House passed a federal budget that follows President Obama’s initiatives on healthcare, energy and education, some $3.45 trillion worth ($100 billion less than the original submission), with zero Republican support, 233-196.

 

–And the House passed another bill on compensation. This one, which 10 Republicans voted for, would bar companies that received government funds from paying out “unreasonable or excessive” comp as defined by the Treasury, until they had repaid their bailout money to the government. Yes, yet another example of interference in the private sector, but at least this is much better language than the first effort that caused such an uproar.

 

–Republicans, despite their numbers issue, are scoring some victories and none bigger these days than the apparent defeat of cap-and-trade, the Obama initiative designed to tax carbon energy. Republicans in the Senate got 26 Democrats to join all 41 elephants in a vote requiring any effort to institute cap and tax would then need at least 60 votes. So as the Wall Street Journal notes, “two of President Obama’s most economically destructive priorities have taken major hits in the last two weeks,” the other being the decision to oppose Big Labor’s card check eliminating the secret ballot as the Republicans have enough votes to prevail on a filibuster.

 

–Former Illinois Gov. Rod Blagojevich was indicted Thursday on 19 counts of corruption, including for trying to auction off Barack Obama’s Senate seat. Blago said “I am innocent. I now will fight in the courts to clear my name.” Those of us outside Illinois really couldn’t give a damn at this point.

 

–But former Republican Alaskan Sen. Ted Stevens had his conviction on corruption charges thrown out, ironically by Democratic Attorney General Eric Holder, citing revelations U.S. lawyers withheld key evidence in his trial. There was a lot not to like about Stevens, but this case on gifts he may have received in having his home renovated always seemed pretty weak. The problem is Stevens then lost his reelection bid because of the awful publicity, not that at age 85 he should have remained in the Senate, having already become the longest-serving Republican in history.

 

–Thanks to a new Minnesota court ruling, it appears almost impossible for Norm Coleman to overtake Al Franken in their Senate recount.

 

–This is incredible. “Just nine people accounted for nearly 2,700 of the emergency room visits in the Austin area during the past six years at a cost of $3 million to taxpayers and others…The patients went to hospital emergency rooms 2,678 times from 2003 through 2008, said the report from the nonprofit Integrated Care Collaboration, a group of health care providers who care for low-income and uninsured patients.” [AP] The average emergency room visit costs $1,000. Eight of the nine had drug abuse problems. Now discuss amongst yourselves because if I said what’s on my mind, I’d lose my Web license.

 

–Bad timing. I’m reading a full page ad from True North for its new Pistachio Crisps and I was about to go out and buy some, and then came the pistachio recall. Maybe next year.

 

–In the latest study of Arctic sea ice, this one from the National Oceanic and Atmospheric Administration, the ice is melting so fast it could be gone in 30 years. And if you’re thinking of snapping up a condo, cheap, in Spain due to the excessive overbuilding there, the European Commission now projects that by the end of the century, Spain could basically run dry as demands for sparse water are fought over. Then again, by the end of the century, most readers would be 140.

 

–Dr. Nina Fedoroff, science and technology adviser to the U.S. secretary of state since 2007, beginning with Condoleezza Rice, said “We need to continue to decrease the growth rate of the global population; the planet can’t support many more people.” Among other things, Dr. Fedoroff is most concerned about water supplies, speaking of the preceding item.

 

“We’re going to need a lot of inventiveness about how we use water and grow crops,” she told the BBC. Now this I agree is an issue of immediate import, especially for Australia.

 

By the way, the official top five in terms of population are:

 

China – 1.33 billion

India – 1.16 billion

USA – 306 million

Indonesia – 230 million

Brazil – 191 million

 

And not for nothing, but Brazil should be a permanent member of the UN Security Council.

 

–The number of murders in New York City declined 23% in the first quarter, only 89. And then on Friday, a gunman takes out at least 13 in Binghamton alone, with a population about 1/166th that of the Big Apple.

 

–Reader Dan L., a former co-worker at PIMCO, and I feel like we are the last two who refuse to buy the new fluorescent light bulbs, though there is growing evidence these are far from what they were cranked up to be. I have written a number of stories over the years on the disposal issue and I’m quite proud I’ve been stockpiling old incandescent ones to get me to about age 75. Even the New York Times has now reported on the drawbacks of the fluorescent variety. The Times notes, the bulbs “do not do well in hot places with little airflow, like recessed ceiling fixtures,” and, “Be aware that compact fluorescents can take one to three minutes to reach full brightness.”

 

Of course it’s really all about the mercury, and disposing of same. You can’t just throw them out, you know, but instead have to find a place to dispose of the toxic buggers. George Will writes in the Washington Post:

 

“Driving to one of these disposal points might not entirely nullify the bulbs’ environmental benefits. Besides, the Times summarizes the Environmental Protection Agency’s helpful suggestions for coping with the environmental dangers caused when one of these environment-saving bulbs breaks:

 

“ ‘Clear people and pets from the room and open a window for at least 15 minutes if possible. Avoid vacuuming. Scoop up larger pieces with stiff paper or cardboard, pick up smaller residue with sticky tape, and wipe the area with a damp cloth. Put everything into a sealed plastic bag or sealed glass jar. In most cases, this can be put in the trash, but the EPA recommends checking local rules.’”

 

“Worrywarts wonder what will happen when a lazy or careless, say, 10 percent of 300 million Americans put their worn-out bulbs in the trash. Stop worrying. What do you think? That Congress, architect of the ethanol industry and designer of automobiles, does not think things through?”

 

You all better act fast. Particularly in New Jersey, I’m buying up the remaining incandescent bulbs and should they then outlive me, I’ll have a provision in my will to pass them on, along with my Tom Seaver cards.

 

–Owing to the economy, Harvard, which offers substantial financial aid to the deserving, saw a record 29,112 applications for its Class of 2013, but only 7% were accepted. Under Harvard’s program, students from families earning less than $60,000 a year do not have to pay any tuition, so I’m thinking there were a lot of conversations like the following across the country.

 

Mother: Johnny, you will apply to Harvard.

Johnny: But, Mommmm. I want to ride the rails! [Johnny not being a real ambitious kid.]

 

–I’m liking this potential “polypill” that combines low-dose aspirin, statins and blood pressure medication into one pill, what’s being described as the “magic bullet.” Tests have been highly favorable, though it’s still a number of years away from hitting the market it seems.

 

–From the AP, this one didn’t go well. “In an April Fool’s joke that left everyone but the contestant laughing, the Orlando Magic made a fan think he was shooting a half-court shot for $100,000 at halftime last night.

 

“The fan was blindfolded, and the crowd was told beforehand to cheer as if he made the shot. The young contestant, named Dan, missed badly but believed he won and danced around the court in a frenzy.

 

“Before being told it was a joke and showed the replay he said, ‘I just got laid off at work.’

 

“He was given a 100 Grand Bar of candy instead but he was not laughing.”

 

Sue ‘em, Dan.

 

–A definitive study says taking fish oil supplements doesn’t ward off a second cardiac event, but I still swear by them nonetheless as previous studies have said they could be helpful in preventing heart disease in the first place. I also still celebrate Salmon Sunday, though it’s increasingly hard to find the wild variety at my A&P…a very distressing development as my favored Conservation Salmon still isn’t offering it due to restrictions up in Alaska.

 

But related to the above is the story of the giant squids now proliferating off the coast of California and whether they are helping to deplete the salmon population. It sure seems that way. If you saw a story on CBS’ “Sunday Morning” last week, you’d never enter the water again over fear you’d be mangled by a 6-foot Humboldt.

 

–The U.S. is focusing 192 high-powered laser beams on a tiny pellet of hydrogen fuel in an attempt to recreate conditions at the heart of the sun. The first experiment is due for June 2009, which may in turn be a good time to sell your remaining equities because there’s no guarantee these guys know what they’re doing.

 

–The Simpsons are getting their own postage stamps. I’m ordering the first hundred thousand. 

 

–Play ball! If my Mets choke again in September, that’s it. I’m joining the Foreign Legion.

 

—

 

Pray for the men and women of our armed forces, and those who have fallen.

 

God bless America.

 

—

 

Gold closed at $896…its worst level since Jan. 23

Oil, $52.50…eking out another gain, but nonetheless extending its streak to seven

 

Dow Jones +3.1% [8017]

S&P 500 +3.3% [842]

S&P MidCap +5.2%

Russell 2000 +6.3%

Nasdaq +4.9% [1621]

 

 

Dow Jones -8.6%

S&P 500 -6.7%

S&P MidCap -2.6%

Russell 2000 -8.7%

Nasdaq +2.8%

 

Bulls  31.0

Bears 38.0 [Source: Chartcraft / Investors Intelligence]

 

Have a great week. I appreciate your support.

 

Brian Trumbore