For the week 9/7-9/11

[Posted 7:00 AM ET…Charlotte, NC]

 

 

For the better part of the year I have been writing of two potential game-changers that could upset the Street and the rally we’ve seen in equity prices, worldwide, since the March lows; H1N1 and Iran’s nuclear weapons program.

 

On the former, the news this week was better. Not only did we learn a single dose vaccine is probably all we need (once it is mass produced…hopefully by October), but when looking at key early tests of the flu, such as at Washington State, where 2,000 students came down with it, the situation quickly calmed down and the cases simply weren’t that serious. And so I’m lowering my own alert, though I’ll reverse course if conditions warrant. The message about employing proper hygiene has gotten out and it’s conceivable such simple acts just may avert disaster, until the next time H1N1 comes around in a mutated form. 

 

It does remain, however, all about the airlines. As long as they don’t start canceling flights and issuing all manner of directives that become a daily staple on the national news, we’ll be OK. One thing seems clear. You are not likely to see panic from our political leaders because, for starters, they recognize a full-blown health crisis would also send the economy cascading anew and this time we might not get back up. It would set in motion a whole new chain of events, including further layoffs, another round of declines in home prices, further reductions in the level of consumer spending, bankruptcies, foreclosures, etc.

 

As for Iran, though, this was not a good week. In fact I will be shocked if Israel doesn’t attack the known weapons facilities there in November.

 

First off, the week began with Tehran offering to restart negotiations with the Group of Five plus one (Russia, China, U.S., France, Britain and Germany) but ignored the key production issues, nor did Iran offer to suspend its enrichment of uranium. President Obama’s own envoy to the International Atomic Energy Agency warned Iran is close “to a dangerous and destabilizing breakout” in capacity. The IAEA’s chief, Mohamed ElBaradei, long viewed as an appeaser in this way too long running movie, admitted that Tehran “can not refuse” the Obama administration’s “sincere offer, without preconditions, to talk.” Iran has also refused to cooperate with the IAEA for virtually the entire year.

 

A few days later, President Ahmadinejad said his country wouldn’t negotiate away their “undeniable” rights, including nuclear development.

 

Then, on Thursday, Russian Foreign Minister Sergei Lavrov said Moscow wouldn’t back any new sanctions on Iran, such as a cutoff of much-needed gasoline supplies, the preferred next step by the United States, France, Britain and Germany. So much for a “reset” in U.S.-Russian relations. President Putin then echoed these comments.

 

For his part, President Obama had previously set a late September deadline for Iran to accept his offer to negotiate. The U.N. General Assembly convenes Sept. 23-25 in New York and all the key players will be there. Talks on the side, and in formal sessions, will focus on this issue. Ahmadinejad will give a speech and bluster that the world does nothing about Israel’s ‘secret’ stash of nukes, while at the same time arguing Iran needs its own nuclear program for ‘peaceful means’ and as a way to diversify away from using its valuable oil for domestic purposes when it needs the foreign currency obtained from export of same. The meeting will wrap up and Israel will refine the date to attack as the White House resigns itself to this fact and begins to prepare its embassies and key targets around the world to begin a lockdown.

 

But then on Friday, the White House suddenly confirmed the rumor that they would accept Iran’s offer of talks. And a State Department spokesman went so far as to say Washington would then reassess in December…December!…just how well they were going. This is absurd, and totally unacceptable to Israel.   President Obama is falling for Iran’s stall game…its ‘four corners’ offense.

 

But barring a backdown by Iran, allowing intrusive inspections, or a change in government, Israel can not afford to wait much longer. Friday’s Wall Street Journal talked of a secret trip Israeli Prime Minister Netanyahu probably made to Moscow this week, with a number of agenda items, including peace talks with the Palestinians, Russia’s weapons sales to Iran, and Israel’s designs on the nuclear weapons program, but I think the Journal and others have failed to divine just what transpired.

 

I believe there is a standing agreement between Russia and Israel. Russia will not stand in the way of an Israeli strike as long as Israel recognizes that Russia has significant commercial interests, including future arms sales to Iran. The Palestinian issue is significant to a much lesser extent. Netanyahu was also no doubt told by the Kremlin that Israel needs to understand Russia will blast the Israelis when they strike, rhetorically, that is, but the two camps will understand the relationship goes beyond this.

 

As for Israel and the U.S., there’s really no need to talk; Israel is going to do what it has to do, regardless of Washington’s moves on Friday.  [For a clue, look at what Israel is doing on the settlements issue.]

 

So this does indeed become a game-changer, as, for starters, the price of oil will soar, short-term, putting a crimp on the fragile global recovery. [The Saudis will then attempt to help as I allude to below.] I think every foreign policy and intelligence expert would also be shocked if there isn’t serious blowback in terms of  attacks launched against the West. What no one can know is if any of these will include weapons of mass destruction, such as chemical or biological.

 

Bottom line, sentiment around the world will collapse, it goes without saying. The markets will crash.

 

It would be far too trite to also say, well, in the long run we’ll all be better off as Iran’s program is set back another 3-4 years and in the interim there will be a change in government in Tehran that will be more conducive to dealing with the West, etc. We simply don’t know what furies would be released, but for Israel to just sit back and wait for Iran to obtain the bomb is suicide.

 

Those of you who’ve known me all these years understand the above isn’t careless thought. It’s been part of my missives, not just this year but the nearly eleven of “Week in Review.” [November actually marks 13 years, including my time at PIMCO where this column had its genesis.]

 

It’s also why I have been careful not to say anything about 2010 and my own economic outlook. I’ve consistently said you can not form a coherent opinion until you know what is going to happen in Iran.

 

So, barring a positive development in the next 3-4 weeks, I’ll be pulling the trigger on my prediction for year end market returns shortly. I could just declare victory. I said the Dow and S&P 500 would finish the year up 20% and Nasdaq 30%. As of Thursday, the far less relevant Dow was up ‘only’ 9.7%, but the S&P was up 16% and Nasdaq had already exceeded my target, up 32%.

 

But that would be too cute, though at the same time I’d be in my rights to do it. I’ll have more on this aspect, and my personal strategy, next time. In the coming week, however, just wait for the furor from the right with Obama’s agreement to talk to a government that won a fraudulent election.

 

—

 

In the here and now, the economic news continued to be largely good, both in the United States and abroad. Tech heavyweights Texas Instruments and IBM importantly reiterated or raised expectations for revenues and earnings, with IBM going so far as to say 2010 looks to be on target, and Federal Express raised its outlook on the strength of increased international business; you had further evidence the mergers and acquisitions game was coming back as Kraft launched a hostile bid for fellow sweets confectioner Cadbury; and with the bigger picture, the G-20 pledged further stimulus to ensure the recovery truly takes hold, while the Federal Reserve’s report on regional economic activity (the Beige Book) offered there were further signs of stabilization and firming, though with two important caveats. The consumer is still watching his wallet, owing in no small part to the putrid labor market, and because of the latter, there are ongoing wage freezes or actual cuts.

 

Globally, though, China had more good news (if you believe the numbers, or, like me, fade them a little). Industrial production in August was up a better-than-expected 12.3%, retail sales were up 15.4%, and new lending rose (a surprise), while auto sales continued to surge.

 

The bad news on the mainland was exports were down 23.4%, year over year, but at least up 3.4% in August over July, while producer prices fell 7.9% and consumer prices declined 1.2%. No one wants rapid inflation, but deflation is worse at this point in time.

 

Various Chinese regulators and Premier Wen continued to speak of a fragile economy that needed further stimulus and the Shanghai stock market responded positively, though the Bank of China spoke of bubbles all over the place, in real estate, commodities, and stocks.

 

Elsewhere, I missed last week that Canada had added 27,000 jobs in August, even as the unemployment rate ticked up to 8.7%, but we’re always looking for an excuse to toast our good friends up north with a fine Canadian brew so raise a Labatt’s [assuming it’s after 4:00 p.m. when you’re reading this.]

 

In the UK, factory production rose in July for the first time in

1 ½ years, while house prices rose in August for a second consecutive month.

 

In Germany, exports rose in July for a third straight month, but producer prices were down a whopping 8.3%, year over year, though up over July.

 

Alas, in Russia, the GDP in the second quarter collapsed a record 10.9%, thanks largely to plunging capital investment. How Vladimir Putin retains his approval ratings I’ll never know, but then Stalin continues to make a comeback here himself (thanks to Putin’s orders).

 

Turning to the dollar and gold, two of my least favorite topics because at the end of the day more hot air has been blown about both than cries “this is the Cubbies’ year!” I don’t worry about the dollar unless the rate of change is rapid. Yes, the past week or so has seen the dollar finally break out of its trading range of the past year against some major currencies, but one must look at the reasons why the dollar is falling and they are largely positive. Investors are confident enough to take on more risk and are seeking higher returns elsewhere. Nothing wrong with that. Some go so far as to say Europe’s economies are generally beginning to outperform the U.S. as well. Nothing wrong with that, either, the rallying euro being representative of this viewpoint. The Federal Reserve has also continued to say it will keep interest rates near zero the rest of our lives, so you add it all up and there’s no urgency to buy the currency vs. the alternatives.

 

Ergo, re the dollar’s latest movements, whoopty-damn-do. Give me something better. Yes, I’m well aware of our soaring deficits, but deficits are soaring everywhere! And if Europe is bouncing back, well of course the U.S. will, and is.

 

As for the gold angle, a long time ago, when I was in the fund business, I brilliantly moved my niece and nephew’s college accounts, as well as my own, all into gold when we had a precious metals fund managed by the good folks at Van Eck. In one of my better moves, I timed it perfectly for a 90% return and then got out, and with the exception of a breakeven investment or two in Newmont Mining, haven’t been in the sector since.

 

But yours truly knows that many like to play it and so for all these years I’ve listed the price down below. God bless you if you’re making out during the recent rally, or if you’ve held since gold was stuck around $280. 

 

As for the inflation hawks, some day you will be right; but you’ve been waiting an awful long time to be so. But before you string me up, guess what, I will be joining you one of these days. We will see inflation again in my lifetime, I recognize that.

 

I also hasten to add re: my comments on the coming clash with Iran, don’t be so sure gold moves higher on an Israeli attack beyond the initial reaction. I would expect the dollar to rally, though, and remember that much of this hot money in gold came out of the dollar to begin with.

 

Lastly, last week I wrote that when it came to President Obama and his address on health care, I wanted more than a line such as “reform will save $billions by rooting out waste and fraud.”

 

So what did we get? I don’t have the speech in front of me but I nailed it almost verbatim, and boy was I underwhelmed. I’m also incredibly tired of the debate because there is absolutely nothing in this for me; seeing as I’ve already told you my insurance premium is rising to a staggering $786 a month. For moi! I’m tired of paying for seemingly hundreds who aren’t contributing a dime yet run to the emergency room when they cut their knee or get a temperature. I know, I know…part of the president’s plan would address this by forcing everyone to pay something, but as some of the poor find the means, those losing their jobs because their employer couldn’t afford the increased burden would likely go without and we’re right back where we started from, net-net.

 

I’m also tired of Obama and the Democrats talking of the $900 billion cost being met largely with savings on Medicare when it’s just not realistic.

 

And I’m tired of Republicans and their talk against a public option (which I’m also opposed to) when at the same time they won’t admit that Medicare already is a public option, and that Medicare is making treatment decisions all the time. Heck, I own a small amount in a heart device manufacturer (non-invasive) and aside from the fact the company has the worst management in the history of commerce, it’s going nowhere fast because there is the real fear its reimbursement rate is going to be slashed yet again. It’s a technology that should be part of every physician’s regimen for assessing the risk of a catastrophic heart attack, but the lack of reimbursement will send this company into the trash heap. [I honestly don’t care in terms of the investment. I made a big buck on it years ago.]

 

Here’s my bottom line, and the Republican response on Wednesday nailed it. Take care of what you can do easily, first. And that’s tackle this issue of infections in the hospitals, which are claiming tens of thousands of lives. You know that friend of mine I wrote of a few weeks ago. He had successful prostate cancer surgery but an infection picked up in the hospital afterwards put him into a second hospital and we almost lost him. Then he was recovering, after being in critical care for about two weeks, when he caught MRSA. What a disaster, but he’s going to make it. 

 

Of course imagine the cost! Tort reform? Are you kidding me? I’m all for getting rid of junk lawsuits, but if I’m my friend, I get what I deserve…$millions.

 

So, again, have a national campaign to educate the hospitals (many of which do indeed recognize the problem and are tackling it full bore, as the number of articles I’ve read in just the past four weeks indicates), then start touting some positive figures and trends on dealing with the issue, and then the weight of the evidence will make true tort reform far easier. Only when this is accomplished will I be interested in a further discussion on the topic.

 

–Stocks resumed their advance to new highs for the year as the Dow Jones rose 1.7% to 9605, the S&P 500 gained 2.6% and Nasdaq added 3.1%. Interestingly, the Dow Jones sits at its exact level from 9/10/01.

 

–U.S. Treasury Yields

 

6-mo. 0.20% 2-yr. 0.91% 10-yr. 3.35% 30-yr. 4.18%

 

Treasuries continued to rally and the rate on a 30-year fixed mortgage is back down to 5.07%. For all the talk of money moving into riskier assets, as well as the weak dollar and the Treasury’s ongoing funding needs, the demand for paper backed by Uncle Sam remains substantial.

 

–Oil rebounded to the $72 level as the International Energy Agency raised its outlook for global demand for next year, citing growth in China (of course) and stronger-than-expected use in the good old U.S. of A, but then fell back below $70 to close at $69.28. In 2010, world consumption is now anticipated to average 85.7 million barrels per day, up from the current estimate of 84.4mmbd for all of 2009. Meeting in Vienna, OPEC members opted to hold the line on production. Said the Saudi oil minister, “The (current) price is good for everybody; consumers and producers.” Speak for yourself, Ali.

 

[OPEC is seeking further compliance among member states for its existing targeted quota of 24.85mmbd, ex-Iraq. A report says Iran, Angola and Venezuela “look to have turned a blind eye to their output targets.”]

 

–To give you an illustration of just how key Saudi Arabia remains, it is producing at a level of 8.3mmbd, allowing Russia to take the top spot these days as it pumps 9.9mmbd, but the Saudis have increased their total capacity to 12.5mmbd, a project the Financial Times notes cost $100 billion over five years. Ergo, the Saudis can toy with the global economy anytime they want by opening or shutting the spigots. No one comes close to their spare capacity. And should there be an attack on Iran, as oil spikes the Saudis (who will be cheering Israel’s move) could flood the market with crude to bring the price back down.

 

–And two items concerning Mexico and oil. The Journal’s David Luhnow reported that what used to be the world’s second-biggest oil field, Cantarell, has seen production plunge from a peak of 2.1 million barrels per day to just 500,000. Mexico relies on oil exports for nearly 40% of its annual budget and the cost to the treasury is about $14 billion a year. Luckily, Mexico has partly offset the losses with production increases elsewhere but not nearly enough.

 

At the same time, its finance minister, Agustin Carstens, is being hailed a hero because his hedging strategy on oil has led to an $8 billion windfall thanks to the contracts he invested in to insure against weaker energy demand and lower prices, this as oil was peaking at $147. As the Financial Times reported, Mr. Carstens is touted in trading circles as the “most successful, but worst paid, oil manager.” Carstens simply bet that as the financial crisis was gathering steam the summer of ’08, there was no way demand for crude warranted a price at such historic levels.

 

–Superstar analyst Meredith Whitney says housing values are headed back down again. I believe we’ve hit bottom but we stay near current levels for months to come.

 

–Capital spending, as indicated by Texas Instruments and IBM, is firming. I did my part by buying four, count ‘em, four flat screen TVs the past ten days….three for a new place I’m moving into and one for Dr. Bortrum. But then one of the televisions was a Sony LG and Johnny Mac just told me he was watching the Mets the other night (yeah, I know) when his Sony went ‘pop.’ Uh oh, thought Johnny. The part cost $199 and he’s hoping he can figure out how to replace it himself. I know I couldn’t.

 

–General Motors, as part of its ongoing effort to right the domestic ship (its foreign operations are pretty strong across the board), is instituting a 60-day, money-back guarantee. One marketing professor told USA TODAY this move will backfire as it reminds potential buyers of past quality issues, and that GM would be better served by having top celebrities promote the brand, as well as placing the cars in select movies. GM says no more than 3% will return their cars. Personally, it’s a great way to get a free set of wheels for that cross-country trip you’ve been longing to take with the missus.

 

–Morgan Stanley told John Mack he could remain as chairman, but after three straight quarters of losses, including the June 30 period when everyone else was back in the black, he is losing the CEO title to Australian James Gorman. So each morning the Morgan Stanley-Smith Barney sales force (the latter picked up as part of a joint-venture with Citigroup), will rise, lift their glasses, and chant “Aussie Aussie Aussie!!!” before resuming their client hand-holding and cold-calling. It’s a good way to get the blood flowing. 

 

–One year ago…Sept. 7, Fannie Mae was nationalized. Sept. 15, Lehman files for bankruptcy. Sept. 16, AIG had to be saved by Uncle Sam, which injected an initial $85 billion. Sept. 19, the White House began to seek congressional approval on a $700 billion bailout package. Initially it wasn’t forthcoming, failing in a House vote Sept. 29, only to be approved and signed into law Oct. 3. And there was far more, but when the dust had settled, the world’s stock markets had crashed about 40%, and more than 50% from the all-time highs set in the fall of 2007.

 

–As part of his investigation into the Bernie Madoff affair and the role of the feeder funds, Massachusetts Secretary of State William Galvin uncovered a 2005 phone conversation between Madoff and an employee of Fairfield Greenwich, the latter having reached an $8 million settlement with the state. Madoff talks of fooling SEC investigators who had approached Fairfield:

 

“You know, you don’t have to be too brilliant with these guys because you don’t have to be, you’re not supposed to have that knowledge and, you know, you wind up saying something that is either wrong, or, you know, it’s just not something you have to do.”

 

I had a college professor that would have flunked me if I said that many “you knows.” “No I don’t know, Mr. Trumbore!” he would scream. And so to this day I can honestly say I don’t sprinkle my speech with this at all, know what I’m sayin’?

 

–Reader Allen H. reports that a professor friend of his and others of his ilk are doing some excellent detective work, examining outfits like Fairfield Group that have failed to effectively monitor hedge funds and other managed accounts they offer to clients. Allen notes the professor has already gotten one major firm in hot water and others are sure to follow as the too good to be true of many ‘managed’ returns becomes self-evident. 

 

–Steve Jobs returned to the public spotlight for the first time in nearly a year following his bout with pancreatic cancer and a liver transplant.

 

“I now have the liver of a mid-20s person who died in a car crash and was generous enough to donate their organs. I wouldn’t be here without such generosity,” Jobs told the audience, urging them to all become organ donors. Jobs, who looked terrible, said he felt otherwise and recognized he needed to add a lot of weight.

 

–Uh oh…McDonald’s sales growth in August was only 2.2%, globally, the smallest pace in more than a year. The increase was just 1.7% in the U.S. Maybe they need to introduce McBeer.

 

–According to a report by the China Greentech Initiative, a group of more than 80 leading technology companies, China could potentially be a $500 billion to $1 trillion market for environmentally friendly “green technologies” from more than 300 options spanning energy, water, buildings, transportation and industry. Seeing as I’m a large shareholder in a company already involved in such work, I like to see this.

 

–Speaking of the above opportunities, First Solar received initial approval from the Chinese government for what would become the largest solar field in the universe (next to the sun), with the project eventually blanketing 25 square miles in a desert north of the Great Wall, or greater than the size of Manhattan. [So you could probably call it another Manhattan Project, but this being China I suspect they wouldn’t wish to do so.] Of course these are the kinds of big things that are NOT being done in the United States.

 

–According to a poll, 73% of Californian’s don’t trust their state government amidst the financial crisis there. [Gov. Schwarzenegger’s approval rating is 30%.]

 

–I own a respectable amount of shares in a geothermal company whose biggest project is in California and I was disturbed to see that in Germany, legislators are questioning geothermal in general because one project there caused a small earthquake, though large enough to shake buildings. There have been questions in California as well regarding the topic, but not with my operator. Regardless, this is potentially devastating for this clean energy source that at the same time has geriatric leaders who don’t understand the modern PR game. I may jettison my position by year end if the industry outlook doesn’t brighten. Access to credit is also a key when talking geothermal and that’s obviously not plentiful these days.

 

–Tourism in Las Vegas peaked in 2007 at 39.2 million visitors. This year it may barely reach 35 million, the lowest level since 1999 and a ton of new projects have come onstream since then. At Encore, Steve Wynn’s new mega-$billion palace, some customers were recently offered two-night stays for $99.   So check around, people.

 

[I’m here in Charlotte to attend an Appalachian State football game in Boone with a college friend of mine and I’m staying at a Hyatt Place for $60 a night…an absolutely terrific deal given the nice accommodations. I asked a worker what occupancy was running at and he said around 65%, “but on weekends it soars because of everyone checking out our Internet specials.” By the way, I haven’t stayed at a Hyatt Place before and it has a neat concept where the registration desk melds into the dessert/sandwich counter which melds into the bar area where you can order dinner. And they have Pilsner Urquell! But I digress….]

 

Back to Vegas, casino executives say occupancy is nearing 90% again, which I find hard to believe given all the new rooms, but the discounting severely crimps profits. In 2001 there were 125,000 rooms, now there are 141,000, with an additional 16,000 slated to open in the next two years. As Michael A. Hiltzik and Ashley Powers write in the Los Angeles Times, “As a rule of thumb, an increase of 200,000 new visitors per year is required to fill every 1,000 new rooms – meaning that 3.2 million new visitors would have to come to town to absorb the new construction.”

 

–The Lower Brule Sioux Tribe in South Dakota has acquired a New York-based financial services firm Westrock Group Inc. and said it was the first Native American tribe to do so. Now I’m real familiar with the Pine Ridge Reservation in South Dakota, home of the Oglala Sioux, and the Lower Brule aren’t to be confused with the Oglala, of this I’m sure.   Let’s just say the Oglala don’t have a lot going for them. 

 

 

Iran: Aside from the above discussion on the nuclear threat, the three major opposition leaders, Mousavi, Karroubi, and Khatami, all continue to show amazing guts in the face of possible arrest and even execution. Karroubi’s offices have been raided at least twice this week as the Revolutionary Guard, Ahmadinejad’s chief henchmen, look for documents that Karroubi’s supporters have accumulated giving evidence to charges of torture, rape and murder of protesters in prison, while former president Khatami said the government was using “fascist and totalitarian methods.” Further protests have been planned, though Karroubi smartly suggests general strikes are out of the question because they do nothing more than hurt the people the opposition is trying to rally behind it. Supreme Leader Ali Khamenei, though, in Friday prayers, reiterated that there will be a “harsh response” should the system be further tested.

 

Separately, it was years ago I first broached the issue of the relationship between Iran and Venezuela. Now, it would appear, the world is beginning to take note. 

 

Editorial / Washington Post

 

“Debates in Washington about Hugo Chavez often end with the dismissive conclusion that the Venezuelan strongman poses no threat to the United States. If that’s right, it’s not because he isn’t trying. For years he has been traveling the world in an effort to build alliances with present or former U.S. enemies, from Cuba to Vietnam….

 

“But Mr. Chavez has clearly forged a bond with one leader who is as reckless and ambitious as he is: Iran’s Mahmoud Ahmadinejad. The growing fruits of this relationship, and its potential consequences for U.S. security, have not gotten as much attention as they deserve….

 

“Such collaboration [ed. such as in a new arrangement calling for Venezuela to supply Iran with much-needed gasoline – “a deal that could directly undercut a possible U.S. effort to curtail Iran’s gasoline imports.”] is far from new for Venezuela and Iran. In the past several years Iran has opened banks in Caracas and factories in the South American countryside. Manhattan district attorney Robert Morgenthau, who has been investigating the arrangements, says he believes Iran is using the Venezuelan banking system to evade U.S. and U.N. sanctions. He also points out that Iranian factories have been located ‘in remote and undeveloped parts of Venezuela’ that lack infrastructure but that could be ‘ideal…for the illicit production of weapons.’

 

“ ‘The opening of Venezuela’s banks to the Iranians guarantees the continued development of nuclear technology and long-range missiles,’ Mr. Morgenthau said in a briefing this week in Washington at the Brookings Institution. ‘The mysterious manufacturing plants, controlled by Iran deep in the interior of Venezuela, give even greater concern.’….

 

“Meanwhile, Mr. Chavez is off to Moscow, where, according to the Russian press, he plans to increase the $4 billion he has already spent on weapons by another $500 million or so. Mr. Chavez recently promised to buy ‘several battalions’ of Russian tanks. Not a threat? Give him time.”

 

Robert Morgenthau…more from his speech at the Brookings Institution, as excerpted by the Wall Street Journal.

 

“(With) the groundwork laid years ago, we are entering a period where the fruits of the Iran-Venezuela bond will begin to ripen.

“That means two of the world’s most dangerous regimes, the self-described ‘axis of unity,’ will be acting together in our backyard on the development of nuclear and missile technology. And it seems that terrorist groups have found the perfect operating ground for training and planning, and financing their activities through narco-trafficking.

 

“The Iranian nuclear and long-range missile threats, and creeping Iranian influence in the Western Hemisphere, cannot be overlooked. My office and other law-enforcement agencies can help ensure that money laundering, terror financing, and sanctions violations are not ignored, and that criminals and the banks that aid Iran will be discovered and prosecuted….

 

“The public needs to be aware of Iran’s growing presence in Latin America.”

 

Afghanistan: President Hamid Karzai has accumulated 54% of the vote with 92% of the ballots having been counted, according to the latest reports, but the State Department and the U.N. both say the too numerous to count fraud allegations have to be acted on and some votes are now being thrown out. Fake polling places, for one, were created, with all in agreement that the “legitimate electoral process is vital to any kind of partnership” with the Afghan government, as a U.S. representative put it.

 

America is walking a tightrope. It can ill-afford to totally alienate Karzai, who has become a master at playing both sides, but if the Afghan people don’t see the process as legit, the country will continue to splinter at a time when President Obama is going to find it increasingly difficult to meet the objectives of the top general in the field, Stanley McChrystal.

 

Democrats are against adding more troops than Obama has already allocated, yet McChrystal could ask for 40,000 additional soldiers. The Democrats say, just speed up the training of Afghan forces with the troops we already have on the ground.

 

Meanwhile, last week I invoked my 24-hour rule in deciding not to comment on the NATO strike on the oil tankers that the Taliban had hijacked, a strike that supposedly killed a large number of civilians, because to me there was a rush to judgment without the facts at the time I was going to post. This is not a blog, in case you haven’t discovered this by now. I try to be responsible in my coverage of hot topics.

 

So over a week later, what have we learned? Well, we still don’t know how many civilians, or Taliban for that matter, were killed in the dropping of two, 500-pound bombs; an attack ordered by a German commander in the field who had been monitoring the hijacking.

 

The fact it was a German who ordered the strike, though, has created all kinds of problems, both in Berlin and within NATO itself.

 

The German presence in Afghanistan is supposed to be a largely non-military one and lawmakers are furious that civilian casualties may have been caused by one of their own.

 

At the same time, the government of Chancellor Merkel is upset at Gen. McChrystal and top NATO officials for questioning the German officer’s actions. Yet all McChrystal was doing, in immediately going to the scene himself, was to get a personal assessment on this highly critical incident; NATO having recently vowed to limit civilian casualties compared to previous actions.

 

The bad guy in this whole situation is clearly German Defense Minister Franz Jung, who has lied to his parliament on the specifics of the attack. But at the same time, the Germans have a legitimate beef in the overall mission in that they have trained half the Afghan police force when there was to be a far greater contribution from other NATO members.

 

I suspect a book or two is going to be written on this single episode, and it’s an important one warranting further investigation.

 

Then you have the British commando raid to free a New York Times reporter, Stephen Farrell, which resulted in the death of his interpreter and a British soldier. It came to light that Prime Minister Gordon Brown approved the raid and now Western officials are furious because hostage negotiators insist they were close to freeing Farrell and that the Taliban who captured the reporter were merely looking for a ransom payment. One official told the London Times: “It was totally heavy-handed. If they’d showed a bit of patience and respect they could have got both of them out without firing a bullet. Instead, they ended up having one of their own killed, the Afghan killed and civilians killed. There’s a lot of pissed off people at the moment.”

 

Israel: Prime Minister Netanyahu approved the creation of 455 new housing units, as anticipated and much to the consternation of the White House. Netanyahu will also allow 2,500 units under construction to be completed, thus bringing the number of illegal homes, under “international law” [a 2004 ruling by the International Court of Justice] to nearly 3,000.

 

Netanyahu is now expected to announce a six-month settlement “freeze,” although to appease his followers, “freeze” will be substituted for with more settler-friendly terms like “suspension” or “waiting period.”

 

As Lebanon’s Daily Star opined, and on which I concur, “The move therefore makes a mockery of both the peace process and international law.” As the editorial in the paper continues, though:

 

“That’s unfortunate because peace and the rule of law are the only real weapons we have to combat the rise of al-Qaeda-style terrorism, which increasingly feeds off of a sense of growing public discontent about the decades-long plight of the Palestinian people.

 

“Osama bin Laden and his ilk argue that Obama’s peace process will get Palestinians nowhere and that the only successful course of action would be to fight Israel to regain every inch of Palestinian land. If Israel and the U.S. deprive the Palestinians of the option of a negotiated peace deal that respects their dignity and their rights, what option will they have left, other than to turn to the solution that bin Laden and others like him propose?”

 

Of course the Israelis would rightfully counter that it’s not as if they have a responsible partner(s) in any negotiations, though it does appear talks are in the offing. As for Hamas and Fatah, these two, under the auspices of Egypt, have evidently agreed to reconstruct the Palestinian security force (heretofore almost solely Fatah), under Arab supervision, and to reconcile other differences in 2010, including the holding of new elections.

 

Lebanon: After having a potential cabinet line-up rejected, prime minister-designate Saad Hariri stepped down, throwing the country into yet another political crisis, though Hariri is likely to be renominated to try yet again in what is one of the three or four most dysfunctional political systems in the world.

 

Since the June 7 election, Hariri has been stymied in his efforts to form a legitimate government that shares power but also honors the decision of the people to have moderates, and not Hizbullah, dominate the top levels.

 

Editorial / Daily Star

 

“The ongoing effort to form a government in Lebanon several months after the parliamentary elections is a joke that just isn’t funny anymore. It is no wonder that so many Lebanese citizens have chosen to tune out all talk about the cabinet, rather than continue watching this sad spectacle unfold. After rounds and rounds of negotiations, the clowns who call themselves politicians have gotten themselves nowhere but into a cul de sac….This pathetic exercise makes the task of Sisyphus – who in Greek mythology was condemned for eternity to roll a huge bolder up a hill, only to watch it roll back down again – look productive.”

 

Libya: It seems pretty clear that British Prime Minister Gordon Brown was indeed in on the release of Lockerbie bomber al-Megrahi. The London Times has tied Justice Secretary Jack Straw to Brown, as Straw warned the prime minister the Libyans might block a BP oil deal unless Megrahi was released. Straw previously asserted there was “no paper trail” to No. 10. The Daily Telegraph reported that senior trade sources were desperate Megrahi not die in jail after warnings by Libya in May that if this happened, any future deals between the two countries would be cancelled. 

 

Now, families of British victims killed by IRA bombings are insisting Brown put pressure on Libya to secure a U.S.-style scheme for their loved ones. Families of U.S. victims have agreed on multi-million-dollar payouts with Libya after the intervention of the White House. Why? Because Libya shipped Semtex and arms to the IRA for several years from 1985.

 

So once again enter Gordon Brown, who now says he will take “all actions we believe necessary” to secure payments; this after Brown and his predecessors had refused to seek them to ensure the continued flow of Libyan oil. Just last year, Brown wrote a letter saying the government did not “consider it appropriate” to negotiate with Libya on the matter.

 

Russia: Despite Kremlin denials, it appears that the case of the missing Arctic Sea did indeed have a far more sinister cargo than merely timber. Various reports point to Israel’s Mossad as first warning Russia they had evidence the ship was carrying sophisticated Russian-made S-300 anti-aircraft missiles bound for Iran, and then Israel and Russia orchestrated a cover-up in retaking the vessel so that Russia wouldn’t look bad. Foreign Minister Sergei Lavrov said the stories are bunk.

 

What seems clear is there are all manner of secret contacts between Russia and Israel these days.   There certainly is no shortage of topics, and in this case it’s likely the Kremlin really didn’t know about the shipment; that instead it was corrupt generals in Kaliningrad that sought to trade the weapons clandestinely for profit. Russia, after all, already has an agreement to sell Iran the S-300, but Israel has been trying to block this and there is no evidence the government had actually shipped any.

 

[On an entirely different matter, to combat Russia’s severe problem with alcoholism, President Medvedev has mandated that beer not be available in anything larger than a 12-oz. can or bottle, as opposed to the kegs some Russians drag behind them these days.]

 

North/South Korea: What a bizarre story. The North suddenly released a wall of water last weekend that left at least six South Koreans dead or missing and Pyongyang’s explanation was that it had to release the water because the water level was too high, yet there had been little rain in the area and, bottom line, if the North was going ahead with the release, why wasn’t the South told? Those swept away were either camping or fishing near the border. In the past, some experts have warned the North could use water as a weapon, though in this instance that doesn’t appear to be the case as the North did at least offer an explanation quickly.

 

And what’s this? The U.S., in a diplomatic frenzy (see Iran above) also says it will agree to direct talks with Pyongyang on the nuclear issue. Seoul does support the move. I’m underwhelmed.

 

China: The government is working on a pilot program for some 800 million farmers who are not part of the pension system. Under the test projects that have been launched, farmers between age 16 and 60 will have to put in 100 to 500 yuan a year towards their pension, with farmers aged 60 and over receiving up to about $8 (yes, $8) per month. Well, the government’s heart is in the right place, eh?

 

–Fouad Ajami / Wall Street Journal…on 9/11

 

“Eight years ago, we were visited by the furies of Arab lands. We were rudely awakened from a decade whose gurus and pundits had announced the end of ideology, of politics itself, and the triumph of the world-wide Web and the ‘electronic herd.’ We had discovered that on the other side of the world masterminds of terror, and preachers, and their foot-soldiers were telling of America the most sordid of tales. We had become, without knowing it, a party to a civil war in the Arab-Islamic world between the autocrats and their disaffected children, between those who wanted to live a normal life and warriors of the faith bent on imposing their will on that troubled arc of geography.

 

“Our country answered that call, not always brilliantly, for we are fated to be strangers in that world and thus fated to improvise and make our way through unfamiliar alleyways. We met chameleons and hustlers of every shade and had to learn, in a hurry, incomprehensible atavisms and pathologies. We fared best when we trusted our sense of things. We certainly haven’t been kept safe by the crowds in Paris and Berlin, or by those in Ankara and Cairo who feign desire for our friendship while they yearn for our undoing.”

 

–Peggy Noonan / Wall Street Journal…on the Obama administration.

 

“Why be concerned about the young in the White House? Because they’ve never been beaten up by life, never been defeated. They haven’t learned from failure because they haven’t experienced it. They don’t know what the warning signs of trouble are. They haven’t spent time on the losing side.

 

“Mr. Obama’s young aides are hardworking, humorous and bright as pennies, but I wish they had an arthritic ache or two, I wish they told old war stories because they’d been in old wars, I wish they knew what it looks like when an administration goes too far and strains the ties between itself and the bulk of the people.”

 

On Obama himself….

 

“He is cold, like someone who is contained not because he’s disciplined and successfully restrains his emotions, but because there’s not that much to restrain. This is the dark side of cool. One wonders if this will play well with the American people. Long-term it is hard to get people to trust your policies if they think you’re coolly operating on some intellectual or ideological abstractions.

 

“I don’t think as a presidential style it will wear well with the center. And it may not wear well with the president’s own party. They may come to see him, in time, as not really one of them. And that’s when things will really get interesting.”

 

–So, along the lines of the above, the latest Pew Research Center survey shows President Obama’s support among white Democrats has dropped 11 points; 9 points among white independents and whites over 50, and by 12 points among white women. It doesn’t help the administration when figures like Van Jones suddenly become part of conservative debate and as the White House was forced to admit in accepting his “resignation,” he hadn’t been properly vetted. Of course all of this is critical in next year’s mid-term election where, if the vote were held today, the Democrats would lose 20-30 seats by most estimates.

 

[Jones, by the way, is truly a vile character and Fox News’ Glenn Beck deserves the lions’ share of the credit for his exit for initiating the coverage on Jones’ past.]

 

–Fred Barnes / The Weekly Standard

 

“(Obama) is a liberal who’s surrounded himself with liberals. His weakness (being a strong leader) makes his liberal domestic policies more vulnerable than they otherwise would be. For a moment after Obama’s inauguration, Republicans were fearful of him. They quickly found that opposing him is safe and fruitful….

 

“What the Obama team doesn’t understand is the limit of the president’s appeal. His base is the liberal wing of the Democratic Party, which is less than one-quarter of the voting public. Yet his aides believe he’s able to captivate and convince a far larger audience. That he’s been failing at this for months hasn’t stopped the White House from trotting the president out again and again with nothing new to say, as if it’s the only option. Perhaps, in a sycophantic administration, it is.”

 

–But then you had the furor over President Obama’s opening day of school speech. I said last week there was nothing wrong with this, except the Dept. of Education should not have issued suggested discussion topics that were clearly slanted in the president’s favor. In the end, Republican former House Speaker Newt Gingrich praised it, as did Republican senate candidate from Pennsylvania, and staunch conservative, Pat Toomey.

 

Obama said, “You can’t drop out of school and just drop into a good job. You’ve got to work for it and train for it and learn for it.”

 

Obama was asked in a Q&A after if his life might have been different had his father been around as he was growing up, the student posing the question having parents who were divorced.

 

“(The absence of my father) forced me to grow up faster. It meant that I made more mistakes because I didn’t have somebody to tell me, here’s how you do this or here’s how you do that. But on the other hand….I had to be more supportive of my mother because I knew how hard she was working. And so, in some ways, maybe it made me stronger over time, just like it may be making you stronger over time.”

 

Pat Toomey said, “The president’s emphasis on responsibility and the personal stories about his own education are exactly the kind of inspiring messages our children need to hear from our country’s leaders.”

 

–William Pesek / Bloomberg News…on what the CLSA Asia-Pacific Markets participants might hear when Sarah Palin goes to Hong Kong to give a speech.

 

“Hello Hong Kong! How ya doin’? You know, I want to thank you Hong Kongians for being such gracious hosts. And I want to thank you for explaining to me how this country is now a part of China again. Wow, who knew? Anyhoo, it’s nice to be here. And I’m lovin’ the food. Had me some of that feng shui stuff for breakfast this morning. Jeez, that was tasty!

 

“Arriving at your superduper airport was a shock for two reasons. The first, it’s really modern for Asia, home to so many developing people. Anyone who’s been to JFK in New York or Dulles in Washington knows what I’m talking about. Good goin’ guys! Second, everyone looked so surprised to see me – like I wasn’t gonna show up. There they go again, listening to the liberal media back home that I don’t honor my commitments.”

 

[Fact is…she seldom does. Gosh, I really wish I could be at this one, though.]

 

–Richard Haass, president on the Council of Foreign Relations, in a Newsweek op-ed on the geopolitics of golf.

 

Mr. Haass notes Thomas Friedman’s old theory that countries with McDonald’s franchises don’t fight each other; which is true with very few exceptions (Russia and Georgia, for example). Haass, though, takes it to another level.

 

“Countries that have numerous golf courses tend to be friendlier toward the United States. Governments closing golf courses tend to be the most anti-American of all. Think of it as the fairway theory of history.

 

“Anyone doubting this need only compare Vietnam and Venezuela. Vietnam, for years a bitter foe of the United States, is now a friend. The clearest evidence of how far things have changed may be the Ho Chi Minh Golf Trail, a route that connects more than a half-dozen luxury golf courses and resorts. On the other hand, Venezuela – led by the ever-hostile Hugo Chavez – has closed several golf courses and is threatening to shut down others. Chavez recently delivered a tirade against golf on national television, deriding it as ‘bourgeois’ – an outlook consistent with his repressive policies, which are driving many middle-class Venezuelans to leave the country. Or take the two Koreas: the closed North is reportedly home to just three courses, while democratic South Korea, a U.S. ally, boasts no fewer than 234.

 

“Chavez is right about one thing: golf is an expression of increased economic and political openness. Ironically, Fidel Castro, the leader Chavez claims to admire most, appears to be moving in that direction. Cuba is developing golf courses, presumably to attract a larger number of tourists if and when the U.S. economic embargo is rescinded and Americans are free to travel to Cuba….

 

“Why is golf associated with so many positive trends? It is not just that the game tends to flourish in countries that welcome tourists, who can bring new ideas along with their bags of clubs. Large numbers of golf courses reflect the emergence of a domestic middle class, the traditional foundation of democracy. And they suggest a society where citizens not only enjoy leisure time but take basic security for granted.

 

“What should all this mean for Washington? President Obama has created high-profile envoys for trouble spots like the Middle East, Afghanistan, and Pakistan, and Iran. But perhaps he should spend more time working on his golf game.”

 

And by all rights, President Obama is. I like that our leader is on the golf course as much as he seems to be. The nation’s leading golfer throughout history was Dwight Eisenhower, and most would agree things worked out pretty well during his presidency. [Ike continues to rise in my personal ratings.]

 

–When Rep. Joe Wilson (R-S.C.) shouted at the president on Wednesday night “You lie!” at first I thought he said “Mets suck!” but realized immediately that couldn’t have been what he said because President Obama replied, “Not true.”

 

[“You Lie” also happens to be the title of a great Reba McEntire song from her Rumor Has It album. “You lie…you don’t want to hurt me…So you lie…buy a little time…and I go along…”]

 

–Speaking of liars, sixty South Carolina House Republicans have asked Gov. Mark Sanford to resign following his fling with the Argentinian hottie, with a letter from the group reading:

 

“Your decision to abandon our state for five days, with no defined order of succession and with no known way to contact you, is inexcusable.”

 

Sanford, though, refuses to quit…which means the whole mess could proceed to impeachment, with 72 Republicans and 51 Democrats (one seat empty) comprising the House where such a movement would begin.

 

–The British Foreign and Commonwealth Office has released documents showing how former French President Francois Mitterand warned then Prime Minister Thatcher that German reunification might “make even more ground than had Hitler.” After the fall of the Berlin Wall in November 1989, there were deep anxieties between French and British leaders that it would lead to a return to Germany’s prewar past. Part of the reason for the release of the documents, though, is to show that aside from Thatcher’s personal misgivings, the majority of British diplomats supported reunification; this as Germany prepares to celebrate the 20th anniversary. The Germans aren’t pleased some Brits felt compelled to attempt to cover their butt.

 

–We note the passing of Frank Batten, 82, who created the Weather Channel in a content agreement with the National Weather Service back in 1982. A year later it was almost history. But by the time it was acquired a second time in 2008, it was garnering $3.5 billion. Quite simply, the best television channel of all time, though with the advent of the same data on the Net, and when you want it, TWC’s best days are probably behind it.

 

–Speaking of the weather, a story in Friday’s Wall Street Journal details the threat to New York City from rising water. Forget melting ice caps, a hurricane could generate a 30-foot storm surge that would flood 100 square miles of the Big Apple, putting at risk the subways, telecommunications cables, fiber optics networks, etc. New York has had issues in just the past few years with downpours flooding the subway system.

 

–Moscow Mayor Yuri Luzhkov is looking to eliminate snowfall in his city in order to save money and improve life, so he’s thinking of expanding a cloud-seeding program, Russia and China already doing it some (like for the Beijing Olympics). Of course such attempts at controlling the weather can fail. Personally, I specifically went to Moscow in the month of November my last two trips because I wanted snow, it being the best way to experience the place.

 

–Lastly, in his remarks to schoolchildren, President Obama asked of them, “What problems are you going to solve? What discoveries will you make?”

 

Well, in the area of discoveries, the administration isn’t making things easier as a blue-ribbon panel is recommending NASA shelve its goal of returning to the Moon while aiming for a manned mission to Mars. The ten authors of the study recommend, instead, a rapid expansion of private industry into the nation’s space program.

 

NASA, you see, claims it needs an extra $3 billion beyond its existing $18 billion budget to conduct meaningful missions to the Moon and beyond.

 

For crying out loud, we’re talking less than $10 per person, there being in excess of 300 million Americans. I just may have to start going door-to-door, and I’ll kick in the first $200. This is absurd, though I don’t in any way blame Obama until we hear what he says about the findings in a few weeks.

 

It’s about America being the world leader in technology, sports fans! Get rid of the Dept. of Education, or take $3 billion of unused funds out of TARP. Do something. Otherwise, as I’ve noted before, we are incredibly overrated.

 

—

 

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

 

God bless America.

 

—

 

Gold closed at $1008 [$1035 being the all-time high]

Oil, $69.28

 

 

Dow Jones +1.7% [9605]

S&P 500 +2.6% [1042]

S&P MidCap +4.0%

Russell 2000 +4.1%

Nasdaq +3.1% [2080]

 

Dow Jones +9.4%

S&P 500 +15.4%

S&P MidCap +26.2%

Russell 2000 +18.8%

Nasdaq +32.0%

 

Bulls 48.3

Bears 23.6 [Source: Chartcraft / Investors Intelligence]

 

Have a great week. I appreciate your support.

 

Brian Trumbore