For the week 7/13-7/17

“Three tax increases proposed by President Obama and House Democrats on the richest Americans could produce the highest tax rates in a quarter-century. 

“The latest is this week’s proposal by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., and others to impose a surtax of up to 5.4% on annual incomes of $350,000 or more to help pay for overhauling the health care system. About 500,000 taxpayers earning $1 million or more would pay the full surtax. 

“Obama’s budget, released in February, calls for letting tax cuts for top earners enacted at the beginning of the decade expire in 2011. That would raise the top rate from 35% to 39.6% on incomes above $373,000. 

“During the presidential campaign, Obama favored bolstering Social Security by subjecting the family income above $250,000 to the 12.4% payroll tax, paid equally by employees and employers. The tax currently is levied on income up to $102,000. 

“All told, shifting the cost of health care, Social Security and other budget priorities toward high-income Americans would mean an actual tax rate above 45% for the wealthiest – ‘levels never seen,’ says Clint Stretch, a tax expert at Deloitte Tax LLP. When top rates were higher, tax shelters helped reduce the percentage of income paid. 

“White House press secretary Robert Gibbs said this week that Obama ‘believes that the richest 1% of this country has had a pretty good run of it for many, many, many years.’ The top 1% had income of $557,000 or more, according to the non-partisan Tax Policy Center. 

“Relying on top earners to pay for benefit programs risks reversal if Republicans return to power, says William Gale of the Brookings Institution, a think tank. ‘We cannot do this on the backs of the rich,’ he says. 

“Robert McIntyre of the liberal Citizens for Tax Justice says Obama eventually must look beyond the 6.4 million taxpayers earning $200,000 or more. ‘At some point, you just can’t squeeze them anymore,’ he says.” 

Robert Samuelson / Washington Post 

“(The) deeper source of our predicament is a self-indulgent political culture that avoids a rigorous discussion of government’s role. 

“Everyone favors benefits and opposes burdens (taxes). Republicans want to cut taxes without cutting spending. Democrats want to increase spending without increasing taxes, except on the rich. The differences between the parties are shades of gray. Hardly anyone asks the hard questions of who doesn’t need benefits, which programs are expendable and what taxes might cover remaining deficits…. 

“Obama would make matters worse. He talks about controlling ‘entitlement’ spending (mainly Social Security and Medicare) but hasn’t done so. He’s proposing just the opposite. His health-care proposal would increase federal spending. He says he will ‘pay for’ the added outlays with tax increases or other spending cuts, but what people forget is that every penny of this ‘payment’ could be used (and should be) to close the long-term deficit – not raise future spending and taxes.” 

“(By) many metrics, the economy has stopped falling drastically, but we are still in a painful recession, large by postwar standards. The bank crises seem to have abated for now and Wall Street is paying itself fantastically well again, thank heavens, after being rescued with taxpayer money. But housing is still extremely weak, profits are miserable and, most important, far too many Americans are unemployed – roughly 9.5%, by the latest data. 

“What is President Obama doing about it? Perhaps too much. And, possibly, his efforts are too diffuse. When I think about the economy I think about a plump man who has just been hit by a truck while crossing a street and is in severely critical condition with internal bleeding. Instead of just stabilizing his hemorrhaging, the doctor decides that while the patient is unconscious, he might as well also do a face lift, some coronary bypasses and a stomach-stapling to keep him from gaining weight while he is recovering (if he does recover). After all, a crisis is not to be wasted. 

“The problem is that all these ambitious operations create too much of a burden for the human body to bear. 

“Similarly, we have an administration that is simultaneously seeking to end the recession, discussing drastic changes to laws on foreclosures and energy use and completely changing the health care system. I respectfully question whether all of this makes sense.” 

Or you could say it’s financial suicide. The top tax rate in New York City could run as high as 59%, according to Washington-based Tax Foundation. And as the New York Post reported, “The $544 billion tax hike [proposed by House Democrats] would violate one of President Obama’s ironclad campaign promises: No family will pay higher tax rates than they would have paid in the 1990s.” 

And, “The legislation is especially onerous for business owners, in part because it penalizes employers with a payroll bigger than $400,000 some 8% of wages if they don’t offer health care.” 

President Obama told us he was going to work quickly…none of the ‘wait 24 hours’ attitude I like to employ. No thinking things through before acting. He’s like the Indians of the American West who would stampede buffalo over a cliff…everyone following the leader…and when it’s over, he’ll walk over to the edge with Rahm Emanuel and Nancy Pelosi, survey the carnage down below…bodies piled one on top of the other…shrug his shoulders and go, “Huh. Guess that didn’t work. Listen, Sasha’s got a ball game. I’m knocking off for a while.” 

I feel as if I’ve been very patient with the Obama presidency thus far. I wanted to see how things would play out, where he’d deviate, as he has in some aspects of foreign policy [like the aggressive stances on Afghanistan and Pakistan], but I think we’re all in agreement that aside from issues of national security and thwarting terrorism, there is nothing more important than ending the financial crisis and getting people back to work. Period. Everything else can wait. 

So for crying out loud, Mr. President; would you slow down?! It’s not even a matter of being ideologically pure and thinking you’ll soak the rich to pay for all your social programs. It’s plain recklessness, and as Ben Stein notes above, little of it makes any sense, including, critically, the health plan that the director of the Congressional Budget Office told a Senate committee “significantly expands the federal responsibility for health-care costs.” Long-term savings? Are you kidding me? Of course the whole point of tackling entitlements was to get control of our long-term liabilities, not increase them further. 

But all of us are going to have to take some responsibility ourselves. A USA TODAY/Gallup survey revealed the following. By 56-33 we want major changes to the health-care system this year. 6 in 10 favor the idea of requiring employers to provide health insurance. But 9 in 10 oppose limits on getting whatever tests or treatments they want. As with everything else in our society, we want it all; until we’re suddenly unemployed, or find ourselves working for half the pay we used to, and/or with a new employer who either doesn’t offer health-care or makes the employee pay far more than they were used to. Then we scream about it. It cracks me up.  

But now it’s about far more than just health-care and the Democrats’ plans to sock not just fat-cat Wall Streeters, whom I have little sympathy for myself, but the two-income family of, say, engineers, bringing home $250,000, combined, but living in a high-cost part of the country. They aren’t rich. No difference, says our president. 

I wonder what the makeup of the typical Obama rally will be in one year if he has his way on taxes? You just know that half the people, at least, in his audiences today are thinking to themselves, ‘Hey, what he just said applies to me. I’m not wealthy but I’m about to get whacked. Oh well, don’t want to look bad. I’ll clap.’ I’m thinking a year from now he could be talking in front of a crowd of street bums, with surly throngs outside. 

Admittedly, the preceding is a bit of a worst-case scenario, taken to the extreme, but there is real cause for concern these days and many of us are now placing our fates in the hands of the U.S. Senate, where it’s hoped cooler heads will prevail enough to rein in our leader and his worst intentions. As of Friday afternoon, they were indeed doing so. 

Meanwhile, after a four-week slide, stocks soared on the heels of solid, though hardly spectacular, earnings from some big players, including Intel, IBM, and investment banks JPMorgan Chase and Goldman Sachs. At the start of the week I jotted down nine key names; the first four plus Johnson & Johnson, Google, GE, Bank of America and Citigroup and they all beat. Wall Street took the data and ran with it, as the S&P 500 and Nasdaq soared 7%; the best week since coming off the March 9 lows. It didn’t matter that some, such as IBM, said business spending really wasn’t picking up, or that Google’s revenue growth was only 3%, or that no one really knows what bombs still lie beneath the surface at GE Capital, or that JPMorgan and Bank of America reiterated that while there might be a little lessening of future credit losses, we do still have a huge problem on our hands, particularly in commercial lending. Nor does it seem to matter that the states continue to hemorrhage, with first quarter tax revenues coming in down 11.7%. Or that a leading lender to small- and mid-sized businesses, CIT, is struggling for its life as I go to post and did not receive a federal bailout. [An actual positive.] 

Nope, the week was a perfect example of why I’ve been saying all year that while I’m as troubled as the next guy about the fundamentals in the economy, over the course of 2009 sentiment will trump lousy data and we’ll finish solidly positive. This week I look better than the previous four, for instance, but we have a long, long way to go before we can put ‘09 in the books…including a ton of items on the geopolitical front to deal with in the interim. 

One item that did help Wall Street, and was totally legitimate (as much as you want to believe the numbers), was the release of China’s second quarter GDP figure, up 7.9%, as its stimulus program has taken hold in a big way. In the month of June we also learned that industrial production rose 10.7% and retail sales 15% there. But the Beijing government is leery that the momentum can be continued, while recognizing that instead of the historic focus on export-led growth it needs to turn inward and generate a consumption economy. 

Staying on the global theme, while it didn’t carry the weight China’s data did, it was encouraging to see Singapore suddenly rebound, with a Q2 GDP that was up 20% over the prior quarter. Japan’s Central Bank also weighed in and while that nation remains solidly in recession, it reiterated the worst is over. 

[On the flip side, Russia’s GDP for the first half of the year was down a whopping 10%, Britain’s unemployment rate hit 7.6%, Canada’s rose to 8.6%, and Ireland’s a staggering 11.7%, headed to 15%. Ireland’s GDP is projected to decline 8.3% this year and another 3% in 2010.] 

Finally, more on a potentially critical issue for this coming fall and winter, that being H1N1. This week the World Health Organization said “The 2009 influenza pandemic has spread internationally with unprecedented speed. In past pandemics, influenza viruses have needed more than six months to spread as widely as the new H1N1 virus has spread in less than six weeks.” The pandemic is now deemed unstoppable. 

Yet we all know that for now the flu is not nearly as lethal as past variants, but it’s always been about the second wave and whether or not the virus mutates. 

Another thing, though, that I’ve been focusing on is the world’s preparedness, or lack thereof, and here there isn’t one good thing you can say. Not one. Picture that British health experts say they could see 65,000 deaths…by year end! Halfway around the globe, the Aussies saw a surge of 778 cases in just 24 hours. 

But when I was in Calgary last week, I read some troubling stories in the Canadian newspapers concerning that country’s lack of preparedness, including a severe shortage of both respiratory specialists as well as critical care nurses. In addition, as H1N1 strikes the lungs, there is a shortage, around the world, of a key instrument…respirators, or ventilators. How do I know this? Every story I see on the topic at some point talks of a system being potentially overwhelmed from top to bottom. [I’m trying to figure out a pure way to play the ventilator angle in the stock market, being convinced you’ll see a ton of press on this in the not too distant future.] 

So I reiterate.  We expect our health officials from the national level on down to be doing the work behind the scenes to prepare for a second wave that could explode in our faces and, while meetings are being held all over, addressing the same issues, there is zero reason to be reassured, even on the vaccine front, for now. [Regarding the latter, imagine the hoarding that will take place.] 

A long time ago when swine flu first hit the wires, I mused how I wouldn’t want to be living in a Third World country trying to deal with this. Now picture the scramble for essential care…for respirators…if H1N1 blew up in your community. Talk about rich vs. poor. America will become bribe nation. To be continued…. 

–With the aforementioned rally, including 7.3% on the Dow Jones up to 8743, the Dow is the only major index still off for the year, -0.4%. Nasdaq is now up 19.6%. But earnings season has just gotten started and while the likes of IBM importantly upped guidance for the full year, we still aren’t hearing too many statements that business is definitely picking up. 

–U.S. Treasury Yields 

Yields rose as money flowed from bonds back into equities, and there were a number of economic releases, including a 0.6% gain for June retail sales and a stronger than expected figure on housing starts for the month, that were encouraging, more in the case of the latter than the former, as retail sales were heavily influenced by the price of gasoline.  

The inflation numbers for June, ex-food and energy, were up 0.5% (PPI) and 0.2% (CPI). But on this front, as long as there is no pricing power, let alone wage increases, there is no inflation issue. For example, it’s pretty hard to cry wolf when the average American is working fewer hours today than they were earlier in the year. 

On the debt side, the federal budget deficit for fiscal 2009 passed the $1 trillion level for the first time ever (it was a record $454 billion in 2008) and with three months left on the year (thru 9/30), the expected final figure is between $1.8 trillion and $2 trillion. To call us a banana republic gives the nutritious banana a bad name. It’s more about arrogance. 

–As I write the CIT situation remains fluid though bankruptcy seems inevitable. While as the Journal notes, CIT was recently just No. 1,195 on Forbes’ list of the world’s 2,000 largest public companies, CIT nonetheless finances some one million businesses, most of which will not easily find alternative financing, yet Wall Street took it all in stride, at least for now. 

–China’s foreign exchange reserves topped $2 trillion, with 65% in the U.S. dollar. [Generally, worldwide, governments have the same percentage of their assets in the dollar, 65.] 

–Economist Paul Krugman on Goldman Sachs’ powerful earnings report (net income of $3.44 billion) and the largesse to be handed out to employees down the road.  [Anywhere from $600,000 to $900,000 per given first half performance.] 

“The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded – and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand. 

“And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong…. 

“What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop – an assurance that it will rescue major financial players whenever things go wrong. 

“You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee. 

“Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time…the finance lobby is already fighting against even the most basic protections for consumers. 

“If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road…. 

“The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to pre-crisis levels. But it’s bad news for almost everyone else.” 

“(Goldman) has used every resource at its disposal to weather a brutal storm, accepting government aid during an emergency, then returning it after the danger passed. It has managed risks better than reckless competitors. As a wave of consolidations swamps Wall Street, Goldman is one of the winners getting stronger, at the expense of poorly run firms like Bear Stearns, Lehman Brothers and Merrill Lynch. If more companies had Goldman’s mojo, we’d probably be out of the recession by now.” 

–A former U.S. government adviser, Philip Verleger, says a crude oil surplus of 100 million barrels will accumulate by the end of the year as a result of the recession that will help in sending the price to the $20 level…by year end. “If the recession continues and it’s a warm winter, it’s going to be devastating.” The average forecast, however, as tabulated by Bloomberg, calls for an average price in the fourth quarter of $64. 

–It’s not clear why Barack Obama’s car czar, Steven Rattner, abruptly resigned but it’s easy to suspect an ongoing investigation by New York Attorney General Andrew Cuomo into Rattner’s former firm, Quadrangle Group, had more than a little to do with Rattner’s decision. Quadrangle is implicated in a pay-for-play scandal involving a New York State pension fund. Cuomo’s office has already filed charges against six individuals, at least two of whom had extensive dealings with Rattner. Regardless, at this point both General Motors and Chrysler have emerged from bankruptcy so much of the heavy lifting has been done. From here on it’s supposed to be up to the automakers…and the global economy. 

–Top 5 emitters of greenhouse gases, 2007, millions of tons…just wanted to get this down for the archives. 

China 1,802
U.S. 1,586
Russia 432
India 430
Japan 337 

And now it’s on to Copenhagen in December. I hope the store owners are preparing for anarchy, because that’s what you’ll see in the streets there…more totally senseless violence just for the hell of it. 

But the Washington Post’s Anne Applebaum had the following thoughts. 

“It’s (time) for those international politicians who really care about climate change – I’m assuming this includes at least the Europeans, as well as the Canadians – to move on. The drama is over: The American president and the U.S. delegation have rejoined the negotiations. There is no further need for green, self-righteous preening. Attacks on greedy, polluting Uncle Sam will fall flat. Instead of pontificating at summits, they, too, should go home, brave the wrath of their voters and slap higher taxes on fossil fuels in their countries. If you care about the planet, save the jet fuel, cancel the conferences and focus on creating the economic conditions for energy entrepreneurship. Then, this problem will eventually solve itself.” 

–In catching up on my reading, last week I missed the revenue numbers for Atlantic City’s casinos, down 13.6% in June compared with a year earlier. The importance of this month was that it was the first one where A.C. felt the impact of the newly-opened Sands casino in Bethlehem, Pa., which took in $19.6 million its first full month of operations. All 11 of Atlantic City’s casinos reported declines. 

–Former Treasury Secretary Henry Paulson Jr. vehemently defended his tenure during a House committee hearing, Congress having called him to testify on how hard he pressured Bank of America to complete its acquisition of Merrill Lynch. Yes, Paulson said, I did warn Bank of America CEO Ken Lewis that he could be removed if BofA backed away from the deal.   The bottom line is Paulson had the right to do so, though I’m still not sure where the truth lies when it comes to Merrill’s exploding losses and the timing of the shareholder vote approving the merger; as in just how much did Lewis know and when. 

–Home sales in the Hamptons fell a whopping 58% in the second quarter, with the median sales price in Southampton Village plunging 48%….ahem ahem…to $1.88 million. [A bit more realistic, the median price in Sag Harbor Village fell 46% to $605,000.] 

–Average asking office rents in Manhattan fell 29% in June from year ago levels, and are off 44% from their peaks in the first quarter of 2008, according to Cushman & Wakefield, and Crain’s New York Business. [New York City’s unemployment rate jumped to 9.5% in June, up from 8.9% in May.] 

–Interesting comment in the Financial Times, as part of a report by Guy Dinmore, concerning the latest tax amnesty program, the third, offered by the government of Silvio Berlusconi in Italy. In attempting to get more to repatriate billions of euros, an opposition leader said the amnesty allows the “ruling caste to bring back illegal profits while normal people cannot even make it to the end of the month.” At issue is the fact that many of Europe’s wealthy evade taxes all the time, with Switzerland accounting for 58% of previously repatriated money, for example, but governments like Berlusconi’s really have no other alternative than to offer a carrot and stick approach. Encourage repatriation while aggressively closing loopholes. [Related to the proceeding is the ongoing battle between UBS and the U.S. government concerning offshore Swiss accounts and suspected tax evasion.] 

–Iceland’s parliament voted 33-28 to join the European Union as a way of stabilizing its devastated economy, though it could take about two years of negotiations to get it done. But many Icelanders are leery of giving up their independence, especially when it comes to the critical fishing industry, so talks between the government and the E.U. are likely to be testy, if not tasty. 

–Marriott International provided an important snapshot of the travel industry in reporting that revenues for the second quarter declined from $3.19 billion to $2.56 billion, 20%, while revenue per available room, a key metric, fell 26%. 

–An advertising forecaster, Magna, part of the Interpublic Group, said that ad revenue probably fell 18% in the second quarter compared with a year earlier. But the headline in the Journal reads, “Worst of Ad Slump Is Over, Forecaster Says.” So what’s the good news? Magna says “ad revenue will fall next year, but at a more moderate 2%.” 

In other words, it’s a totally bogus headline because let me tell you, if ad revenue doesn’t begin to pick up sometime this year, let alone next, there will be no magazines or newspapers left. McGraw-Hill, for example, announced it will attempt to sell BusinessWeek, one of the great publications around, though no one can figure out who’d want to buy it. As reported by Keith J. Kelly of the New York Post, BusinessWeek earned $100 million at the height of the dot-com bubble, but is on track to lose $75 million in 2009. 

When I was in Canada, I read three excellent Canadian papers each day, the Globe and Mail, the National Post, and the Calgary Herald. I was pleased to see all three also seemed pretty thick compared to the size of papers in the U.S., assuming your community still has one. 

My last night in Calgary, I had an interesting conversation at the hotel bar (where all good conversations originate) on this topic with a couple from California that has dual citizenship and the three of us bemoaned the threat to democracy posed by the crisis.  Who is going to have the resources to conduct the kind of investigative journalism that a thriving democracy needs? Individual bloggers? Politico.com apparently works, but how many other alternative press type deals will succeed financially?  

And look at someone who takes this kind of thing seriously, such as moi. Where do I get my stories? From in excess of 30 journals and newspapers. At the rate they are going under, we’ll be reading from the same two or three sources. And that’s not good, sports fans. 

–You’ve all received this robo-call… “This is Julie from the home modification loan program. Our records show you are delinquent, or have made a number of late payments. Please press ‘1’ to talk to a representative….” Never having missed a loan payment, one of these days I will press ‘1’ and give the person on the other end a piece of my mind, which I recognize will probably end up being a mistake on my part. But how these bastards continue to get away with this crap is beyond me. 

–It turns out New York Mets owner Fred Wilpon lost $700 million in the Bernie Madoff Ponzi scheme, more than originally estimated, as friend Larry King told GQ (nice friend, that Larry). The Mets organization, though, continues to dispute this but the fact is, the team, in desperate need of help to stay in the playoff chase, having been decimated by injuries, can’t afford to take on any big contracts…this much is obvious. 

–I haven’t changed the 50/50 split between stocks and cash in my official model portfolio, and with my own holdings haven’t done a thing in weeks. My sizable geothermal position, however, hit the tape this week as part of a four-company merger, if you can imagine that. With the credit crisis, it was the only way management in all four thought they could proceed with various projects…and upon analysis makes sense to present to the market place a much larger operation that can more easily raise capital. I’m holding. 

As for my China biodiesel company, finally, there appears to be progress and I’m keeping my fingers crossed it will one of these days be recognized by more than the 97 shareholders of record at last report. That’s right. 97. Unbelievable. Through my cryptic comments over the years I’m probably responsible for 20 of them. Alas, I’m guessing it’s not until mid-November, and the release of the third quarter report, that we’ll begin to see real sales progress, though more than likely not until after the fourth when the new plant is fully operational. 

Afghanistan: As the British have taken a large number of casualties here in recent weeks, and with a death toll of at least 184, the people are increasingly turning against the war, with Prime Minister Gordon Brown rejecting a recommendation by his military chiefs to send 2,000 more troops to Afghanistan and instead approving only 700, taking Britain’s overall contribution to 9,000. One opposition leader, Nick Clegg, said lives were being “thrown away.” Others talk about the monetary cost during a severe financial crisis, as well as the lack of vision when it comes to an end game. 

The same feelings are felt in the likes of Canada, Germany, and France; other contributors to the effort. Last Saturday, after posting this column, I went to The Military Museums in Calgary, a series of exhibits highlighting Canada’s armed forces. There were some volunteers at the place, all Canadian Vets, and in talking with one, Keith, I noted how I’m very aware of Canada’s sacrifices for the cause and he told me that the families of those killed have remained positive and are “so proud” of their kids. Then he added, “You’ve got to confront the bastards. It’s that simple.” Thank God for our friends up north. 

Iran: Friday was a potential watershed day as the man I’ve been writing of for years, former president Ali Akbar Rafsanjani, gave his first Friday sermon since the reelection of Mahmoud Ahmadinejad, saying large numbers of Iranians still doubted the result. Rafsanjani was interrupted with chants of support for Mir Hossein Mousavi, Mousavi attending along with another candidate, Mehdi Karoubi. The sermon was broadcast live on state radio, highly significant. 

“In the current situation it is not necessary for us to have a number of people in prisons…we should allow them to return to their families,” Rafsanjani declared. “We are all members of a family. I hope with this sermon we can pass through this period of hardships that can be called a crisis.” 

Rafsanjani also said, “It is not necessary to pressure media. We should allow them to work freely within the law.” 

As the BBC reported, his comments came close to a direct challenge to Supreme Leader Ayatollah Ali Khamenei. Thousands protested in the streets of Tehran afterwards, more arrests were made. 

Rafsanjani is a billionaire, the richest man in Iran, and he is the ultimate power-broker. He has also been implicated in terrorist actions against Israel, though mostly decades ago. He has become, however, in recent years as close to a pragmatist as exists in his country and it was a natural to end run Ahmadinejad years ago and open a line of communication with Rafsanjani. But the Bush administration’s foreign policy lacked creativity and imagination, as I’ve written endlessly. We could have cut a deal with this man on Iran’s nuclear program years ago, allowing them to pursue it for peaceful purposes, only, with full inspections and the spent fuel being sent to Russia. Alas the Bush White House didn’t act, and we find ourselves in the predicament we have today. As in… 

Israel: Peter Berkowitz of the Hoover Institution had the following thoughts on Israel’s approach to Iran’s nuclear weapons program in an op-ed for The Weekly Standard. 

Should Israel attack, “The military costs might be serious but would be manageable, Israeli experts believe. They envisage six possible responses…” 

“First, Iran, lacking a capable air force, might launch Shahab-3 long range ballistic missiles at Israeli cities and probably at Dimona, Israel’s nuclear facility in the Negev…. 

“Second, Iran might order Hizbullah into action. Since the 2006 Lebanon war…that group has rearmed and upgraded. It has enlarged its arsenal of rockets and missiles from about 12,000…to 40,000…. 

“Third, Iran might demand that Syria attack Israel…. 

“Fourth, Iran might order terrorist cells around the world to attack synagogues, Israeli embassies, and similar targets…. 

“Fifth, Iran might attack American targets in Iraq and foment unrest among Iraqi Shia…. 

“Sixth, Iran might attack Persian Gulf shipping…. 

“In sum, containment is a grim option. So is a military strike on Iran’s nuclear facilities. And relying on prayer for Mousavi and the Iranian people to overthrow the mullahs is no option at all, at least not for the state of Israel, the front line in Islamic radicalism’s war against the West. Thus, in the short time left before Israel is compelled by an Iran fast closing in on a nuclear capability to choose between two grim options, Israel’s highest priority will be to persuade an equivocating United States, a dithering Europe, and an obstructionist Russia that a nuclear Iran is not just an Israeli problem or a Middle Eastern problem but a problem for the United States and the world.” 

Lebanon: Talks on forming a new government are not going well, as the winning March 14 Forces’ coalition is refusing to grant the opposition, i.e., Hizbullah, veto power in the next Cabinet. 

North Korea: The UN Security Council barred five North Korean officials from leaving the country and their foreign assets were frozen as punishment for their work on the North’s nuclear weapons program. Importantly, both Russia and China not only agreed to the sanctions on the individuals, but also the banning of any work with a number of companies that are suspected of having transferred both funds and technology to Pyongyang. 

Meanwhile, there are reports that Kim Jong-il’s frail look is due to pancreatic cancer, but some are questioning this diagnosis. A professor at the University of North Korean Studies in Seoul said, “He could not have endured the workload if he had pancreatic cancer on top of his post-stroke illness and chronic diabetes,” referring to 87 work-related trips Kim has made this year. [Nuclear Threat Initiative] 

China: Just what Beijing is doing with regards to the espionage flap and four Rio Tinto employees is unclear, but President Hu Jintao is reportedly directly involved in the investigation that saw the four Anglo-Aussie mining giant’s workers placed under arrest, including an Australian citizen, Stern Hu, who was the iron ore marketing chief for Rio. Shanghai secret police detained and charged them with stealing state secrets as part of ongoing price negotiations in supplying Chinese mills with the raw material. The last known occasion of a mainland employee of a foreign firm being arrested was all the way back in 1996. 

At issue is the relationship between multinationals and employees with state-owned companies that often have little oversight over their own staff when they are involved in business talks. But the secret police is often in the background. 

So Rio Tinto said claims that its employees bribed Chinese mill officials were “wholly without foundation,” while the Chinese government says that the negotiations with corrupt local officials caused “huge losses” to China’s economy, by paying higher prices than were warranted. Australian Prime Minister Kevin Rudd, under pressure at home to be firm with China and its handling of both an Aussie citizen and corporate titan, warned China of possible economic consequences in a critical trade relationship. China responded by saying Australia needs to stop interfering “in China’s judicial sovereignty.” But as the Sydney Morning Herald pointed out, the Ministry of Foreign Affairs spokesman who uttered this statement went on to prejudge the case “by treating the allegations against Mr. Hu and his staff as fact.” 

The United States has expressed its great concern with respect to U.S. investors and multinationals that have projects here. It’s a tangled mess, with few real facts as yet, but China is playing with fire. 

On a different matter, the U.S. expressed concerns over the rising tension between China and Vietnam in the South China Sea. Beijing told the U.S. and other foreign oil companies to halt work with Vietnamese partners or face consequences. A State Department official said this week, “We object to any effort to intimidate U.S. companies.” 

Lastly, al-Qaeda has vowed to avenge the deaths of Muslims in Urumqi by targeting China’s extensive workforce in northwestern Africa, including Algeria; the first time Osama bin Laden has directly threatened China or its interests. 

Indonesia: The government here has done a great job in its own war on terror and had not suffered an attack since 2005 until Friday morning’s twin bombings at the Marriott and Ritz Carlton in Jakarta claimed nine lives. What’s particularly disconcerting is that the terrorists, suspected of being from a Jemaah Islamiyah splinter group, had checked into one of the hotels as guests and over the past few days assembled the bombs. [One side note: The Manchester United soccer team was scheduled to stay at the Ritz on Saturday, but has since canceled its first trip to the country.] 

Japan: Prime Minister Aso’s days are numbered and his Liberal Democratic Party is in a panic as it could be swept from power in elections called for Aug. 30, this after suffering a heavy defeat in municipal balloting last weekend. The people have zero confidence the LDP has the right formula for getting the nation out of its deep recession. 

Russia: So much for a reset in relations between the U.S. and Russia as the two tangle anew over Georgia. Vice President Biden is scheduled to visit Tbilisi on Tuesday after a stop in Ukraine; both nations being at odds with Russia and desiring to join NATO, which the Kremlin is dead set against. It is a significant show of support, as was the arrival of a U.S. guided missile destroyer for joint exercises with the Georgian coast guard. [At the same time Russian jets were pounding mock targets nearby.] 

“I would not like to specially recount what happened last year…and to what we were forced to give a tough and pretty effective response. I hope this lesson will be deeply ingrained in the memory of those now trying to reshape the current order, those trying to solve their personal problems by violence.” [Medvedev was alluding to rumors that Georgian President Saakashvili, under serious pressure domestically, may seek to divert attention by starting another war.] 

Separately, a leading human rights activist was kidnapped outside her home in Grozny, Chechnya, and killed. Natalya Estemirova had won three international awards for human rights activities, including the inaugural Anna Politkovskaya Award, named for the Russian investigative journalist who was killed three years ago. The two were close  colleagues.  Estemirova was highly critical of the barbaric Chechen leader, Ramzan Kadyrov, so you really need look no further than him to figure this one out. 

[As an aside, I can guarantee Kadyrov will at some point be involved in nuclear terrorism, most likely acting as an intermediary, such as in providing cash and safe houses for al-Qaeda types moving from Pakistan to Europe and points beyond. This is one of the truly awful people on the planet.] 

Honduras: Ousted President Zelaya is insisting on a 72-hour deadline for resolving the crisis here when mediation efforts resume in Costa Rica today, Saturday. Zelaya is threatening to take action if he isn’t returned to power, but just what he can do is unclear. Costa Rican president Oscar Arias, as mediator, has also said the reinstatement of Zelaya is non-negotiable. 

Mexico: The death toll in the drug war is now over 7,700 since 2008, with 30 killed in a 48-hour period last week, including 12 police officers who were conducting an investigation. A mayor was also killed. 

South Africa: Update…striking construction workers agreed on a new contract and have gone back to work; important because any lengthy stoppage threatened the opening of five new venues for the 2010 World Cup. 

–We note the passing of Walter Cronkite, 92. Personally, I’ll most miss his appearances with the Vienna Philharmonic, emceeing the New Year’s Day concerts from there on PBS, a tradition in the Trumbore family. And it’s ironic he passed away this weekend on the 40th anniversary of our landing a man on the moon, Cronkite being as closely associated with the space program as he was for the Kennedy assassination and his denunciation of the war in Vietnam. 

–Supreme Court nominee Sonia Sotomayor did not melt down in her Senate hearings and is headed to an easy confirmation. I really thought more would be made of her decision in the Ricci / New Haven firefighter reverse-discrimination suit, so I was wrong on this one. On the main issues such as abortion and Roe v. Wade, Sotomayor has learned to play the game of saying nothing to give her opinions away. 

–CIA Director Leon Panetta canceled a secret program in place since 2001 to dispatch assassination teams targeting senior al-Qaeda leaders, though the plans were never made operational. As a former intelligence officials told the New York Times’ Mark Mazzetti and Scott Shane: 

“It sounds great in the movies, but when you try to do it, it’s not that easy. Where do you base them? What do they look like? Are they going to be sitting around at headquarters on 24-hour alert waiting to be called?” 

Panetta, though, told the Senate and House intelligence committees that the counterterrorism program was under the direct orders of Vice President Cheney, who kept it quiet from Congress. 

The problem isn’t this particular program, in my mind. You’d hope there was something like this unit in the works, after all, when it came to dealing with the likes of bin Laden and Zawahiri, but because it’s Cheney, what else was he keeping secret? 

–Sarah Palin, in an interview with the Washington Times, said, “I will go around the country on behalf of candidates who believe in the right things, regardless of their party label or affiliation” when she leaves office on July 26. Then she added she was not ruling anything out as to her political future, using a now familiar (for her) line: 

“Let me peek out there and see if there’s an open door somewhere. And if there’s even a little crack of light, I’ll hope to plow through it.” 

Personally, I’d like to know what’s on the other side, first, before I plow through into a pack of wolverines, but that’s me. 

Palin also wrote an op-ed for the Washington Post on cap-and-trade and if you want a good laugh, read it, because you’ll quickly see there is no way she wrote the column herself. 

“What the mainstream media wants is not to kill her but to keep her story going forever. She hurts, as they say, the Republican brand, with her mess and her rhetorical jabberwocky and her careless causing of division. Really, she is the most careless sower of discord since George W. Bush, who fractured the party and the movement that made him. Why wouldn’t the media want to keep that going? 

“Here’s why all this matters. The world is a dangerous place. It has never been more so, or more complicated, more straining of the reasoning powers of those with actual genius and true judgment. This is a time for conservative leaders who know how to think. 

“Here are a few examples of what we may face in the next 10 years: a profound and prolonged American crash, with the admission of bankruptcy and the spread of deep social unrest; one or more American cities getting hit with weapons of mass destruction from an unknown source; faint glimmers of actual secessionist movements as Americans for various reasons and in various areas decide the burdens and assumptions of the federal government are no longer attractive or legitimate. 

“The era we face, that is soon upon us, will require a great deal from our leaders. They had better be sturdy. They will have to be gifted. There will be many who cannot, and should not, make the cut. Now is the time to look for those who can. And so the Republican Party should get serious, as serious as the age, because that is what a grown-up, responsible party – a party that deserves to lead – would do. 

“It’s not a time to be frivolous, or to feel the temptation of resentment, or the temptation of thinking next year will be more or less like last year, and the assumptions of our childhoods will more or less reign in our future. It won’t be that way. 

–Defense Secretary Robert Gates is once again showing he’s not afraid to take on the establishment as he called for a halt in production of the F-22 stealth fighter jet. 

“We must change the way we think and the way we plan – and fundamentally reform – the way the Pentagon does business and buys weapons.” This as the Senate has approved seven more and the House, 12. 

“Every defense dollar diverted to fund excess or unneeded capacity – whether for more F-22s or anything else – is a dollar that will be unavailable to take care of our people, win the wars we are in, to deter potential adversaries, and to improve capabilities in areas where America is underinvested and potentially vulnerable.” 

“We ended up with helicopters that cost nearly half a billion dollars each and enabled the president to, among other things, cook dinner while in flight under nuclear attack.” 

“Defense Secretary Robert Gates wants to kill the F-22 program. Chairman of the Joint Chiefs Mike Mullen wants to kill it. The Secretary of the Air Force and the Air Force chief of staff want it dead. Sen. John McCain – who knows something about air combat – is crusading to stop this massive boondoggle. 

“Even President Obama has threatened to veto any Defense appropriations bill that funds added F-22s above the 187 already programmed. 

“But guess who’s suddenly discovered the importance of a strong national defense? Congressional Democrats, led by the naval hero of Chappaquiddick, Sen. Ted Kennedy (guess which state enjoys especially lucrative F-22 sub-contracts?). 

“This is a disgrace beyond measure. Sure, a mere $350 million each for fighters that don’t work doesn’t sound like much these days – hardly enough for a Starbucks tip on Capitol Hill. 

“And yes, our troops deserve the best. But the F-22 isn’t the best, just the most expensive. The fundamental requirements for weapons should be that they work and fill a need. The F-22 flunks on both counts. This program is sheer theft. 

“For over a decade, I’ve warned in print that the F-22 was a scam. But whether or not the pen is mightier than the sword, it ain’t mightier than the pork barrel. You, the taxpayer, need to act. Contact your Congress member and tell him or her to support our troops and kill the F-22.” 

By the way, one of the other main congressional supporters of the F-22 is Dem. Cong. John Murtha, the immensely corrupt chairman of the appropriations committee. “We’ll work it out,” he said the other day. “In the end, the bill won’t be vetoed.” This will be interesting. 

–I seldom, if ever, quote the New York Times’ editorial board, but the title of one piece the other day caught my eye, “California’s Budget Crisis and the Parks,” being a fervent proponent of our national parks system and its dedicated workers. 

Governor Schwarzenegger is proposing to close 220 state parks in order to save an estimated $213 million over two years. So I heartily concur with the following Times opinion. 

“There are no easy trade-offs….But it is worth pointing out that state parks provide low-cost recreation at a time when low-cost recreation is at a premium. Closing them means no water, no electricity, no public access and – because rangers would be laid off – no policing of what would become vacant lands. 

“State parks exist not only to offer recreation but also to protect natural resources. That protection would essentially vanish. It’s also worth considering the additional cost, in a better economic climate, of reopening the parks after nearly two years with no maintenance.” 

–A few more notes on my trip to Canada for The Calgary Stampede. Crowds actually picked up and the weekend’s attendance didn’t reflect the tough financial times, the worst economy in two decades for heavily energy-dependent Alberta. 

In my visit to The Military Museums, when I walked in one of the Vets I met was 85-year-old Ernie Bagstad. What a delightful fellow. He showed me around some and then went back to his duties while I walked through the art gallery section.   It was then I read a panel on Canadian POWs and the tale of the very same Ernie. Turns out he won 25,000 cigarettes playing cards, a most admirable feat, there being nothing else to play for. 

So I go back to him and say, “You won 25,000 cigarettes?” Ernie grinned broadly and it turns out he was in a prison camp in Germany that had 50,000 Russians, 40,000 Americans, and 400-500 Aussies and Canadians. Gen. Patton liberated them and Ernie got to see the man. But the one thing Ernie vividly remembers is Patton telling the prisoners that the next day they would receive a special treat… “White bread with raisins.”  

Ernie also told me that, incredibly, he was touring a winery in Australia with his wife a while back and he kept staring at the proprietor, and then the owner was staring at Ernie, as if they knew each other, and it turns out they were POWs together. 

–It’s amazing it was 40 years ago that Neil Armstrong and Buzz Aldrin walked on the moon as Michael Collins hovered overhead. 

Buzz Aldrin / Washington Post…in opposing NASA’s current “Vision for Space Exploration” that would resume lunar exploration. 

“Instead, I propose a new Unified Space Vision, a plan to ensure American space leadership for the 21st century…. 

“A race to the moon is a dead end….The moon is a lifeless, barren world, its stark desolation matched by its hostility to all living things. And replaying the glory days of Apollo will not advance the cause of American space leadership or inspire the support and enthusiasm of the public and the next generation of space explorers…. 

“Let the lunar surface be the ultimate global commons while we focus on more distant and sustainable goals to revitalize our space program. Our next generation must think boldly in terms of a goal for the space program: Mars for America’s future. I am not suggesting a few visits to plant flags and do photo ops but a journey to make the first homestead in space: an American colony on a new world. 

“Robotic exploration of Mars has yielded tantalizing clues about what was once a water-soaked planet….And the best way to study Mars is with the two hands, eyes and ears of a geologist, first at a moon orbiting Mars and then on the Red Planet’s surface. 

“Mobilizing the space program to focus on a human colony on Mars while at the same time helping our international partners explore the moon on their own would galvanize public support for space exploration and provide a cause to inspire America’s young students….If we avoided the pitfall of aiming solely for the moon, we could be on Mars by the 60th anniversary year of our Apollo 11 flight.” 

Charles Krauthammer / Washington Post 

“Astonishing. After countless millennia of gazing and dreaming, we finally got off the ground at Kitty Hawk in 1903. Within 66 years, a nanosecond in human history, we’d landed on the moon. Then five more landings, 10 more moonwalkers and, in the decades since, nothing. 

“To be more precise: almost 40 years spent in low Earth orbit studying, well, zero-G nausea and sundry cosmic mysteries. We’ve done it with the most beautiful, intricate, complicated – and ultimately, hopelessly impractical – machine ever built by man: the space shuttle…. 

“America’s manned space program is in shambles. Fourteen months from today [ed. when the space shuttle is retired], for the first time since 1962, the United States will be incapable not just of sending a man to the moon but of sending anyone into Earth orbit. We’ll be totally grounded. We’ll have to beg a ride from the Russians or perhaps even the Chinese. 

“So what, you say? Don’t we have problems here on Earth? Oh, please. Poverty and disease and social ills will always be with us. If we’d waited for them to be rectified before venturing out, we’d still be living in caves…. 

“We didn’t go to the moon to spin off cooling suits and freeze-dried fruit. Any technological return is a bonus, not a reason. We go for the wonder and glory of it. Or, to put it less grandly, for its immense possibilities. We choose to do such things, said JFK, ‘not because they are easy, but because they are hard.’ And when you do such magnificently hard things – send sailing a Ferdinand Magellan or a Neil Armstrong – you open new human possibility in ways utterly unpredictable. 

“The greatest example? Who could have predicted that the moon voyages would create the most potent impetus to – and symbol of – environmental consciousness here on Earth: Earthrise, the now iconic Blue Planet photograph brought back by Apollo 8? 

“Ironically, that new consciousness about the uniqueness and fragility of Earth focused contemporary imagination away from space and back to Earth. We are now deep into that hyper-terrestrial phase, the age of iPod and Facebook, of social networking and eco-consciousness. 

“But look up from your BlackBerry one night. That is the moon. On it are exactly 12 sets of human footprints – untouched, unchanged, abandoned. For the first time in history, the moon is not just a mystery and a muse, but a nightly rebuke. A vigorous young president once summoned us to this new frontier, calling the voyage ‘the most hazardous and dangerous and greatest adventure on which man has ever embarked.’ And so we did it. We came. We saw. Then we retreated. 

Meanwhile, the Russians are plowing ahead with thoughts of Mars, ending a simulated 105-day space trip on Tuesday that was designed to test the responses of four Russians, a Frenchman and a German to the kind of isolated surroundings they would experience in a manned mission to Mars. But they were only in a sealed compartment in a Moscow scientific complex. However, a 520-day isolation is planned for next year, roughly the amount of time a Mars mission would take. 

Back to Krauthammer and Aldrin, here’s my take on it all. In fourteen months, you’ll be able to make the case that America is highly overrated. Once fat and happy, but now paying the price…as we load our children up with $trillions more in debt and with leaders of both parties that are corrupt and morally bankrupt.  

And all we’ll do is sit around and complain, increasingly looking inward, disgusted and angry, turning on each other instead of glancing skyward, dreaming big thoughts, and going for it. “We choose to go to Mars…not because it is easy, but because it is hard.” 

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

Returns for the week 7/13-7/17 

Dow Jones +7.3% [8743]
S&P 500 +7.0% [940]
S&P MidCap +7.7%
Russell 2000 +8.0%
Nasdaq +7.4% [1886] 

Returns for the period 1/1/09-7/17/09