For the week 4/6-4/10

[Posted 7:00 AM ET]

 

And after all we’re only ordinary men.

–Pink Floyd

 

Before we look at the state of the economy, can we just reflect for a moment on some of the idiots that people Planet Earth? Here we are, in a world where one large-scale terror attack can reshape the world, let alone one’s portfolio, and we have this situation in Britain where, well, I’ll let Michael Evans of the London Times describe it.

 

“A huge MI5 and police counterterrorist operation against al-Qaeda suspects had to be brought forward at short notice last night [April 8] after Scotland Yard’s counter-terrorism chief accidentally revealed a briefing document.”

 

Many of you have probably seen the photo of Bob Quick, who in arriving at 10 Downing Street was seen holding a sheaf of papers with the front page clearly available to photographers. Marked Top Secret, it had the names of senior officers involved in the operation, as well as the number of suspects and in which cities the terrorists were to be arrested. It also revealed that police in Manchester would force their way into homes. And the secret code for the operation was splashed across the top. Quick was headed to meet with Prime Minister Gordon Brown under the guise of seeing him on simple police reform. As soon as the photo was circulated, MI5 and Scotland Yard took steps to stop its publication, but then authorities had to immediately expedite the mission and arrest the 12 targets in broad daylight. Thankfully, they were able to accomplish this before the suspects were tipped off. As a senior officer said, “This was a massive compromise of the whole operation.”

 

What we’ve learned since is that the group was targeting The Trafford Center in Manchester where some 140,000 shoppers congregate each weekend and evidently Easter Sunday was the appointed date.

 

Mr. Quick was immediately dismissed. “I deeply regret the disruption caused to colleagues undertaking the operation and remain grateful for the way in which they adapted quickly and professionally to a revised timescale.”

 

This stuff happens all the time. Think about all of the American intelligence authorities, or congressmen, who have left sensitive material lying around, or the former CIA director, John Deutch, who kept classified material on his home computers. Talk about compromising operations.

 

I just find all this incredible, though of course no one should be surprised. After all, we’re only ordinary men. Sometimes we dodge a bullet, as appears to be the case in Britain [remember the recent attempt where the bomb in a car in a London parking garage only failed to go off because the fuse burned out?], and other times we don’t…and the result is a 9/11 that changes the world.

 

—

 

Last week I praised President Barack Obama because he didn’t break anything at the G20 summit, but then he continued on his goodwill tour of Europe afterwards and it’s pretty easy to draw some other conclusions upon his return.

 

What did the president achieve in the eight days he was away? Some have pooh-poohed the $1.1 trillion pledge for the IMF and developing nations but I view this as significant and Obama had no small part in getting the other leaders to come to the table at critical junctures. Obama brokered compromises on financial regulation and, as we learned later, the selection of a new secretary-general for NATO as Turkey expressed severe misgivings (more below).

 

Obama won over the bulk of Europeans, at least for now, and this is another point that can not be underestimated, though the president’s critics do anyway.    On this I have to note that unless they’ve traveled overseas a fair amount, it’s better for some of the pundits to keep their mouths shut. To digress a bit, as I remarked in these pages at the time, when the Abu Ghraib story hit the international papers, that day I was on a ferry from Singapore to Indonesia, the only white, as all the passengers were reading local papers with the now famous picture of the hooded prisoner splashed across the front page. As it turned out no one bothered me, but I wasn’t real proud to be an American that day. 

 

I’ve also noted that when I engaged anyone on the issue of our leadership, the disgust for President Bush was virtually universal. President Obama began to change that sentiment the past week and that’s a good thing. He proved to be a good listener and while I wouldn’t have listed all of our faults as he did, just understand that Europeans and Asians know more about our own history than we do. It’s always the elephant in the room overseas, so might as well address it on your terms and not theirs and, generally, Obama handled this well.

 

But it is also true, as the Washington Post’s Jim Hoagland put it, that “listening is not a policy,” and from that standpoint Obama’s Great Adventure fell short. Such as in the case of Afghanistan, where Europe coughed up an additional 5,000 troops for peacekeeping leading up to the August election there, but it seems likely they’ll all be withdrawn shortly thereafter. This is not President Obama’s fault…George W. Bush did indeed leave Obama a big pile of merde. But Obama’s powers of persuasion have gained him little of real value thus far.

 

Just look at North Korea and Iran. I wrote ad nauseam during the final months of the Bush presidency that this is 43’s legacy as much as Iraq and Afghanistan and it was unreasonable to expect an Obama administration to make any immediate headway. But it is Obama’s responsibility now to prevent the mess from getting totally out of control and on both fronts, he is failing thus far…with time running out, particularly in the case of Tehran’s Merry Mullahs. It’s up to Obama to get Russia and China to cooperate on nuclear proliferation and to date nothing good has happened.

 

And am I the only one who finds it a bit ironic that in the case of both North Korea and Iran, they have now formally charged an American journalist(s) with spying and are holding three women against their will? [Iran charged its captive, held since January, just this week, while the other two have been in custody in the North for about a month.] You would think the United States would be able to get Russia to help in the case of the Iranian situation, and China with North Korea, but that’s not the case.

 

I understand much of what President Obama was trying to accomplish while in Europe. He sought to lay the groundwork for the heavy stuff to come. He wants the world to have a different view of the U.S. But this is not the time of the early 1800s, when news traveled by horseback or steamer. We don’t have months to weigh decisions as Thomas Jefferson and John Adams may have. In some cases we have just weeks to make the right call. Or should our president receive information on a threat you and I have no clue about yet, perhaps days, or hours. Listening is great, but now it’s time to lead.

 

—

 

What a rally. The S&P 500 is up a stupendous 26.6% since hitting the closing low of 676 on March 9. Is it just a bear market rally, or the start of a new bull market? That’s the question of the day. I’ve told you where I come down. We won’t see 676 again, but I’m hardly going to say it’s the start of a new bull market. For now I’ll just stick with my 12/31/08 prediction that we finish up 2009 significantly higher and with all the major indices still in the red year-to-date, except Nasdaq, which is up almost 5%, we have a long ways to go. Personally, I’d love for the market to meander around current levels for the next 2-3 months, consolidating the recent gains while receiving more good news on the economic front than bad, but that would be too perfect.

 

The week actually got off to a poor start on news we already knew, that the banks have a lot of toxic debt on their books. I mean we heard the same arguments from the bears we’ve been hearing since the market cracked. These guys have been right, don’t get me wrong, especially the likes of Nouriel Roubini, Stephen Roach and David Rosenberg. Roubini is still convinced, as is economist Paul Krugman, that mass bank nationalizations are in our future; Stephen Roach is still calling for “an anemic and fragile recovery” and that “we are deluding ourselves” if we think the crisis is winding down; and Rosenberg reiterates that “Investors seem to have confused an actual recovery with the fact that the economy isn’t detonating anymore. Markets right now are dangerously extrapolating an improvement in the rate of change to an improvement in the actual level of economic activity. These are two very different events.” [Bloomberg / Financial Times]

 

Again, points well taken. But at least the rate of decline for most measurements is leveling off, and there are some lights at the end of the tunnel; as in workers checking the tracks after a bad accident to make sure the repairs hold and that it’s safe for the train sitting patiently outside the tunnel to continue through on its journey without incident. [Just thought I’d try out a different tunnel analogy.]

 

One sector that has shown distinct signs of bottoming is housing. Yes, delinquencies and foreclosures are still at discomforting levels, but in some parts of the country, particularly those most beaten down, there has been a surge of activity. CNBC had a segment the other day from Stockton, Calif., where some new homes were priced at around $150,000-$190,000, and, heck, they looked real nice to me. Granted, I didn’t see the surrounding neighborhood, but I couldn’t have been the only one thinking, ‘I could take my still considerable profit on my existing abode and buy a nice place like that all cash, if need be.’ Not that I’m about to move there, but others might be thinking that. Or perhaps the preceding is just another way of saying, don’t sell California short. If credit loosens up and mortgage rates stay low for a while, don’t be surprised to see a magazine cover by year end with the title, “The Rush Back to the Golden State.” Then again, it’s Good Friday as I write, I’m fasting, and maybe the blood isn’t flowing properly to my brain. 

 

Economist Irwin Stelzer noted the following in his London Times op-ed.

 

“The troubled housing market flashed mixed signals, and mixed signals are a considerable improvement over uniformly gloomy ones. Sales of existing homes are showing signs of strength, and mortgage applications are up. The index of pending sales – deals for which contracts have been signed but not completed – rose by 2.1% in February, perhaps in response to falling home prices that, combined with low 4.6% rates on 30-year mortgages, have made homes more affordable to more people.

 

“No, the recession is not over, even though the stock market seems to think it might be. The job market remains weak. Some five million jobs have been lost since the recession started, 663,000 jobs disappearing in March alone. The unemployment rate has risen to 8.5% and may be headed higher. But the gloom is no longer unremitting.”

 

Or as President Obama put it, Friday, the economy is showing “glimmers of hope.” Sunday is Easter, a time of renewal. Might as well be a little optimistic, assuming some MI5 type doesn’t leave a top secret manual on his chaise lounge while on holiday in Dubai.

 

 

–The major catalyst for Thursday’s advance that propelled all the major averages into positive territory for a fifth straight week was the word that Wells Fargo was pre-announcing that, thanks to surging mortgage banking activity, it would have record profits in the first quarter. This, coupled with a New York Times story by Eric Dash that all 19 banks would pass the stress test mandated by the Treasury Dept., had investors thinking, ‘Hey, maybe the banking system isn’t on the verge of total collapse and maybe some of the bigger players won’t require any further capital injections.’ Others vehemently disagreed, but stocks rallied strongly nonetheless and for the week the Dow Jones finished up 0.8% to 8083, while Nasdaq was up 1.9% to 1652.

 

–U.S. Treasury Yields

 

6-mo. 0.38% 2-yr.   0.95% 10-yr. 2.92% 30-yr. 3.75%

 

Rates were virtually unchanged, such as in a movement of one basis point, total, between the 2- and 10-year. I have to repeat, those concerned about inflation should really find something else to be worried about at least for the next six months. If we’re headed to Weimar Germany or Zimbabwe at some point down the road, there will be time to act appropriately. 

 

–The Global Economy…a few data points…

 

Exports in China for the month of March fell a fifth consecutive month (as did imports) but the rate of decline, 17%, was less than expected. Exports in Taiwan plunged 36% for the same month. But then on Saturday, Chinese Premier Wen said his economy is better than expected with March industrial output growth exceeding forecasts, while lending is surging. The World Bank added China could bottom out in mid-2009, while HSBC is confident Asia will “spring/back”. For its part, Japan announced a sizable $154 billion stimulus program.

[Due to anti-government protests in Thailand, a key ASEAN summit had to be canceled today, a major embarrassment for this nation.]

 

In Europe, factory orders in Germany plummeted 38% in February, while the U.K. will record a drop in GDP for the first quarter of about 1.5%, or the same as the fourth. And the broader issue in Europe is whether the likes of Ireland, Greece and Spain drag the others down.

 

–The uniformity of returns for the five-years ending March 31 is astounding. You just can’t make this stuff up. Following are the annualized returns for various categories and benchmarks, courtesy of Lipper and the Wall Street Journal.

 

Large-Cap Growth…-4.7%
Large-Cap Value…-5.1%

Small-Cap Growth…-6.2%

Small-Cap Value…-5.3%

S&P 500…………-4.8%

Russell 2000……..-5.2%

 

[Average taxable bond fund…+1.3%]

 

–Ford struck a deal to cut its debt load by 40% through a debt-for-equity swap, reducing its total debt to $16 billion from $26 billion, and thus saving $500 million a year in interest payments based on current rates. Ford shares, which traded at $1.26 in November, finished the week at $4.20. I’d love to see these guys succeed, but they still have a tough road to hoe, particularly when it comes to keeping key suppliers afloat.

 

–Meanwhile, the government is taking a hard line on General Motors and Chrysler, with the auto task force insisting they cut better deals with creditors. GM is working on a debt-exchange plan for bondholders that would offer only equity, not cash or new debt. In the case of GM, we’re talking $29 billion in unsecured debt. With Chrysler, the U.S. wants debtholders to give up 85% of the $7 billion they are owed. Full details are to be released next week.

 

–Alcoa was the first Dow component to report earnings and while the news was dreadful, such as in sales down 41%, the CEO said the industry could be on the verge of turning the corner, particularly if China turned it around in earnest.

 

–The reports on chain store sales for March were not good, but here again no one was expecting them to be so. At least in some cases the declines were not as severe as expected, such as in the case of Target and Kohl’s, but Wal-Mart’s increase, up 1.4%, wasn’t as good as the expected 3.4%. Luxury goods retailers, namely Neiman Marcus, Nordstrom’s and Saks, posted abysmal sales.

 

–IBM withdrew its bid for Sun Microsystems last weekend because Sun’s board balked at a lowered offer. According to the New York Times, after doing extensive due diligence, including for the likelihood of antitrust concerns as well as on employee contracts, IBM cut the offer from $9.55 a share to $9.40.  Like big deal. This was still way above the value for Sun before the initial offer, yet Sun’s board stupidly rejected it, but wanted to continue discussions. Too late. IBM said “ABC you later” and Sun’s board was left muttering, “What did we do that for?” 

 

–Ryder Systems warned on its earnings, but more importantly said it is experiencing significant declines in demand as customers downsize their commercial fleets, Ryder having some 180,000 vehicles available for full-service leasing.

 

–The International Energy Agency revised its global demand forecast down again, a whopping 2.4 million barrels a day in 2009 to 83.4mmbd. The IEA is thus saying industrial demand will not recover in the second half of the year. Nonetheless, the price of crude is hanging in there at the $52 level on the assumption the economy is bottoming and demand will return.

 

–In just the past two years, the so-called Celtic Tiger millionaires have been wiped out, some $350bn in property and financial assets, gone. That’s an incredible figure for this small place. A Bank of Ireland report estimates there were 33,000 millionaires in Ireland, excluding principal private residence, back in 2006.

 

So, what does the government do in response? It releases an emergency budget that increases taxes and cuts spending in an effort to slash the booming budget deficit that has the EU fretting.

 

Ergo, you know the unrest I was predicting for later this year? The Independent newspaper here said “55% of voters fear the economic crisis and Tuesday’s attempt to save the economy from potential bankruptcy will mean people taking to the streets. The poll found widespread anger in the face of the crisis…. ‘Things are spiraling out of control. I have a feeling that the powder keg might explode,’ said one voter.”

 

It’s kind of funny that 45% also believe the Irish aren’t “disposed to civil unrest and radical protest.” Seems to me like these folks don’t know their own history. 

 

The government did set up a ‘bad bank’ agency to take commercial property assets off six of the bigger lenders’ books and place them in a new home for misfit loans, making Ireland the first euro zone nation to have a government-sponsored reform school for removing toxic assets from the banking system.

 

–The Treasury Dept. is auditing the books of AIG to see what transpired when the likes of Goldman Sachs were being paid in full. Were there any negotiations? Assuming there weren’t, why not? Why no haircuts? Are there no prisons? No workhouses?

 

–The Journal had a story on how the U.S. electrical grid has been penetrated by cyber spies who have placed hidden programs that one day could take down the system.

 

–Pete M. passed along an interesting tidbit from a friend who has his family down at Disney World this week. “They had to close four parks several days due to record crowds. 80,000 people paying $70 each to wait in line for over an hour to ride Dumbo,” wrote Kono as he was waiting in line. “Just who are the real Dumbos?” Yet further insight the bottom is in? 

 

–China auto sales hit a monthly record of 1.11 million vehicles in March, exceeding U.S. sales for a third month in a row. [Americans bought 857,000 in March.]

 

–Pulte Homes is acquiring Centex Corp. in a stock deal worth $1.3 billion that will create the nation’s largest homebuilding company. The two will have a combined cash position of some $3.4 billion, liquidity being rather important these days.

 

–There are 350 apartments and townhouses in Manhattan with a current asking price of more than $10 million, according to a piece by Josh Barbanel in the New York Times. At the current sales rate, it would take more than six years to absorb this. One factor hurting sales is the limited availability of credit for jumbo loans. Separately, home sales in the Hamptons fell 67% in the first quarter over a year ago, the biggest percentage drop in at least 27 years.   The median sales price declined 28%.

 

–Goldman Sachs CEO Lloyd Blankfein, speaking at a conference for institutional investors, said most compensation should be paid in stock rather than cash, and that employees should be required to hold the stock for longer periods and firms should be able to claw back previously paid bonuses if employees take too much risk that leads to losses. Easy for him to say now, seeing as he made about $70 million in cash and prizes for 2007 alone before the blank hit the fan. 

 

–Johnson & Johnson is laying off another 900, a further blow for New Jersey, while for the second straight month, Atlantic City casinos registered their biggest monthly revenue drop in the 30-year history of the industry, a whopping 19% in March after a similar decline in February. Since slots appeared in Philadelphia, A.C. has seen three years of sliding revenues.

 

–Royal Bank of Scotland is eliminating 9,000 positions worldwide, including 4,500 in Britain.

 

–Moody’s Investors Services stripped Warren Buffett’s Berkshire Hathaway of its triple-A rating. “Today’s rating actions reflect the impact on Berkshire’s key businesses of the severe decline in equity markets over the past year as well as the protracted economic recession,” said Moody’s lead analyst for Berkshire. Moody’s is 20% owned by Berkshire.

 

–OppenheimerFunds (sic) Inc., a unit of Massachusetts Mutual Life Insurance Co., is under investigation by attorneys general in five states for investment losses in 529 college-savings accounts that used its bond funds, specifically alleging that OppenheimerFunds violated its fiduciary responsibility to investors. Managers bought toxic mortgage-backed securities before the prices plunged and the losses were massive…79% in one and 41% in another….for a bond fund. The worst offering, Oppenheimer Champion Income Fund, lost 54% in November alone and faces lawsuits from shareholders not connected to 529 plans. 

 

–Growth in new mobile phone subscriptions worldwide skidded to a halt in the fourth quarter of 2008, down 15%. Total global penetration, however, is now about 4 billion, or 58%. The Asia-Pacific region suffered the biggest drop in net new additions.

 

–If you have a Monet or Cezanne in the closet and thought you could sell it for top dollar any time you needed the cash, just understand a leading art index has prices for the best works declining 35% in the first quarter alone. The worst year on record, evidently, was 1991, when prices dropped 41%. Howard Johnson of the Mets led the National League in home runs in ’91 with 38, while juicer Jose Canseco tied for the A.L. lead with non-juicer Cecil Fielder at 44, just to give you some historical context.

 

–Economist Nouriel Roubini called CNBC’s Jim Cramer “a buffoon.” Cramer had recently written that Roubini is “intoxicated” with his own “prescience and vision” and that he needed to wake up and smell the coffee…the stock market bottomed in March. Roubini replied that Cramer “was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong.” Roubini believes the macroeconomic fundamentals, and banks failing the stress tests, will lead to new lows in equities. I’d call this tussle a draw since the full verdict isn’t in yet. Promoters are working on a rematch in Vegas early this summer.

 

–Swindler Allen Stanford told ABC News that charges he had bilked $8 billion from hundreds of investors was nothing more than “Baloney! Baloney!” Then he told ABC’s Brian Ross that after his six private planes were confiscated, why he was forced to take off his shoes at the airport like everyone else. “It’s terrible,” he whined. Ross asked Stanford if he could be compared to Bernie Madoff and Stanford screamed, “Bull—-! That’s bull—! It makes me madder than hell and it touches the core of my soul.” Then he told Ross, “If you say it to my face again, I will punch you in the mouth.”

 

Sounds like this is a good case for Jack Bauer. Get the information out of Stanford quickly and throw him in a hole somewhere; not that I’m saying we should do away entirely with the judicial process. 

 

–Speaking of dirtball swindlers, the State of New York filed civil fraud charges against J. Ezra Merkin, the former chairman of GMAC Financial Services who had substantial links to Bernie Madoff. Merkin collected an astonishing $470 million in fees for directing large clients and charities to Madoff through Merkin’s feeder funds (primarily Ascot Funds). Merkin used at least $91 million for artwork for his apartment. The prior week, Massachusetts accused another feeder operation, Fairfield Greenwich Group of Connecticut, of similar fraudulent activities.

 

Of course Merkin hid behind his philanthropy, as many of “them” do…as well-chronicled over the years in these pages.

 

[Separately, the trustee liquidating Bernie Madoff’s business issued his first “clawback” order, seeking $150 million paid out to an investor in the British Virgin Islands last October, two months before the scam was discovered. Some think the trustee, Irving Pickard, will attempt to go back as much as six years to get funds for distribution to the victims. Thus far, only $1 billion of a suspected $65 billion has been recovered.]

 

–Colombian coffee prices have soared to an 11-year high. Uh oh. This could equate to a price hike at Dunkin’ Donuts, assuming they use some Colombian. Juan Valdez, the King of Beans, is said to be a happy camper these days and is in the market for a new mule.

 

 

North Korea: Lil’ Kim Jong-il was re-elected for a third term in office by the parliament, seeing as there are no term limits in this hellhole. The vote was said to be…well, I really don’t know how many members of parliament there are here, but suffice it to say it wasn’t close. So the 67-year-old with the Marty Allen haircut remains firmly in power, though appearing quite gaunt; this after last Sunday’s launch of a Taepodong long-range ballistic missile over northern Japan whose payload, supposedly a little satellite that played “songs of praise” to Kim Jong-il and his father, Kim Il-sung, fell harmlessly into the Pacific. While the North claimed the satellite dutifully found orbit, one look at the Billboard Pop Chart would tell you otherwise.

 

This launch, however, was a success, certainly in relation to a test three years ago that fizzled after just 40 seconds. This time the first and second stages deployed properly, but it was the third one that would have sent the payload into orbit that failed. In other words, the North Koreans learned a lot and increased future opportunities to sell the technology to rogue states such as Iran.

 

So as alluded to in the opening, the United States and allies such as South Korea and Japan were dutifully unhappy and sought increased sanctions and condemnation from the UN Security Council, but none was forthcoming as Russia and China said they really couldn’t see how North Korea violated existing Security Council resolutions forbidding further missile tests. China, which can put a halt to Kim’s shenanigans at the drop of a hat, defended the North’s right to peaceful use of space.

 

President Obama and leaders in Tokyo and Seoul can talk tough but without pressure from Beijing and Moscow, there is little the good guys can do.

 

What we do need is for Japan to formally change its pacifist constitution and strengthen its military, something that South Korea wouldn’t want, though, let alone China, but that’s where Obama needs to gather the leaders of Japan and South Korea together so there can be a meeting of the minds. China will just have to deal with it.

 

And the U.S. must continue to do all it can to get the civilized world, including the Europeans, not to give North Korea any aid whatsoever. But as for a military option, forget it. Even a blockade would be condemned by China, in particular, and the last thing we need these days is a tension convention between the two of us.

 

Also, as the Washington Post editorialized, what is required is a coherent policy toward North Korea. Don’t talk about “rules must be binding” and “violations must be punished,” as Obama said in Prague, while at the same time having a special envoy prepare for renewal of talks. No, again, Obama must get Japan and South Korea to form a united front with the U.S. Kim can not be rewarded with a renewed diplomatic effort. At least on Friday, Japan opted to extend economic sanctions on North Korea by a full year instead of the usual six months, while back to the political intrigue in Pyongyang, Kim elevated his brother-in-law Jang Song-taek, 63, to be his successor, which by the looks of things could be quite soon. I haven’t done my own research on the topic yet but Jang is said to be pragmatic, though he doesn’t have strong ties with the military.

 

Iran: The White House announced it wanted a seat at the table in all future negotiations with the mullahs over their nuclear program plans, a distinct shift from previous policy. President Obama is undecided, however, whether he wants UN inspections in order to allow for an accurate assessment of Iran’s weapons grade enrichment efforts as opposed to stricter sanctions. President Ahmadinejad welcomed the overture, as long as the United States is “sincere.” [I’m biting my tongue…just reporting the news.] Ahmadinejad then toured the facility at Natanz, claiming Iran now had 7,000 installed centrifuges (or 3,000 more than the International Atomic Energy Agency reported in February), as Ahmadinejad hailed “the fruit of efforts and creativity of this land’s dear young scientists,” while attempting to claim credit for the program’s resurgence since he took power in 2005…the presidential election being this coming June. [The Financial Times, by the way, is now spelling Ahmadinejad, “Ahmadi-Nejad.” For the purposes of my archives, I’m sticking with the other spelling.]

 

By most accounts, Iran has enough enriched uranium for a bomb, which if you believe this means it’s still a ways off from true weapons capability. The problem is we have no definitive idea just what is really going on. Has the program been sabotaged, as rumored all these years? Are there facilities the West has no clue about? Can Israel afford to wait much longer, say even six more months? Iran is working its delay game brilliantly.

 

One other item related to the topic. Heroic Manhattan District Attorney Robert Morgenthau, 89 years young, “smashed a sinister plot to smuggle nuclear weapons materials to Iran through unwitting New York banks,” the Daily News first learned. Later, Morgenthau unsealed a 118-count indictment accusing a Chinese national of aiding Iran’s nuke program by setting up a number of fake companies to hide the sale of potential nuclear materials to Tehran. The elaborate scheme went through “several” banks that were completely unaware of the true intent. But as the Wall Street Journal pointed out, the bad news is Iran still received some of the critical ingredients for the production of long-range missiles and warheads. Morgenthau told the paper, the illegal arms trade “provided Iran with the capability to field a new generation of missiles by the end of this year, accurate at a range of 1,300 miles.” He reports that his investigation also shows that Iran has acquired technology for atomic weapons that could be ready soon after that.

 

As for the upcoming Iranian presidential election, Ahmadinejad’s leading challenger, former prime minister Hossein Mousavi, said he seeks a conciliatory foreign policy towards the West.

 

“Our country was harmed because of extremist policies adopted in the last three years…My foreign policy with all countries will be one of détente. We should try to gain the international community’s trust while preserving our national interests.” [The Daily Star]

 

Focus on “national interests.” I’ve argued we long ago reached the point of no return when it came to Iran’s nuclear program. Mousavi could be a moderate, using the term loosely since we’re talking Iran, but he isn’t about to give up the bomb. The West would just find it easier to talk to him directly as opposed to the guy currently holding the office.

 

Israel: Vice President Biden warned the new Israeli government of Benjamin Netanyahu not to strike Iran, but obviously Israel doesn’t have a lot of time and can take little that is positive away from any coming negotiations. Additionally, the Obama administration is pressuring Netanyahu to stick to the 2007 U.S.-backed roadmap for creating a Palestinian state, which is not the direction the Israeli government wants to take as Netanyahu focuses on improving the Palestinian economy, and thus Israel’s, before even thinking of an independent Palestinian state as a neighbor; this while settlement construction continues apace.

 

[Egyptian President Hosni Mubarak did invite Netanyahu for talks in Egypt soon. Since they know each other well from the prime minister’s first stint in office, it will be interesting to see how this goes in light of the fact Netanyahu’s new foreign minister has blasted Mubarak.]

 

Pakistan: David Ignatius / Washington Post:

 

“Pakistan seems like a Molotov cocktail waiting for a match. Its ruling elite bickers over politics, while out on the streets Taliban insurgents step up their suicide attacks. Its military plays the role of national conciliator even as it worries about Muslim revolutionaries in its own ranks. Meanwhile, the United States, Pakistan’s historic friend and benefactor, is symbolized in the popular mind by unmanned drones that cruise over the western frontier assassinating Taliban militants by remote control.”

 

That pretty well sums it up. Ignatius reports that Ambassador Richard Holbrooke and Admiral Mike Mullen met in Islamabad with tribal leaders, who urged that funds be shifted from the corrupt government to them, and should help train a frontier police force rather than the Pakistani army, which is seen as outsiders, as the best way to combat the Taliban. President Zardari, by all accounts, is in way over his head.

 

Afghanistan: The Obama administration is requesting some $83 billion in fresh funding for military operations in both Iraq (where the U.S. lost five soldiers in a suicide attack on Friday in Mosul) and Afghanistan, pushing total spending to over $1 trillion since September 2001. Many Congressional Democrats are not happy, seeing as Obama ran for president as a staunch opponent of the war in Iraq, yet has basically adopted President Bush’s plans. The extra funds are designed to finance efforts until Obama’s first budget takes effect in October. From then on, war funding is to be part of the formal budget process as opposed to the use of supplementals. The funding request includes $7 billion for foreign aid.

 

Separately, Danish Prime Minister Anders Fogh Rasmussen was selected as the new secretary-general of NATO, to take over Aug. 1. The nomination had to overcome the objections of Turkey because of Rasmussen’s defense of the Danish cartoonists that sparked riots in the Muslim world in late 2005 and early 2006. Supposedly, President Obama brokered the peace between Turkey and the rest of NATO. Rasmussen has been a key ally of the U.S.

 

Russia: A leading bank executive warned that a second wave of the financial crisis was about to sweep the nation, days after Prime Minister Vladimir Putin told the parliament the banks were out of trouble. German Gref spoke of “worsening economic conditions making it more difficult for businesses and individuals to meet loan payments, which in turn leaves banks with insufficient cash to extend new loans.” Sound familiar? 

 

Thousands of Communists took to the streets to protest the government’s actions on the economic front. The crowds, it seems, were nowhere near as high as the Communist leadership sought in what is seen as a sign of their ability to launch a comeback. To give you a sense of the hardship, though, one pensioner told the Moscow Times, “Living on a pension is very hard.   Two-thirds of it goes to apartment fees and less than [$60] is left.”

 

I’ve written of my trips to Moscow and the stark contrasts between “pseudo” rich and the poor there, but imagine how awful conditions are in the hinterlands.

 

In Dubai, police accused a Russian Duma deputy of masterminding the assassination of a former Chechen commander on March 28, but the Kremlin said he would not be extradited. This case could be interesting as Dubai has sought the aid of Interpol in gaining the arrest of the suspect. Shades of the assassination in Britain a few years back where the killer is also currently a member of Russia’s parliament.

 

And then you have the ongoing trials and tribulations of former Yukos oil tycoon Mikhail Khodorkovsky, who is now involved in a second trial on trumped up charges of corruption, a case legal experts say is “absurd.” Masha Lipman of the Washington Post writes:

 

“Although [Khodorkovsky and his partner Platon Lebedev] were convicted of tax fraud related to the profits of their oil company, Yukos, they are now charged – in an indictment running more than 3,500 pages – with stealing basically all the oil that Yukos produced over the same period covered by the first trial. The accusations – of thievery and of failing to pay taxes on the allegedly stolen product – amount to double prosecution for the same deed.”

 

But what makes this situation different is that Khodorkovsky refuses to accept his fate and just go away and is thus causing a real problem for President Medvedev, who had pledged to improve the judicial system and enforce a true rule of law, yet there has been zero progress on this front. As Lipman concludes, “Although President Medvedev claims to support the rule of law, if he continues to stay out of this affair he will bear responsibility for Russia’s continued plunge into lawlessness.”

 

Lastly, Defense News reported on the growing tensions in the Arctic, specifically as Russia and Canada begin to build up forces there. No one should be surprised if, say, in 2011 a true global conflict begins here as the result of a firefight. The other day, Canadian Foreign Affairs Minister Lawrence Cannon told reporters that Canada “will not be bullied” by the new Russian force. Makes you want to break out in song, doesn’t it? “Ohhh Caa-na-daaaa….” Canada plans on building a sizable 500-man force up there and should be going through its first exercises this coming fall. [As an aside, and as a result of its own exercises, a top Russian official warned Finland, ‘Don’t even think of joining NATO.’ To which I muse, ‘The Finns would kick your butts, Moscow.’]

 

Somalia: I know this is grabbing all the headlines but it’s not the number one issue of the day, far from it, though it’s obviously a test for both President Obama and the international community and potentially a far bigger story shortly as U.S. military commanders have a plan in place to attack the piracy groups where they live on land. “Our special operations people have been itching to clean them up. So far, no one has let them,” retired U.S. Ambassador Robert Oakley told the Daily News’ James Gordon Meek. “They have plans on the table but are waiting for the green light.” I’m guessing they get it in the next four weeks. 

 

Lebanon: The government will be turning over its case files into the assassination of former Prime Minister Rafik Hariri to a United Nations court in The Hague. This creates a sticky situation for the White House as it seeks Syria’s help in stabilizing the Middle East. Syria has long been suspected in the attack that killed 22, overall, and suspects could be turned over to the U.N. tribunal. But Hizbullah, which could win the upcoming June elections in Lebanon, may not want to turn over any Lebanese citizens.

 

South Africa: I have long felt this nation would erupt in violence at some point in 2009 due to the corruption case of African National Congress chief Jacob Zuma, who is set to become president. The case against him collapsed this week in what Zuma said was a “systematic abuse of power.” But the main opposition party has challenged the court’s ruling. At a rally with supporters, Zuma sang his favorite song, in Zulu, which is translated into “Bring me my machine gun.”

 

Zuma, you’ll also recall, was acquitted on rape charges in 2006 during a trial in which he said he had unprotected, consensual sex with a HIV-positive woman “and then took a shower in the belief that it would protect him from the virus.”

 

This guy is a certifiable nut job and represents an incredible black mark on South Africa should he become president; just in time for the nation to host the World Cup in 2010. Surprisingly, a Financial Times editorial notes that Zuma would be better than former President Thabo Mbeki. I would say, they are both awful, though should Zuma take office, I’ll weigh all the facts before writing any more on a coming civil war here.

 

Zuma, by the way, has four wives and at least 17 children. South Africa is a member of the G20, so I’m thinking, which of the wives attends future summits? Gotta bring ‘em all, right, guys? Hell hath no fury like three other wives scorned.

 

Italy: Prime Minister Silvio Berlusconi certainly has a way of inserting foot in mouth and in the aftermath of the earthquake tragedy here, he was telling the thousands of homeless living in tent cities to pretend it was a “camping experience” and to go to the beach for their emotional well-being. This didn’t go over too well among some of the survivors, though from what I’ve read, at least the emergency aid effort seems pretty well organized given the scope of the disaster.

 

Georgia: Protests against the government of President Mikheil Saakashvili are growing. More next week as warranted. Suffice it to say the Kremlin is loving this.

 

Zimbabwe: Your heart has to go out to Prime Minister Morgan Tsvangirai (the good guy) who a month ago lost his wife in an auto accident where he himself was seriously injured. Then last weekend, his three-year-old grandson drowned in a swimming pool at Tsvangirai’s modest home. Some are now wondering just how the prime minister can fulfill his critical duties in attempting to resurrect the nation while in such a fragile mental state after the twin tragedies.

 

China / Taiwan: It’s almost encouraging when I can drop China down the priority list, but the natives are not happy with a failed April Fools Day joke in Taiwan. As reported by the South China Morning Post, the Taipei Times “ran a story in Wednesday’s [April 1] science section saying that [the giant pandas given to Taiwan as a recent gift] had been exposed as ‘Wenzhou brown forest bears that had been dyed.’”

 

“It also quoted a fictional zookeeper as saying that she became suspicious when the bears ‘began to spend almost all of their waking hours having sex.’ Pandas are known for their low sex drive.”

 

The fictional story went on to quote a Chinese foreign ministry spokesman as saying: “We hope that our Taiwanese friends enjoy the gift of two extremely rare Wenzhou brown forest bears.”

 

Good grief. And this is supposed to be funny? Needless to say, politicians on both sides of the Strait are both embarrassed and furious.

 

Mexico: For the third time this year, Mexico City is facing severe water rationing as the main pipeline was shut down because reserves had fallen dangerously low. Both leakage and low rainfall are to blame and water is being trucked in while the government repairs the pipeline. The BBC reported, “More than 50% of the water carried by the pipeline leaks out before it reaches its destination.” 

 

 

–President Obama’s approval ratings are in the mid-60s in some surveys, but as low as the mid-50s in the Rasmussen Tracking Poll. A New York Times/CBS News survey, though, revealed 39% believe the country is headed in the right direction, a significant bump from mid-January’s 15%.

 

–The Washington Post’s Anne Applebaum on President Obama’s fixation with reducing nuclear weapons.

 

“(It’s) all very nice – but as the central plank in an American president’s foreign policy, a call for universal nuclear disarmament seems rather beside the point. Apparently, Obama’s intention is to lead by example: If the United States cuts its own nuclear arsenal and bans testing, then, allegedly, others will follow.

 

“Yet there is no evidence that U.S. nuclear arms reductions have ever inspired others to do the same. All of the world’s more recent nuclear powers – Israel, India, Pakistan – acquired their weapons well after such talks began, more than 40 years ago.

 

“As for the North Koreans, they chose the very day of the Prague speech to launch an experimental missile. In its wake, neither China nor Russia wanted to condemn the launch, since doing so might set a precedent that would be uncomfortable for them….

 

“More to the point, nuclear weapons, while terrifying in the abstract, are not an immediate strategic threat to Europe or the United States – even from Iran. Biological weapons are potentially more lethal. Chemical weapons are far cheaper to produce. Within the United States, ordinary bombs and rogue airplanes have already caused plenty of damage….

 

“In other words, ridding the world of nuclear weapons would be very nice, but on its own it won’t alter the international balance of power, stop al-Qaeda or prevent large authoritarian states from invading their smaller neighbors. However unsuccessful the promotion of democracy has been, it is, ultimately, the only way to achieve these goals. Plus I’m not sure the French, however much they loved Michelle’s flowery dress, have much interest in giving up their force de frappe. Ditto the British. And since they don’t pose a threat, to us or anyone else, it’s not clear why we should waste diplomatic capital trying to make them do so.”

 

–I’ve been arguing that the Defense Department budget can, and should, be slashed, as Senator John McCain himself has noted on many an occasion, not in terms of gross dollars but rather some of the weapons programs that, once approved, magically end up costing two or three times the original estimate. The military-industrial complex run amok, as President Eisenhower long ago warned us all. But few have had the guts to do so. Enter Defense Secretary Robert Gates, who, along with Gen. Petraeus, is a national treasure.

 

Gates released a $534 billion budget proposal that “profoundly reforms how this department does business” in defense acquisition. It seeks to balance the need for troops in combat while modernizing for the real threats of the future. Programs such as the F-22 fighter are drastically being scaled back, but you can imagine the battle in Congress as each member defends jobs in their district.

 

Gates is instead focusing on what the troops in Afghanistan and Iraq truly need and Ret. Lieut.-Col. Ralph Peters, writing in the New York Post, could not have summed it up better.

 

“God bless Bob Gates: Our secretary of defense can’t be bought, can’t be bullied and can’t be fooled. And he values our men and women in uniform.

 

“ ‘This is a reform budget,’ the SecDef stated as he unveiled the Pentagon’s new priorities. He insisted that we must ‘critically and ruthlessly separate appetites from real requirements.’

 

“Translation: We need to give our troops the numbers and gear they need, not the gilded garbage defense-industry cartels foist up on us – on loan-shark terms.

 

“Gates appears to have made the right call on every single issue. And, instead of beginning with a focus on big-ticket weapons, he started by highlighting the needs of those who serve….

 

“He stressed the criticality of medical research and long-term care for our wounded – including those suffering psychological trauma….

 

“We’ve never had a more committed defender of our men and women in uniform….

 

“The SecDef made many…good calls. He wants 2,800 more special-operations personnel; more useful intelligence capabilities; more support for our hard-working helicopter fleets; more missile-defense systems that actually protect troops; more cyber-war capability; 50 more Predator and Reaper unmanned aerial vehicles (the drones the terrorists dread), and thousands more in-house watchdogs to put the brakes on contractor cheating.

 

“Of course, to realize his dream of a reformed acquisition process and a warrior-centered military, Gates needs the support of Congress. And Congress is a greater threat than China. The heroic work of the greatest public servant of our time is now at the mercy of our nation’s most-pompous thieves.”

 

Brilliant, Mr. Peters.

 

–I was happy to see President Obama do some major sight-seeing on his trip, such as in Istanbul, and his paying tribute to Kemal Ataturk’s tomb in Ankara. It drove me crazy when President Bush showed zero interest in local culture and museums in virtually all of his overseas trips. It was insulting to locals and in no small way helped shape opinion, for worse. I only wish Obama had been seen drinking an Efes beer…Turkey’s tasty, premium brew. 

 

–Government data obtained by USA TODAY shows that Federal Aviation Administration reports of bird strikes with geese and other large birds rose 62% from 2000 to 2007…up to 524. The number of incidences with birds large enough to cripple an aircraft rose to more than 12 per year during this time. Of course Canada geese are the chief culprits and need to be exterminated wherever possible…my conclusion, not necessarily the FAA’s.

 

–A British study found that one in 10 people admitted to “tweeting” or updating their Facebook profile while behind the wheel. Super. The other day I was stopped at a major intersection in the town where I work, Summit, and watching the school kids cross the street I was thinking how dangerous it is these days compared to, say, 40 years ago when I was an elementary school youth. Back then, the only standard distraction for a driver was the radio. Now you can point to the cell phone, Blackberry, in-car Web systems….

 

–But despite all the distractions, highway deaths are way down with fewer people on the road due to the economy, and, earlier, $4 gas. Preliminary figures for 2008 show the lowest level since 1961, when no one wore seat belts and cars were made of twigs.

 

–In a study published by the Journal of Epidemiology and Community Health, looking at 336,000 babies born in my state of New Jersey, the higher a mother’s level of exposure to traffic pollution during pregnancy, the more likely it was that the baby would not grow properly. Two kinds of pollution were found to have an impact – tiny soot particles and nitrogen dioxide. Air pollution might alter cell activity, “or cut the amount of oxygen and nutrients a baby receives while in the womb,” as reported by BBC News.

 

–The preceding is yet another example of why I’ve always felt the global warming debate should be relabeled global pollution. No one can argue the need to reduce as much as reasonably possible air (and water) pollution, but you have a debate over global warming and whether it’s real or not. My friend Mark R. and I always argue over this general topic as he’s a sunspot/solar activity guy in terms of the impact on our climate as opposed to the standard global warming stance. Since we are currently at a point of solar maximum, he says, we’re at a level of activity seen about 800 years ago when we entered a period known as the “Little Ice Age,” which lasted from 1250 to 1850. Ergo, Mark’s a buyer of natural gas below $4. Over the next 600 years, he should make a killing, assuming his heirs maintain what is now an unpopular buy and hold stance. Me? I’ll stick to my global pollution argument and try to time a trade or two. [Overall, I do like Mark’s nat gas thesis a lot.]

 

–Speaking of the above, you all saw an ice shelf the size of Jamaica snapped, the Wilkins Ice Shelf, that now threatens to break away, eventually scraping its way up the East Coast after plowing through Brazil. [I have a large world map in front of me.]

 

–Former New York Gov. Eliot Spitzer, Client 9, came out of hiding this week as part of a comeback attempt but as the New York Post editorialized, ‘Leave us alone.’ For the record, Spitzer told the Today Show that the hooker habit that got him in trouble was not frequent and “not long in the grand context of my life.” What a jerk.

 

–President Obama stupidly received some criticism in certain circles for spending time on filling out his NCAA basketball brackets. Obama ended up picking the winner, North Carolina, and I thought it was great. Lay off the Prez on this one. The tourney is part of the fabric of America at this point, and the sport at its purest. Plus there are far bigger issues to give him grief on…witness my opening above.

 

–The New York Mets are 31-9 their last 40 Opening Days. But during this time have won only one World Series. [They lost on Opening Day in 1969.] The bullpen was back to its old tricks on Friday night and I had a fitful sleep.

 

–I was catching up on my issues of High Plains Journal and saw the headline, “Bachelor rancher’s North Dakota land fetches $10 million.” Turns out no one knew that 79-year-old Walter Holzworth had accumulated 16,626 acres by the time he passed away – or more than 26 square miles…or 26 Hobokens since Hoboken is a mile square, but I digress. Last month it was auctioned off in 39 parcels to 15 buyers from around the country. Said brother Harvey Holzworth, 91, Walter never talked about his holdings, but most everyone knew it was substantial.

 

Anyway, guess what? Walter didn’t have a will, so Harvey and his two sisters are doing their best to divvy it up.   

 

But when asked why his brother never married, Harvey said that after a stint in the military, Walter returned to the family farm to care for his mother and a brother who suffered from Lou Gehrig’s disease. Walter also just loved to work. “I heard he had 1,200 cows until his later years,” said Harvey. Sounds like Walter was a pretty good American, even if he did forget to take care of a little paper work.

 

–Lastly, the great Gary Player completed his last round at The Masters on Friday after 52 years. As many have noted, Player was a true global ambassador for golf and when interviewed afterwards, he pointed out how lucky he’s been to participate in a sport that gives back so much, such as for charities for the underprivileged. Much-maligned golf has indeed given $100s of millions over the years to various causes. You won’t find that anywhere else in the sports world, by far. I would urge Congress to make note of this fact.

 

—

 

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

 

God bless America.

 

—

 

Gold closed at $881…$995 on 2/20/09

Oil, $52.24…broke winning streak, but four straight weeks closing at $52

 

 

Dow Jones +0.8% [8083]

S&P 500 +1.7% [856]

S&P MidCap +2.3%

Russell 2000 +2.7%

Nasdaq +1.9% [1652]

 

 

Dow Jones -7.9%

S&P 500 -5.2%

S&P MidCap -0.3%

Russell 2000 -6.3%

Nasdaq +4.8%

 

Bulls  36.0

Bears  37.1 [Source: Chartcraft / Investors Intelligence]

 

Happy Easter. Have a great week.

 

Brian Trumbore