For the week 6/8-6/12

[Posted 7:00 AM ET]

 

 

While we need time to figure it all out, this past week has the potential to be a truly momentous one when the history of the 21st century is written. I’m referring to the elections in both Lebanon and Iran that I’ve been focusing on since last year, and which is a reason why, while I’m bullish on equities in terms of overall performance for 2009, I only increased my model equity exposure from 20%, the level in 2007 and 2008, to 50% at the start of 2009. That may have seemed like a contradiction of sorts, but far from it. Aside from the incredible uncertainty on the global financial front, a strengthened Hizbullah in Lebanon represented a major threat to Israel, and thus the entire region, while Iran’s growing nuclear program represents a threat of a different sort that would extend beyond the Gulf to Europe and the United States. To ignore such geopolitical factors when looking at one’s portfolio is to play the role of village idiot.

 

When it comes to analyzing the markets the past few weeks, however, I have to admit I’m trying to run out the clock until we get to mid-year, when I will take an extensive look at what I’ve said, where we are, and what’s to come. As one who rarely changes his opinion from quarter-to-quarter, let alone week-to-week, I hope you understand. If you’re into Fast Money, or Paris Hilton making out with Ronaldo, well, there are other sites for such fare.

 

For now, though, while I have further analysis of the Lebanese and Iranian situations down below, we need to ‘wait 24 hours,’ as I’m fond of saying, for more clarity. But for a number of reasons there is cause for guarded optimism.  In the case of Lebanon, at least thus far, any fair-minded analyst must give President Barack Obama and Vice President Joe Biden some credit; Obama for his Cairo speech and Biden for his visit to Beirut, in the days preceding the vote, for flatly stating that a turn away from the existing pro-West leadership would result in a cut-off of U.S. aid. I wrote of Biden’s visit on 5/30, “It was an aggressive foray by Biden/Obama, especially as it was his only stop in the region. It’s just impossible to know if more voters than not see it as interference in their election.” One can only conclude in hindsight it was a risk worth taking. 

 

[As for Iran…as I go to post, state television declared Ahmadinejad a landslide winner, 65-32, with 80% of the vote counted, but prime opponent Hossein Mousavi said he had the landslide victory, not Mahmoud. Ayatollah Khamenei, though, has the final say, but according to reports, the Interior Ministry and Revolutionary Guard goon squads have been out in force, including kicking out Mousavi’s headquarters staff responsible for keeping the Web sites running.  Regardless of the outcome, however, Iran\’s people exhibited tremendous courage in calling for change and this story is just beginning.]

 

As for the global economy, it was a mixed picture, yet global equity markets once again hung in there, with Tokyo’s Nikkei index closing above 10000 for the first time since last October, while stocks in the U.S. posted only fractional gains, but gains nonetheless.

 

The bad news has to do with the growing onslaught of debt, and rising interest rates that, while still historically low, threaten to choke off any recovery in housing, which, coupled with the labor market, represents one of the two key variables towards attaining real growth rather than just stabilization and stagnation. The emerging school of thought, as best spelled out by the likes of Bill Gross and Mohamed El-Erian at PIMCO, is that we will see punk growth of 1%-2% for years to come, “the new normal,” as the United States deals with the implications of financing its crushing deficits. Others, a distinct minority, say the recovery could be swift, while the third school says the economy will roll over anew…that the financing issues, housing, oil price spikes, are just too much to overcome.

 

Moi? I’ll spell it out in full in two weeks, but I have consistently said all year you have to separate the fundamentals from sentiment, and that when it comes to the stock market, positive sentiment will lead to 20%-30% returns in the major averages by year end. Back on March 6 and 9, it looked like I was nuts. Today, I look a little better but as I hastened to add last week, we have a long, long ways to go in 2009, and as further exhibited by Lebanon and Iran, let alone North Korea, no shortage of hot spots to deal with in the interim.

 

Speaking of fundamentals, though, the Federal Reserve released its survey of regional economic activity and it saw little improvement in the 12 districts, but at least things weren’t getting worse. Importantly, outside of oil, prices were flat or falling.

 

Economist Paul Krugman, who has been right in his dire pronouncements, said this past week that there is “reason to think that we’re stabilizing” and that the economy would turn up by September, though remain depressed for an extended period.

 

In China, fixed investment (roads, airports and such) soared 40% in May, industrial production was up 9% for the same month, and retail sales increased 15%. All good and better than expected. But May exports were off 26% from year ago levels, not good, though most say in line and another sign of a bottom. Consumer prices here in May, incidentally, fell 1.4% and producer prices a whopping 7%.

 

In Japan, aside from improving sentiment among stock investors, bankruptcies fell for the first time in a year in May as government programs appear to be having an impact.

 

But while in the UK, manufacturing in April was up, as exports and housing appear to be stabilizing, overall in the eurozone, industrial production in the 16-country region fell 1.9% in April, or down 21.6% year over year, the steepest such decline since records have been kept going back to 1991. Separately, Germany’s exports fell 28% in the month.

 

And the World Bank said the global economy would shrink by 3% this year, far worse than an earlier 1.75% estimate. [The IMF says the global economy will decline 1.3% in ’09.]

 

Back in the States, the week was light on economic news, but May retail sales, if you exclude gasoline (which in case you haven’t noticed spiked anew…but fear not, friends, we’re topping), were in line with expectations, up 0.2%, another sign of stabilization, while a reading on consumer sentiment rose a fourth straight month. And two leading corporations, Texas Instruments and Home Depot, raised their outlook for the rest of 2009. That’s good, sports fans!

 

But on the housing front, as I alluded to above interest rates have been rising, with a 30-year fixed now at 5.59%. One thing has become clear. Government programs to reduce both rates and mortgage balances for those in trouble haven’t been working.

 

Meanwhile, foreclosures dipped in May over April, down 6%, but it was still the 3rd-highest total yet. It’s now about prime loans, as you’ve all seen in your own neighborhoods.

 

The Los Angeles Times reported that in many Southern California neighborhoods, home prices are down some 75% off the 2007 peak to figures not seen since 1989! [Non-inflation adjusted…just straight price.] So a house bought in 1989 for $100,000, rose to $400,000 at the peak and is now back down to $100,000. This tells me one thing. It’s further proof we’re at the bottom. Oh sure, some areas, such as my own here in New Jersey, are still in the process of rolling over (the New York metro area being the last in the country to do so among the bubble markets), but nationwide, we’re more or less there. Just remember that I said, going back to last fall, once we hit bottom we’d stay there for a while. “There will be no V-shaped recovery in housing.” Which becomes part of the ‘new normal’ mantra.

 

Finally, there was an interesting election in Europe as a record low turnout of 43% cast their votes for the European parliament. The result was a resounding victory for the center-right, about 265 seats in the 736-seat assembly, compared with 185 for socialist candidates, 85 for centrist liberals, 50 for the Greens and 36 for the radical left. [Rounding off as I saw different tallies.] The failure of center-left parties in France, Germany, Italy and Poland was striking, while in the UK and Spain, where the left is currently in power, it was punished, especially in the case of Britain’s Labour Party, represented by Prime Minister Gordon Brown, which captured just 11 EU Parliament seats compared to the Conservatives’ 24. [The Independence party was second with 13.]

 

I liked how Anne Applebaum of the Washington Post summed it up in her op-ed.

 

“In some places the results were stark indeed: In London last weekend, I could hardly walk down the street without being assaulted by screaming newspaper headlines, all declaring the Labour government of Gordon Brown weak, corrupt, tired, arrogant and, yes, very unpopular. In some constituencies, European candidates of the ruling Labour Party finished behind fringe parties that normally don’t get noticed at all. So rapidly are British ministers resigning from the cabinet that it’s hard to keep track of them…

 

“But how is it possible that the European right is doing so well – and so much better than its American counterparts – during what is widely described as a crisis of global capitalism? At least in part, the Europeans are winning because their leaders have the courage of their economic convictions. While the European continental welfare states have certainly kicked into high gear over the past six months, there are few equivalents of either George W. Bush’s budget deficits or Barack Obama’s spending binge. And where there have been – in Britain, for example – the high spending has hardly bought popularity. The theoretical version of this Euro-American policy gap is the recent public spat between the economic historian Niall Ferguson and the economist Paul Krugman, both of whom are at least as well known for their newspaper polemics as for their academic writing. Very crudely, Ferguson and the German government think massive deficits and government borrowing will lead to inflation and ultimately the collapse of the currency. Equally crudely, Krugman and the American administration think he’s wrong….

 

“None of this is to say that any of Europe’s conservatives would necessarily go down well in the United States (picture Silvio Berlusconi, paparazzi and teenage mistresses in tow, campaigning in Mississippi), and it’s also true that they don’t necessarily have much in common: Allegedly, German Chancellor Angela Merkel and French President Nicolas Sarkozy can hardly stand to be in the same room. But if nothing else, the success of the European center-right during the current crisis proves that there is something to their political formula. They are fiscally conservative. They are, if not socially liberal, then at least socially centrist. They haven’t been swayed by the fashion for big spending. They are trying to keep some semblance of budget sanity. And, at least at the moment, they win elections.”

 

 

–While the gains were fractional, for the 12th time in 14 weeks (13 of 14 for Nasdaq), stocks rose with the Dow Jones adding 36 points, 0.4%, to close at 8799. The Dow is now up on the year. The S&P 500 added 0.6%, while Nasdaq tacked on 0.5% to end at 1858. Even former Merrill Lynch strategist David Rosenberg, one of the early bears, has turned somewhat bullish, at least in the short run.

 

–U.S. Treasury Yields

 

6-mo. 0.28% 2-yr. 1.27% 10-yr. 3.78% 30-yr. 4.63%

 

Bonds rallied back on the heels of a successful 30-year auction, after the 10-year hit the 4.00% mark. And according to the Wall Street Journal, the Federal Reserve is opting not to interfere too much in the Treasury market because they are increasingly confident “they have stabilized the economy and set the stage for recovery.”

 

–The federal budget deficit for the month of May hit a record $189.7 billion and we are at $1 trillion with four months left in the fiscal year, 9/30. The projection is for an ’09 deficit of $1.8 trillion, or four times the record $450 billion in ’08.

 

–The U.S. Treasury gave approval to ten banks to pay back $68 billion of TARP funds…JPMorgan Chase, Goldman Sachs, Morgan Stanley, American Express, Bank of New York Mellon, BB&T, Capital One Financial, Northern Trust, State Street, and U.S. Bancorp. Proceeds from these repayments will help reduce federal government borrowing as well as the national debt, according to the Treasury. It also gives the government a cushion to be able to “respond to any future instability that might otherwise jeopardize economic recovery.”

 

This is all good. Of course it also highlights those who still aren’t able to pay the government back, such as Bank of America, Citigroup and Wells Fargo.

 

–The above is about compensation and the ability of the select ten to be able to get out from under the government’s clutches as well. But President Obama dropped a plan to cap salaries, anyway, for those firms receiving bailout money, including AIG and General Motors, though instead a ‘pay czar,’ Kenneth Feinberg, who coordinated 9/11 victims’ compensation (and did an outstanding job under immense pressure), will issue guidelines, while Congress now has the power to cap bonuses through legislation should it choose to go that route.

 

–Oil hit $74, the highest level since last October, before finishing at $72. The International Energy Agency raised its demand forecast for the first time in 10 months, to a rate of 83.3 million barrels per day, but this is still 3% off 2008’s 86mmb pace. Russia joined the Saudis in warning of $150 oil in 2 to 3 years due to plunging investment.  I do not disagree with this, I just say that the world is currently awash in crude and the economic fundamentals simply don’t warrant oil at existing levels, period, unless you can convince me the global recovery is going to be far stronger than current consensus.  Should this prove to be the case, yes, we could see $100+ oil but that would help kill the recovery itself.

 

–The U.S. Supreme Court rejected creditors’ objections in the sale of Chrysler assets, allowing Chrysler to complete its deal with Fiat. The new company, Chrysler Group, will be owned 20% by Fiat, 9.85% by the U.S. taxpayer, 2.46% by Canada and 67.69% by the UAW’s retiree health care trust fund. Fiat CEO Sergio Marchionne is the new leader of Chrysler Group and said that some of the idled factories would reopen soon.

 

–Americans’ personal wealth in the first quarter fell a whopping $1.3 trillion due to declining home and investment values. Net worth is the value of assets minus debts like your mortgage and credit cards, and it was off 2.6%, according to the Federal Reserve. At least on the investment front, the second quarter report will be measurably better.

 

–The Federal Reserve has lost $16.5 billion on its AIG and Bear Stearns holdings since taking them over last year.

 

–Chinese metals conglomerate Chinalco is still seething it lost out on its bid to acquire mining giant Rio Tinto, as Rio rushed into the arms of fellow Aussie BHP Billiton instead. While Chinalco doesn’t blame the Aussie government, most Chinese commentators have concluded Rio’s decision to dump Chinalco was about anti-China politics. A Xinhua commentary said, Chinalco is “like a jilted corporate lover, who failed to comprehend the inherent devious and meretricious nature of international corporations….Rio Tinto is like a dishonorable woman: once she loved the money in Chinalco’s pocket but she actually did not love the man himself. Now she is breaking faith and kicking down the ladder.” [Sydney Morning Herald]

 

–The World Health Organization has declared a global pandemic for H1N1 as it continues to simmer. Hong Kong, for example, suspended primary schools for two weeks. The WHO says the flu has spread to 74 countries, with 141 deaths. But the agency continues to stress most cases are mild and require no treatment. The fear is any second wave would overwhelm health authorities, especially in the developing world. Argentina faced such a situation this week. Remember, it’s winter in the Southern Hemisphere. The second wave would develop there.

 

While ordinary flu kills 250,000-500,000 each year, around the globe, the raising of the threat level is intended to focus governments and drugmakers to get their act together. Importantly, no mutations have been detected.

 

[Swine flu is one reason why Hong Kong has seen a dramatic decline in tourism of 10% over year ago levels, including a decline of 14% from the mainland.]

 

–Speaking of health care issues, I got a kick out of President Obama when he returned from his six days in Europe and announced health care was his primary focus. My mind thinks differently…like dealing with the nuclear issues in North Korea and Iran are first on my own list. But no doubt Obama is plowing ahead to points unknown.

 

We all know that, generally, the care in the United States is as good as any in the world. But at the same time, I don’t know about you but I don’t exactly do cartwheels each time I write my monthly check for $670! And I haven’t had any major expenses in, forever, though I’m guessing my insurance carrier isn’t picking up the entire cost of my colonoscopy next week, even though they’ve approved the procedure.

 

Look, good health care is available to, I imagine, a large portion of my readership, but what do you say about a system where 100,000 people die each year from infections they acquired in the hospital, while 1.5 million are harmed by medication errors, as various studies have shown, including from the Rand Corp. Michael F. Cannon, head of health policy at the libertarian Cato Institute, told the Washington Post the other day, “Most Americans don’t understand how bad health care in the United States is. We need big reforms.” To believe otherwise is living in a state of denial.

 

All of us want a health care plan that, number one, allows us to choose our doctor; to be able to talk to friends and go to the physician that you hear has a good reputation in a field you’re not real familiar with. And we want a system where when there is a major issue, such as cancer, the plan takes care of the lion’s share of the cost without bankrupting you.

 

This is going to take money. Lots of it. But one thing I don’t hear enough about is personal responsibility. We all have to do the little things to take care of ourselves, for the betterment of the whole.

 

So we need the president and some of our better, non-tainted athletes, to do a lot of PSA announcements, including PSAs on quitting smoking and drugs. [Speaking of which, the Senate approved, and the president signed, legislation empowering federal officials to regulate cigarettes, four decades after the surgeon general labeled it a health hazard, but it stops short of outlawing smoking or banning nicotine.]

 

For now we all have to follow the coming debate in Congress carefully, and, number one, keep an open mind. Don’t get locked into the traditional right/left talking points.

 

–California Gov. Arnold Schwarzenegger has threatened to shut down the state government in late July unless legislators deal with the projected $24 billion shortfall. 

 

–Apple slashed the price of its introductory level iPhone in half, while rolling out two new models of the product that are faster and have new features like a video camera. A 16-gigabyte version of the 3G S will cost $199 and a 32-gigabyte model will cost $299. But the 8-gigabyte iPhone 3G, which came out last year, will set you back just $99 (plus the cost of a service contract). Apple faces increasing competition from Research in Motion and Palm, the latter with its new Pre that is being well received.

 

–The last issue of BusinessWeek had a story on the lack of true innovation in America. Going back 20 years, for example, there was talk of tremendous innovation on the health care / biotech fronts yet the end results have been disappointing. Or take an item like fuel-cells. Progress here is moving at tortoise speed. Ergo, there is no Next Big Thing. So you all have an assignment. Lock yourself in the garage and don’t come out until you figure out something new that could employ millions.

 

–Owing to European Commission restrictions, Microsoft will ship Windows 7, slated for October, without Internet Explorer. The company said it would make it easy for PC makers and users to install the browser, but the EC said Microsoft’s move may not go far enough. In a statement the EC offered, “the Commission has suggested that consumers should be offered a choice of browser, not that Windows should be supplied without a browser at all.” And so this tussle continues.

 

–Speaking of computer software, China is requiring that all personal computers sold in the country as of July 1 come with software that blocks certain Web sites, though the government has yet to say exactly which sites it will censor; aside from the obvious candidate, anything porn. PC manufacturers, however, are now faced with a choice of opening themselves up to abetting censorship, or refusing the government’s order.

 

–BlackRock is acquiring the indexing company Barclays Global Investors from Barclays PLC for $13.5 billion and in the process will become the No. 1 money management firm in the world with combined assets of $2.8 trillion, or double No. 2 State Street Global and Fidelity, each of which has about $1.4 trillion. CEO Laurence Fink founded BlackRock in 1988 with $1 billion.

 

–Fontainebleau Las Vegas LLC was forced to file for Chapter 11 protection after failing to secure $800 million in construction funding to complete the company’s $2.9 billion property on the Vegas Strip. The project is 70% complete and was due to open in October. The lenders, including Bank of America, and JPMorgan Chase, said Fontainebleau had one or more unspecified “events of default.” Fontainebleau denies this. 3,000, working on the site, are at least temporarily out of a job.

 

–Iceland agreed to repay British and Dutch government money paid out to depositors following the collapse of one of Iceland’s three main banks, about $3.5 billion worth.   At the time, British savers with Icesave were refunded in full by the UK Treasury. The fiasco had caused major tensions between the two governments and resolution is good news, particularly for Iceland’s eventual bid for EU membership.

 

–The global airline industry is now forecast to lose $9 billion this year, according to the International Air Transport Association, as revenues decline 15%. North American airlines are projected to lose $1 billion, though this is a big improvement over 2008, when the same carriers lost $5.1 billion. But American Airlines, in announcing advanced bookings for the summer are down from last year, is cutting another 1,600 jobs. And all the airlines are once again reducing capacity.

 

–Economist Paul Krugman, addressing a conference in Dublin, warned that any growth in the Irish economy will be below that of the EU as a whole for the next five years owing to past policy missteps and the bubble. And for the month of May, consumer prices fell 4.7% in May from a year earlier, the biggest decline since at least 1976. Ireland’s long-term sovereign debt was also reduced to AA from AAA.

 

–Auto sales in Russia plunged 58% in May over year ago levels.

 

–Bank of America CEO Ken Lewis was grilled by Congress over the lack of information that was disclosed by BofA as it was acquiring Merrill Lynch, specifically about Merrill’s losses ahead of a shareholder vote on the deal, as well as pressure being applied by the Feds to wrap it up. Lewis denied knowing of the losses before December, though the evidence says otherwise, and he also refused to say he was bullied by Ben Bernanke and then-Treasury Secretary Hank Paulson into swallowing Merrill.

 

–Long Island Rail Road fares are slated to rise, though the New York Post says payroll records show six mechanics with base salaries around $62,000 each earned more than $200,000 in 2008 owing to steep overtime payments contained in union contracts.

 

–But wait…there’s more! From Sandra Peddie of Newsday.

 

“As state officials struggle to close gaping holes in the budget and deal with skyrocketing retirement costs, records show that at least 1,325 retirees collect six-figure pensions from the state….

 

“The number and size of so-called jumbo pensions, fueled by high public salaries and generous retirement rules, lie at the heart of the debate over the daunting costs of public pensions in New York State, which have a price tag of more than $10 billion a year.”

 

Don’t you know it. At a recent picnic I was attending, this was a big topic of conversation. Taxpayers are increasingly upset that their rising tax bills are footing such largesse. And then, of course, when the pension fund managers screw up, you and I are on the hook for even more.

 

So I’ve decided to move to Greenland.

 

–Web advertising fell 5% in the first quarter, according to a study by PricewaterhouseCoopers and Interactive Advertising Bureau. We had been told that Web advertising was largely immune from the problems hitting traditional media.

 

–The SEC fined Evergreen Investment Management Co. LLC $40 million to settle charges it overstated the value of a mutual fund and selectively told shareholders about the fund’s valuation issues. It had to do with a now-defunct offering that was investing in mortgage-backed securities. “The SEC found that Evergreen managers inflated the value of the fund by as much as 17%…The fund ranked as a high performer in its category in 2007 and 2008.

 

“ ‘Had Evergreen properly valued the fund it would have ranked near the bottom of its category during this time,’ the SEC said.” [Sue Asci / Investment News]

 

Talk about dirtballs.

 

–Tiger Woods’ first golf course design, in Dubai, is on hold due to the financial crisis. “No exception, they are feeling it as well,” Tiger said. Only seven holes were under construction when work was suspended.

 

–Jeff B., on his annual vacation to the great Kiawah Island resort (S.C.), said the main hotel is less than half full (compared to being packed last year), while the Ocean Course’s play is off at least 50% and the number participating in Jeff’s tennis clinics is down 75%.

 

–We note the passing of the great market historian Peter L. Bernstein, 90. Among his works was the best-selling “Against the Gods: The Remarkable Story of Risk.” Bernstein was responsible for what became known as efficient market theory, where investors diversify their portfolios, using mathematical equations. As Nobel Prize winner and economist William F. Sharpe noted, “We went from naïve and haphazard stock-picking to looking at the whole portfolio in the context of how capital markets operate.” Alas, the theory didn’t prevent the crash. [Nor the disaster of Long-Term Capital Management, which relied to a great extent on some of Sharpe’s theories.]

 

–And Norman Brinker died. He was 78. Brinker was responsible for the likes of Steak and Ale, Bennigan’s, the first expansion of Jack in the Box, Chili’s, and even the 1980s turnaround of Burger King. He can also claim to be the innovator behind the salad bar. By the time he retired, Brinker International operated more than 1,000 casual-dining restaurants.

 

–The tale of Julian Tzolov, the former Credit Suisse broker, is rather interesting. Tzolov, on $3 million bail in a securities fraud case, broke free of his monitoring bracelet on May 9 and fled, though authorities didn’t announce it until about ten days ago in order not to hamper their pursuit of him. As of this writing, they have no idea where he is. But I mention it now because I didn’t realize two of his friends signed the bond and are on the hook for $3 million as a result. Make that ex-friends.

 

–Charitable giving in the United States declined 2% last year, only the second decline since such data was first calculated 53 years ago.

 

 

Lebanon: In a surprise victory for the good guys, the March 14 pro-Western alliance, led by the son of Rafik Hariri, Saad, took 71 seats in Parliament to 57 for the Hizbullah-backed coalition. While the gain in the 128-seat assembly was only one over what had existed before, it was thought Hizbullah would win the majority. Now, however, all must ‘wait 24 hours’ to see what happens concerning two main issues: First, the new ruling coalition is loath to give Hizbullah what it had before as part of the unity government, the veto. Second, will there be any attempt to take away Hizbullah’s weapons? Regarding the latter, one of the reasons for pressing for an Israeli-Palestinian peace agreement is because, in the words of U.S. General David Petraeus, it would eliminate Hizbullah’s “justifications for existence…Reaching an agreement over a peace process in the Middle East will eliminate several groups’ justifications for existence,” he said about ten days ago.

 

So Lebanon faces long weeks and, probably, months of negotiations between the parties. Understand this was far from a ‘free’ election, as the number of seats going to each religious group is preordained based largely on population. [Plus the president is always a Maronite Christian, the prime minister a Sunni, and the speaker a Shiite.] It then becomes whether you want the March 14 Christian, for example, or the March 8 (Hizbullah-led) Christian candidate. And it’s clear both sides shipped in thousands of ex-pats to vote. But it was a far better election than what Iran was running and it was peaceful. Allah be praised.

 

Yes, it was a big blow for Hizbullah and its leader Sheikh Nasrallah, as well as an aforementioned victory for both the Obama administration and the West. It’s just that Hizbullah will retain its arms, and, barring a massive change in attitude in Tehran, continue to receive the latest in missile technology; the better to face Israel with.

 

Editorial / Daily Star

 

“Hizbullah needs to be careful if it wants to raise a fuss over the undemocratic nature of Lebanon’s democracy. Any public effort to undermine the legitimacy of the vote will be perceived as an attack on the Lebanese state and its institutions. This doesn’t mean that the party should refrain from an effort to reform Lebanon’s dysfunctional democracy. The Lebanese would welcome an attempt by any leader who had the courage to promote a political system that regards Lebanese as citizens, not as members of a hierarchy of sects and tribes.

 

“But the venue for those discussions should be the Parliament, not public speeches, talk shows and media outlets. Creating a stronger state requires building on the one we have now, not tearing it down completely.”

 

Iran: Hot on the heels of Lebanon’s surprising election result we had Iran’s presidential vote, Friday. For starters, just understand that whatever the outcome, this is far from a free election as the 12-member Guardian Council selected the four candidates, all of whom are part of the Revolutionary Guard. A ‘reformist,’ as the three running against President Ahmadinejad call themselves, is hardly a reformer under the Western definition.

 

But at the same time, should Ahmadinejad have lost, or be remomved, no doubt there will be a different kind of relationship between Tehran, Washington, Paris et al. At least any new Iranian leadership would talk more civilly to the West. But make no mistake, as I’ve written since last year, Iran’s nuclear weapons program long crossed the red line and it’s a matter of national pride that it continue.

 

What we did see this past week, though, was stunning. Cleric and former Iranian president Rafsanjani and Ahmadinejad had a war of words unlike any seen since the 1979 Revolution. Rafsanjani was accused by Ahmadinjad of massive corruption in backing his chief rival, Mousavi, and of becoming a billionaire since the Revolution. [Rafsanjani has.] For his part, Rafsanjani blasted Supreme Leader Ayatollah Ali Khamenei for not reprimanding Ahmadinejad. Startling stuff, especially when you consider that Rafsanjani (the man, you’ll recall, who I said years ago the U.S. should have been dealing with, secretly), as head of the Assembly of Experts/Expediency Council (an organization of senior clerics), has the power to remove Khamenei.

 

Regardless of the electoral outcome, massive protests and violence are a distinct possibility. Mousavi was able to tap into the youth and the current economic distress.

 

I do have to note that officials in Iran may have acted responsibly the other day in averting a potential disaster…as many as 50,000 fanatical Ahmadinejad supporters were crowded into a prayer hall, waiting for four hours for the president to speak, with an overflow crowd almost as large outside. Ahmadinejad couldn’t get in and the speech was called off over fears of a deadly stampede if he had, instead, given the speech outside.

 

[By the way, on the World Cup soccer front, Iran’s chances of moving on to the next round were dealt a big blow when Iran tied North Korea, ironically, 0-0. Iran’s chances are extremely thin…and the performance didn’t help Ahmadinejad. At least in the real vote.]

 

Israel: Prime Minister Netanyahu is delivering a crucial policy speech on Sunday wherein he is expected to formally commit Israel to a two-state solution, but is also expected to say ‘no’ to the Obama administration’s calls for a freeze of all construction within existing settlements in the West Bank. And Netanyahu will set preconditions.

 

The Palestinians must recognize Israel as the homeland of the Jewish people, which in turn forces Palestinians to give up the right of return for refugees to land now within Israel’s borders.

 

Netanyahu will also demand any Palestinian state be demilitarized.

 

For his part, Palestinian leader Mahmoud Abbas said he will not enter negotiations unless Israel endorses all previous commitments.

 

Right-wing critics in Israel might be prepared to bring Netanyahu down to prevent a two-state solution, but as much as the White House wants quick negotiations, you can see how that just isn’t possible. For starters, even if Israel took the first step on the settlements issue and then said, OK, Palestinians, now recognize us and forsake terrorism, you would have civil war between the Palestinian Authority and Hamas. Netanyahu also recognizes as much as any Israeli leader that the paramount issue isn’t the Palestinians, despite his speech, bur rather Iran.

 

It’s no surprise, then, that 53% believe President Obama’s policies are not good for Israel, and just 26% say they are, according to a Dahaf Institute survey taken ahead of Obama’s Cairo speech. [47% approve of Netanyahu’s performance thus far, 45% disapprove.]

 

For some other opinion on the issues here, following is from an editorial in Arab News (Saudi Arabia). Quoting Saudi Foreign Minister Saud Al-Faisal:

 

“ ‘The United States has the means to persuade the Israelis to work for a peaceful settlement. It needs to tell them that if it is going to continue to help them, they must be reasonable and make reasonable concessions.’

 

“Asked if Washington should cut off aid to Israel, Prince Saud replied: ‘Why not? If you give aid to someone and they indiscriminately occupy other people’s lands, you bear some responsibility.’….

 

“Prince Saud praised Obama’s ‘sincerity’ and his calling Israel’s expansion of West Bank settlements as ‘not legitimate,’ but said the speech ‘has yet to be translated into actions.’ And he fended off Washington’s call for Arab states to make diplomatic overtures to Israel to get new peace negotiations off the ground.

 

“ ‘We don’t have anything to offer Israel except normalization, and if we put that before the return of Arab land we are giving away the only chip in the hands of Arab countries,’ Prince Saud said.”

 

The word ‘intractable’ comes to mind.

 

Iraq: It was retiring U.S. Ambassador Ryan Crocker who said, “In the end, how we leave and what we leave behind will be more important than how we came.” And as Newsweek’s Fareed Zakaria noted this week, while the appeal of radical Islam is waning here, the U.S. presence is still required. I suspect President Obama understands this, and herein will lie another battle with his own party come 2010 and 2011.

 

[On Friday, the head of the largest Sunni Muslim political bloc in parliament was assassinated, reportedly by a 15-year-old boy.]

 

North Korea: U.S. Defense Secretary Robert Gates told a NATO conference of defense ministers, “I don’t think that there has been a commensurate change in the posture of the North Korean military that would suggest an attempt to undertake operations,” though he added it was “unwise” to dismiss out of hand North Korean threats of military action, particularly as the UN finalized its latest round of sanctions. Ergo, we really don’t know how Kim and his Orcs will respond…and whether they will conduct yet another nuclear test, as now rumored, or whether the next long-range ballistic missile to be fired is armed in any way.

 

The latest UN resolution, approved unanimously on Friday, calls for the interdiction at seaports, airports, or in international waters of any suspect cargo going to or from North Korea. Surprisingly, Russia and China approved harsh language requiring inspection in the event consent for boarding is denied. But China’s ambassador said “under no circumstance should there be the use of force or the threat of use of force” in implementing the sanctions, adding, inspecting North Korean cargo is “complicated” and “sensitive.” [Bill Varner and Peter S. Green / Bloomberg]

 

Meanwhile, the two American journalists, Laura Ling and Euna Lee, were sentenced to 12 years of hard labor for a “grave crime” against the nation. As they were tried in North Korea’s highest court, there is no appeal. Of course Kim Jong-il is using the two as bargaining chips.

 

Pakistan: The Army has evidently stepped up its offensive against the Taliban and al-Qaeda as Congress has approved further aid of $1.5 billion a year for the next five years.

 

Russia: Prime Minister Putin said Wednesday that Russia was willing to abandon nuclear weapons if everyone else did, though the head of Russia’s Strategic Missile Forces announced that any coming deal with the United States on arms reduction not take Russia’s warheads below 1,500 each. Today, the U.S. has 5,500 and Russia about 3,900.

 

And in another example of ‘only in Russia,’ Andrei Lugovoi, wanted by Scotland Yard in the killing of Alexander Litvinenko, the former KGB agent poisoned in London in 2006, was appointed to a key security committee of the Russian parliament. For two years, Britain has demanded the extradition of Lugovoi, but Russia has refused.   And some say I was too harsh on Russia the past few weeks.

 

Khatuna Mshvidobadze, a Georgian security analyst, wrote the following in Defense News on Russia’s security strategy, including recent moves in the Arctic over resources; specifically, the strategy “reflects the schizophrenia one observes in Moscow’s day-to-day foreign policy conduct. On the one hand, it calls for cooperation; on the other, it calls for barricades against threats from every direction.”

 

“On the ground, Russia allows transit of supplies for the American-led NATO mission in Afghanistan. However, it also pressured Kyrgyzstan to close the U.S. air base in Manas, which was used for the same purpose. It seems the Kremlin flirts with abandoning zero-sum thinking – but only if it stacks the deck.

 

“Russia’s new strategy combines a deep sense of insecurity with, at times, an almost hysterical tone that leaves the reader with the sense that Russia remains fundamentally a revolutionary power.

 

“ ‘ The distinguishing feature of a revolutionary power,’ writes Henry Kissinger in ‘A World Restored,’ ‘is not that it feels threatened…but that nothing can reassure it, and thus the desire of one power for absolute security means absolute insecurity for all the others.’

 

“Obama will find it hard to reset relations with such a country.”

 

Ukraine: The government crisis took a new twist this week as Prime Minister Tymoshenko said she was unable to create an alliance between her party and opposition forces in Parliament, putting an end to her plan to undermine pro-West President Yushchenko, he of the 5% approval rating. Tymoshenko accused former prime minister, and pro-Kremlin, Yanukovich of betraying her. So Tymo, the braided one, said she would run for president, with the election slated for December or January, it would appear. Earlier, Tymoshenko removed Yushchenko’s defense minister, further pissing off the president.

 

Mexico: 18 were killed in a shootout between drug gangs and soldiers in Acapulco on Sunday. The clash was several miles from the main tourist area, but that’s of little importance for those on the fence as to whether or not to take a vacation here. 

 

Peru: The government has been battling indigenous Indians in the Amazon who are seeing their land taken away by those looking to drill for oil and gas. At least 22 police and nine protesters were killed last Saturday.

 

 

–So here’s what’s happening on the Guantanamo front. President Obama made a big mistake in saying he’ll close the detention center without a plan for dealing with the detainees. The detainees can easily be housed, however, in maximum security prisons across America, as are other terrorists today, yet no one wants them in their backyard after all the publicity. And some argue, correctly, that in our judicial process, it’s possible a pliant judge (and/or jury as the case may be…though in most hard-core cases we’re really talking tribunals) could opt to release a figure even though the evidence is overwhelming they are a bad guy. One detainee, we learned this week, is standing trial in federal court in New York. In other words, the Guantanamo issue remains a mess, with about 230 that either need to be transferred to other countries, charged in federal or military courts, or held without trial, all by year end.

 

A partial solution? Send them to the Micronesian island of Palau (near the island of Yap I’ve written of in the past) and Bermuda; at least the Chinese Muslim detainees known as Uighurs, as about 20 have now done. The White House has virtually abandoned plans to resettle any in the United States, which hardly sends the right signal to Europe as we ask them to take some of the terrorists off our hands.

 

As for Palau and Bermuda, the former is receiving a reported $200 million in aid, but Bermuda only $100,000. Britain is upset both the U.S. and Bermuda officials didn’t notify it first, Bermuda being a UK overseas territory.

 

–The murder of the security guard at the U.S. Holocaust Memorial Museum on Wednesday was sickening, but I can’t add anything to the topic. If you’re still naïve to the domestic terrorism threat, take the family to Oklahoma City.

 

–I watched Gov. Sarah Palin on “Today” Friday morning and if she were to be the Republican nominee in 2012, no matter how screwed up the U.S. may be domestically at that time, Obama would win 65-35. She’s a mess. And while David Letterman’s joke about one of her daughters was distasteful, her protestations, and charges, were absurd, and inaccurate. 

 

As for Palin’s standing in the Republican Party these days, Kathleen Parker had the following in her Washington Post op-ed.

 

“Sarah Palin, governor of Alaska and GOP ‘It’ girl, can warm up the Republican base like a hot toddy in a duck blind. But further inside the party organization, the air is a little nippy.

 

“What happened? In a word, bungling.

 

“Everyone seems to have a Sarah Palin story of ignored calls, mishandled invitations or unanswered e-mail. Disorganized is how one might charitably describe the Palin operation.

 

“ ‘Basically, it’s just rude,’ says one political operative, who is a Palin fan. ‘They’ve been running the great snub machine. That’s the reason the boys in the Republican Party are unhappy with her.’….

 

“But (Palin’s) problem is the same as it was a year ago. She isn’t ready….

 

“Said yet another Palin admirer: ‘The problem is, she has had months to get it together and they (her organization) haven’t. They could have had an excellent national team and state team working seamlessly.’”

 

I’m just amazed that among experienced Republican political operatives, she has even one admirer.

 

–Democratic Congressman Charlie Rangel is at it again. He warned of “racial polarization” if Attorney General Andrew Cuomo challenges Gov. Paterson in a primary next year. Understand that Paterson is a dolt, but hopefully his low poll numbers prevent him from running in the first place. [I’ve become a Cuomo fan, in the interest of full disclosure.]

 

–I used to harshly criticize George W. Bush for his lack of curiosity, particularly when he’d travel overseas and fail to take in a museum or see some of the sites. For those in, say, Paris or Berlin, it was an insult. Of course with my own predilection for travel, I’m biased…but I’ve also learned how some simple steps can change opinions on how the rest of the world views the United States.

 

Enter Barack Obama. On his recent European adventure, it’s great that he played tourist in Paris, for example, and that his family did the same in London. Good move. A sign of respect.

 

But then we learn in Paris, Obama was staying near French President Sarkozy’s home and refused to take up the latter’s many invitations to stop over, or do some sightseeing/dinner with France’s First Family. Again, it’s about respect, President Obama.

 

Ralph Peters / New York Post

 

“When Europeans wish upon a star, they get an American president with a huge Third World chip on his shoulder.

 

“Those ‘sophisticated’ Europeans dismissed ‘cowboy’ Bush as a rube beneath their contempt. If the continent’s opinion-makers could’ve changed their voter registrations, they would’ve flown to Chicago to vote for Barack Obama last fall.

 

“They got what they wanted.   But it isn’t what they expected.

 

“President Obama may be the least Europe-friendly occupant of the White House since James Monroe (the guy who put up a ‘Keep Out!’ sign on our hemisphere). Bam clearly doesn’t like Europeans….

 

“Beyond the perfunctory grip-and-grins at Saturday’s D’Day commemoration, there was no bonhomie between European leaders and our celebrity prez….

 

“The president and first lady maintained their own self-absorbed bubble, enchanted with being the Obamas. President George W. Bush may have been inarticulate, but the Obamas were ungracious.

 

“The new ice age was also evident during Bam’s stop in Germany. Walking or standing side by side, he and German Chancellor Angela Merkel looked like a couple going through a brutal divorce who got caught in the same elevator on the way to meet their lawyers.

 

“In France, Obama brushed off Nicolas Sarkozy, the most pro-American president to occupy the Elysee Palace in my lifetime. Sarkozy had to beg for a meeting.

 

“And Britain’s Prime Minister Gordon Brown has been treated as though the British just burned the White House – or a Kenyan village – last week….

 

“The Obamas remain celebrities among some European populations. But ‘Old Europe’s’ elected leaders are the canaries in the coal mine. And their beaks look ashen.”

 

–I watched all the ceremonies for the 65th anniversary of D-Day last Saturday and what a disgrace it was that Queen Elizabeth II was not in attendance. She deserved to be there more than anyone else, except for the surviving veterans who stormed the beaches.

 

But in watching Canadian Prime Minister Stephen Harper, I was reminded just what a great ally we have north of the border; a fact most of us take for granted. In many of the conflicts of the past century, Canada’s sacrifices as a percentage of its population have been as significant as any.

 

For instance, I just looked up some figures. In Afghanistan, the U.S. has lost 670 soldiers; Canada, 118.  Canada’s death toll is thus 18% of the United States’.

 

But the U.S. has a population of 306 million and Canada 33.7 million, or 11%.

 

Actually, give these numbers to your kids and tell them they can’t eat dinner unless they can explain to you what it means.

 

–Miss California, Carrie Prejean, has had her fifteen minutes of fame. Turns out she was really a fraud in terms of not fulfilling some pretty basic requirements of her job. 

 

–The other day my sister-in-law and niece took in “West Side Story” on Broadway and came back complaining about the audience behavior, with theater-goers texting and talking loudly. If I was there, I might have been arrested for, err, you know, taking out my frustrations on the offending patrons.

 

So three days later, the Wall Street Journal’s Ellen Gamerman reported on the misbehavin’ audience. “Some theater veterans say manners are breaking down faster than ever.”

 

Camera phones are a huge issue. “Last month, ushers and security guards at ‘Hair’ began patrolling the balcony and aisles during the musical’s famous nude scene because so many people were snapping pictures – despite explicit warnings not to do so.

 

“One night, actor Will Swenson…took a device from a person in the front row and threw it across the stage. ‘I just couldn’t believe the gall of this woman who was videotaping me in my face,’ he says. ‘A crew member deleted the video and returned the camera phone to its owner at intermission’….

 

“During a recent matinee of ‘God of Carnage,’ which explores the lives of two couples, a woman in the mezzanine screamed, ‘How ‘bout those Yankees!’ – filling one of the play’s intense silences.”

 

We truly are a nation of idiots.

 

–But at least we’re taking care of our Canadian geese issue. New York City and the Port Authority have finally called for all-out war against the birds, as at least 2,000 living within a five-mile radius of the area airports will be taken out. The issue of US Airways Flight 1549 (Sully’s) has finally focused attention.  I just wish it was a nationwide campaign.

 

–My point on global warming has always been that it is a debate over global pollution instead. The other day there was a congressional hearing on our changing oceans, as reported by Les Blumenthal of McClatchy Newspapers.

 

“As greenhouse gas emissions increase, billions of tons of carbon dioxide from smokestacks and vehicle tailpipes are absorbed by the oceans. The result is carbonic acid, which dilutes the ‘rich soup’ of calcium carbonate in the seawater that many species, especially on the low end of the food chain, thrive in.”

 

An expert, Brad Warren, told the Senate panel, “If we lose it, it is gone forever,” in speaking of the oceans’ delicate chemical balance.

 

–Pallab Ghosh / BBC News

 

“Astronomers calculate there is a tiny chance that Mars or Venus could collide with Earth – though it would not happen for at least a billion years.

 

“The finding comes from simulations to show how orbits of planets might evolve billions of years into the future….

 

“Professor Laskar of the Paris Observatory and his colleagues also report that Mars might experience a close encounter with Jupiter – whose massive gravity could hurl the Red Planet out of our Solar System….

 

“The researchers carried out more than 2,500 simulations. They found that in some, Mars and Venus collided with the Earth.

 

“ ‘It will be complete devastation,’ said Professor Laskar.”

 

One would think. You’d also expect it to be a bad day for shares of insurance companies.

 

—

 

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

 

God bless America.

 

—

 

Gold closed at $939

Oil, $72.20

 

 

Dow Jones +0.4% [8799]

S&P 500 +0.6% [946]

S&P MidCap +0.2%

Russell 2000 -0.7%

Nasdaq +0.5% [1858]

 

 

Dow Jones +0.3%

S&P 500 +4.8%

S&P MidCap +10.9%

Russell 2000 +5.5%

Nasdaq +17.9%

 

Bulls 47.7

Bears 23.3 [Source: Chartcraft / Investors Intelligence…23.3 bear reading lowest since 12/07…not good. Reminder: this is a contrarian indicator]

 

Have a great week. I appreciate your support.

 

Brian Trumbore