For the week 10/26-10/30

[Posted 7:00 AM ET…from Newport, Oregon]

 

What a depressing week, including for items such as Iran that the public isn’t focusing on. Stock market volatility picked up with equities finishing on a major down note, Friday, a day after the government released GDP data for the third quarter that showed the economy snapped out of recession with a 3.5% gain. Good, right? Well the market liked it for a day and then reality set in. The 3.5% rise, a bit better than the consensus called for, was due almost solely to the economic stimulus program and plans such as cash-for-clunkers.   ‘What now?’ everyone said on Friday, as the Dow Jones fell 250 points. How can the economy grow without ongoing stimulus and at what cost to a government that is piling up debt at lightspeed, especially now that a healthcare bill inched closer to fruition?

 

There was some good data on the economic front that I’ll address shortly, but, distressingly, figures on consumer sentiment have been worsening again, falling way short of expectations, while it’s clear the consumer, with major concerns over their job status, is just not spending at a rate that would warrant confidence the recovery is truly taking hold.

 

On Friday, heavyweight investor George Soros said a double dip in the economy was likely “in 2010 or 2011,” while fellow major leaguer Wilbur Ross warned of “a huge crash in commercial real estate.” And there was renewed concern the pending bankruptcy of once little known CIT, a major lender to small- and medium-sized businesses, could also do a big number on recovery efforts.

 

Will the likes of economists Nouriel Roubini and David Rosenberg, both of whom correctly forecast the collapse and have stuck to their guns despite the market’s huge rally off the March lows that we still have major problems to deal with, prove to be right again? What happens when the stimulus fades? What do we do about the tremendous amount of overcapacity that still exists worldwide?

In my commentary last time, I focused on other issues that were also at the forefront of debate this week; too big to fail, compensation and regulating derivatives. George Soros said of the first two that you must put limits on risk as well as the concept of leveraged compensation at the big banks. “The too big to fail concept (requires) the need to regulate payments employees receive,” adding proprietary trading belongs with hedge funds, not the banks, according to Soros. 

 

Gretchen Morgenson / New York Times

 

“It is certainly worthwhile to reduce outsize pay at companies receiving taxpayer support. But regulating derivatives is far more important to those interested in eliminating the possibility of future billion-dollar bailouts. These financial instruments, which trade privately and beyond the prying eyes of regulators, are central to the interconnectedness among companies that required some of the costliest rescues. American International Group, for example, had to be rescued to cover the costs of insurance it had written for customers intending to protect their mortgage holdings from default. The insurance is a derivative called a credit-default swap.   The company has received $170 billion in taxpayer aid.

 

“But the derivatives bill generated by the House Agriculture Committee contains a sizable loophole. It is designed to push the trading of these opaque instruments onto exchanges or clearinghouses where regulators and participants can better assess who is at risk. But the bill would let transactions remain private if they involve nonfinancial companies that are trying to protect against fluctuations in their costs of doing business, a practice known as hedging. For example, when Exxon buys or sells derivatives to hedge against shifts in the price of oil, those transactions would be exempt from having to be traded on an exchange or clearinghouse. Thus, many derivatives would not trade in the light of day.

 

“Such companies argue that trading on an exchange will make their costs rise. But critics of the exemption say that if protecting the system from a meltdown costs participants a bit more, so be it. This last go-round has certainly been expensive for taxpayers, after all….

 

“In an interview with The New York Times, (Paul) Volcker said the nation’s commercial banks should not be allowed to hold and trade risky securities, a practice that generated deep losses for many of them in the credit crunch. The governor of the Bank of England made the same point last week. Separating these operations was the response the United States government took after the Crash of 1929, but today, the administration says it has no plans to break up the banks again in the manner Mr. Volcker suggests.

 

“The former Fed chairman is certainly not alone in his fears about the threat that large institutions still pose. Neil Barofsky, special inspector general of Treasury’s Troubled Asset Relief Program, was asked last Wednesday by CNN about the changes being made to ensure that a disaster like the one starting last year would not recur.

 

“ ‘I think actually what’s changed is in the other direction,’ the refreshingly candid Mr. Barofsky said. ‘These banks that were too big to fail, are now bigger. Government has sponsored and supported several mergers that made them larger. And that guaranteed that implicit guarantee of moral hazard. The idea that the government is not going to let these banks fail, which was implicit a year ago, it’s now explicit.’

 

“Then he added, ‘So, if anything, not only have there not been any meaningful regulatory reforms to make it less likely, in a lot of ways, the government has made such problems more likely. Potentially, we could be in more danger now than we were a year ago.’”

 

So what of ‘too big to fail’ and potential legislation? Congressman Barney Frank (D-Mass.) has been working with Treasury on “resolution authority” over non-bank financial firms for months, with the intent of giving a new government agency the power to take over a failing firm and dissolve it inside the bankruptcy process. But this would require injecting money, perhaps, and the issue is then who would pay for it; the taxpayers or the industry’s biggest players?

 

Originally, Treasury and Frank agreed that Wall Street would not be assessed an upfront fee, but instead any required fees after a collapse would be levied on the big guys to recoup the government’s expense. No taxpayer money, we are told, would be used.

 

But late Friday, Congressman Frank appears to have broken with the White House and now favors the fees being imposed ahead of time (or prefunded), which is the preference of FDIC Chairwoman Sheila Barr, whose agency already imposes fees upfront to cover failed banks. Either way, the Street’s titans are not happy.

 

Anyway, responsibility for monitoring risks in the financial system would be shared between the Fed and a council of regulators, with the Federal Reserve responsible for the largest companies, including big banks and insurance companies, and, probably, hedge funds and private equity shops as well. The Fed would then force those under its control to hold more capital in reserves.

 

Those in opposition to the above, including both Democrats and Republicans, have voiced concerns that too much power is being vested in a Fed that hasn’t exactly distinguished itself over the years, despite recent actions that probably averted Depression. The ‘too big to fail’ model is too hard to kill, say some, while others call the new power and its potential to hit the taxpayer despite claims to the contrary, “TARP on steroids.”

 

Already this week, though, we had a major example of breaking up a large financial player before it got too big, that being Dutch financial services giant ING, which the European Union forced into selling its insurance units as a penalty for accepting state aid because otherwise they’d have an unfair competitive advantage. Some say Royal Bank of Scotland, which supposedly doesn’t have enough capital, is next. The EU is acting in a fashion that some of us would like to see federal regulators here do.

 

But with all the bad news and dire warnings, globally, there was some good news. In Europe, business confidence was up a seventh straight month in September, while the International Monetary Fund raised its growth forecast in Asia for 2010 from 4.3% to 5.8%. South Korea’s GDP increased 2.9% in the third quarter, far better than expected, and electronics giant Samsung reported record earnings of $3.1 billion as it fired on all cylinders.

 

In Japan, industrial production rose 1.4%, while unemployment dropped to 5.3%, and even though Sony, Panasonic and Honda reported disappointing earnings, all three raised their forecasts for the current quarter.

 

In Australia, business confidence there hit a seven-year high, while in China, industrial production for the fourth quarter is estimated to rise 16%, with retail sales up another 15%. The government, in a major announcement, also said it would encourage more private investment.

 

And back in the U.S., the latest readings on housing from the S&P/Case-Shiller folks for August showed yet further improvement. Co-creator Karl Case said “The good news about this is it really looks like a bottom.” But, for a true recovery, employment and a pipeline full of foreclosures both have to improve “for this to really turn up.”

 

[The Senate, by the way, has agreed to extend the first-time homeowner credit to April (for properties closing in June), while adding an incentive for those other than first-time folks.]

 

The market on Friday also chose to ignore a highly bullish purchasing managers reading from Chicago, 54.7 when 48.7 was expected. Earlier, September durable goods were up an anticipated 1.0%. But enough of the good news. Back to the bad.

 

Regarding China, economist Stephen Roach of Morgan Stanley said he sees a downturn there in mid-2010 because China’s model is more about supply than demand. It’s recovery is simply unsustainable with its overdependence on exports.

 

And it was highly significant to yours truly that the world’s biggest maker of business management software, SAP, cut its sales forecast for a second time this year and the shares fell sharply in response. This is hardly good news for those looking for a true recovery in business spending.

 

The states also continue to take it on the chin as those reporting receipts for the third quarter are showing a further slide in revenue of 9% on average. It would be worse were it not for the federal stimulus in many instances.

 

As for the health care debate, the Democratic controlled House presented its long-awaited proposal that was 2,000 pages in length. Speaker Nancy Pelosi, after recognizing the efforts of the incredibly corrupt chairman head Charlie Rangel, said the House plan “won’t add one dime to the deficit.” Whatever you say, Nancy. Of course it’s to be paid for by massive cuts to Medicare and taxes on the rich, and further, it leaves millions still uninsured, which is a joke seeing as some of us thought this was the purpose of attempting to adopt universal health care coverage in the first place.

 

But we have a long ways to go with this debate and the House and Senate have major differences to patch up before the president receives a bill to sign.

 

I do hope, however, you all saw “60 Minutes” last Sunday and the sickening piece on Medicare fraud. Tens of $billions being stolen right from under our noses; make that regulators’ noses. We’ve known this is the case for years, yet Congress refuses to fund more investigators. It’s absurd, and it’s why many of us have blasted the health care reform effort from the start when there are so many other things we can just do better, including in this area.

 

I imagine many of you also had the same feeling I did in watching this story. We desperately need to reform our penal code as the bigger players in this fraud scheme need to get life in prison without parole.

 

Insurance fraud is the kind of crime where at many different steps you have the option to pull back. This isn’t some guy looking for drug money so he knocks down an old lady for her purse. This is premeditated to the tenth degree. 

 

Finally, we have the issue of Iran and its potential to impact the global financial markets. Nothing occurred this week to lead anyone to be remotely optimistic about the future. 

 

Iran had agreed in Vienna recently to deliver the vast majority of its enriched uranium to Russia (and through it France) for the purposes of refining it to 20%, suitable for medical research, such as for cancer screenings. [You need to enrich to a level of 90% to have weapons grade material.]

 

But there were major doubts that those negotiating for Iran really had the authority to agree to such a deal and, on cue, the government in Tehran said, ‘not so fast.’ ‘We demand changes in the agreement so that “technical and economic concerns” are addressed,’ said leadership.

 

Iran, it seems, wants to send the uranium in stages, rather than all at once, which means that they could keep enriching to replace what they sent to Russia and never really give any up.

 

Understand the United Nations Security Council has issued one resolution after another stating that Iran must give up ALL uranium enrichment and yet here we are sanctioning its work, much to the pleasure of President Ahmadinejad et al.

 

It’s totally nonsensical. For his part, Ahmadinejad maintained that Iran won’t retreat “one iota” in its right to a nuclear program. His government has been saying this consistently for over a year.

 

So what now? President Obama and the other members of the P5 plus One group [reminder: the five permanent members of the Security Council…Russia, China, the U.S., Britain and France… plus Germany] can go for tougher sanctions but will Russia and China go along? Probably not.

 

As Robert Kagan wrote in his Washington Post op-ed, however, we owe it to the democracy movement in Iran to levy tougher sanctions, even without the cooperation of Russia and China, in an attempt to bring Ahmadinejad’s shaky government down. 

 

There is really no choice, and there should be no debate when it comes to the U.S. and its allies. Act now!

 

As for the inspection taking place at the once secret nuclear facility at Qom, it’s irrelevant at this point. For all the talk of many other hidden plants and research labs, only one matters… Natanz…and it is this that Israel will bomb, sooner than later.

 

Israel and its leader, Benjamin Netanyahu, have been sitting back, taking it all in and I’ve found it amazing how debate, and actual news, on the topic has been limited the past two months or so in the Israeli papers. It’s as if the government has applied a gag order, which only Israel among the democratic nations can do with effectiveness. This is just my observation. But to me it’s yet another sign the clock is ticking. And for the life of me I can not see how Israel would want to wait until January or later to act, nor from a symbolism standpoint would it want to strike around the holidays. It’s November, Natanz, or they have some irrefutable evidence that Iran’s program is not nearly as far along as some of us believe and they can afford to let the West dither some more. I’m going with the former. It’s a good time to sit on the sidelines for a while if you’re an investor, even just a few weeks, to see how Washington, London and Paris, for starters, react to Iran’s continuing intransigence.

 

At the least, don’t commit any new money to stocks.

 

 

–For the week, the Dow Jones lost ‘only’ 2.6% to close at 9712 after finishing at 9962 on Thursday, but the damage to the broader averages was far worse, with the S&P 500 losing 4.0% (and finishing down 2% for the month, the first decline since February), while Nasdaq lost 5.1%. The S&P is now up just 15% on the year and Nasdaq 30%.

 

I saw UBS’ director of floor operations for the NYSE, Art Cashin, say earlier in the week that in all his considerable years, he has never seen such a division between the bulls and bears, while PIMCO’s Mohamed El-Erian said we’re “at a point of maximum confusion.” I couldn’t agree more.

 

–U.S. Treasury Yields

 

6-mo. 0.16% 2-yr. 0.90% 10-yr. 3.39% 30-yr. 4.23%

 

Bonds rallied late on fears the economy was not going to be able to sustain its growth path as well as on a firming dollar which impacted commodities prices. Globally, India, however, warned of rising inflation, but elsewhere, aside from Australia (and Norway, not that I really care), deflation remains the watchword. In the 16-nation eurozone, for example, consumer prices fell a 5th consecutive month in September, while Japan’s CPI for the month was down 2.3% over year ago levels.

 

–Unemployment in Latvia is now 19.7% and 19.3% in Spain, but it’s just 3.6% in the Netherlands. Overall in the eurozone it’s 9.7%, virtually matching that of the United States.

 

–The third quarter certainly wasn’t the same as a year ago when it came to Big Oil. Royal Dutch Shell, for one, saw revenue drop 43% and profits fall from $8.45 billion to $3.25 billion while the company announced it is laying off 5,000. Exxon Mobil’s earnings fell from $2.59 a share to $0.98 as revenues fell from $137.7 billion to $82.3 billion.

 

–It’s enough to make you sick, Part XXIV. Goldman Sachs supposedly receives a fee of, get this, $285 million, for a $2.125 billion loan to CIT, $875 million less than agreed to before, whether CIT files for bankruptcy or not.

 

–Matt Taibbi / Rolling Stone

 

“The nation’s largest financial players are able to write the rules for their own businesses and brazenly steal billions under the noses of regulators, and nothing is done about it. A thing so fundamental to civilized society as the integrity of a stock, or a mortgage note, or even a U.S. Treasury bond, can no longer be protected, not even in a crisis, and a crime as vulgar and conspicuous as counterfeiting can take place on a systematic level for years without being stopped…Our burglar class now rules the national economy. And no one is trying to stop them.”

 

–The U.S. spends the highest per capita in health care, $7,290, among the Organization for Economic Cooperation and Development industrialized nations, while the average for the OECD is $2,964. The average life expectancy in the U.S. is 78.1, while for the OECD it’s 79.0. The U.S. also has an infant mortality rate of 6.7 per 1,000 live births vs. 4.9 for the OECD.

 

Separately, when examining risk factors, the U.S. drinks and smokes less than OECD nations, but, when measuring obesity, 34.3 percent of the population in the U.S. is obese vs. 15.1 percent for the OECD. [Source: OECD / Wall Street Journal]

 

–Hector Ruiz, the former CEO of Advanced Micro Devices, is alleged to have provided information in the Galleon insider-trading case, though he hasn’t as yet been charged. According to a transcript of a Sept. 2008 conversation, Ruiz told Danielle Chiesi, a defendant in the case, “You know, we’re gonna shock the hell out of everybody,” concerning a company spinoff and joint venture with the government of Abu Dhabi.

 

–Speaking of Galleon, according to the Financial Times, it paid about $250 million to its banks in 2008 alone, and paid even more in fees during the boom years, with Morgan Stanley and Goldman Sachs being the main beneficiaries of prime brokerage business. And what was Galleon paying for? It pushed for information on big buy and sell orders to get an edge, of course; market “color” in Street lingo. All of this information was ahead of the public, John and Jane Schlep.   Yet a further example of our markets not being free and fair, and another reason to tear down the Street, or at least send a slew of folks to jail for a very long time.

 

–Terry Keenan / New York Post, on the executive pay debate:

 

“Does it really mater that Citigroup CEO Vikram Pandit now works for $1 a year when he sold his hedge fund to Citi for $800 million? Americans are in on the joke of it all….

 

“Yes, pay czar or not, 2009 will still likely go down as a record year for Wall Street bonuses. In the next few months New Yorkers will get the special pleasure of seeing it all up close and personal – the holiday parties, the idling Escalades in front of Bergdorf Goodman and Barneys, the two-week holiday jaunts to Barbados.

 

“There will be resentment but no real reform.  Unfortunately it may take a painful bursting of this re-inflated bubble before we really get it.”

 

–Chrysler Group announced it will rely heavily on its Italian partner Fiat for new vehicle entries to the U.S. by 2012, including a return of the Alfa Romeo. I’m on record as saying Americans will love the Fiat cars, assuming Chrysler can survive until then.

 

–You see, Chrysler doesn’t have a real good reputation for quality these days. Consumer Report’s annual survey, for example, has Toyota’s Prius number one for reliability, but Ford’s Fusion finished second along with its Mercury cousin, the Milan, outscoring Toyota’s Camry and Honda’s Accord, the two top-selling cars in America. Of the 51 Ford, Lincoln or Mercury models, 46 ranked average or better in reliability. One third of Chrysler’s models, on the other hand, were graded much worse than average, while only 21 of 48 GM models received average or better.

 

–US Airways is lopping off 1,000 jobs next year and further scaling back capacity, while American said it will cut a further 700 positions. All I’ve got to say about the airline industry in general is that every single flight I’ve been on since at least June has been packed. They are certainly doing a super job managing capacity. But at the same time, all of my domestic fares were under $300. [And an international one $350 compared to a normal $650.] That part is beginning to change rapidly and I’d strongly suggest you book your flights as far ahead in advance as possible. In the case of the upcoming holidays, it’s probably already too late. 

 

–Thursday, Oct. 29, was the 80th anniversary of the Crash on Wall Street. A record 16.4 million shares traded that day as $30 billion in stock value was wiped out. It was the start of the Great Depression, though the economic statistics held up for a while thereafter. By 1933, some 9,000 banks had failed, taking uninsured depositors with them. [As opposed to today, where only 115 have failed, including nine this week, and deposits are insured up to $250,000 per account.]

 

–According to the Prosperity Index, put out by a London-based think-tank, Finland is the world’s most prosperous nation, based on monetary matters, as well as the quality of its democracy and governance. The Fins are followed by Switzerland, and then Sweden, Denmark and Norway. Zimbabwe is last, along with Sudan and Yemen. Have you noticed how Switzerland is getting a lot of favorable press the past year or so? It’s hard to explain, but certainly on issues such as bank secrecy the code of omerta has been broken, a la the UBS tax case, and this is good. Switzerland’s long-term policy of neutrality is also breaking down a bit…though I’d probably get some arguments on this. 

 

[The U.S., by the way, comes in ninth in the Prosperity Index, beating Britain, Germany and France, which all ranked in the top 20. Four-fifths of the top 20 are in either North America or Europe.]

 

–Deflation Alert: The New York Jets are lowering the ticket prices on some of their exclusive seats in their new stadium for 2010 from $400 to $195.

 

–Heineken NV is typical of corporate earnings these days. They are improving due to cost-cutting, as the world’s third-largest brewer was closing operations from Ireland to Spain, while revenues, ex-acquisitions, fell 5% in the third quarter on weakness in Europe and the U.S., the drop being greater than expected.

 

–The death of billionaire Jeffrey Picower to a massive heart attack complicates the Bernie Madoff case, Picower having been accused of profiting by more than $7 billion from the investment scheme. Trustee Irving Picard had demanded Picower return the “bogus profits.” Picower himself had claimed he was a victim as he and his wife shut down their foundation that had donated millions to the likes of MIT, Human Rights First and the New York Public Library.  Ah yes, just another bastard hiding behind his charitable givings.

 

[Madoff’s Ponzi losses are now estimated to top $21 billion, up from $12 billion. The original estimate of $65 billion was skewed by the amounts investors took out and recovered, some of which the trustee is thus going after.]

 

–New York and New Jersey homeowners in 10 counties pay more of their income in real estate taxes, 7%+, than anywhere else in the country. No wonder the rich are fleeing, and that’s not good for state and municipal tax revenues.

 

–In looking at a Morningstar / Investment News database of the 25 largest stock and bond funds, over the last five years through Sept. 30, international and emerging market offerings for both categories handily beat the domestic variety, and it’s not even close. PIMCO Total Return Fund, however, managed by Bill Gross, did have a 6.93% annual return vs. 5.09% for Vanguard’s Total Bond Market Index, and, 0.94% for the Vanguard 500 Index Fund.

 

[A Bloomberg survey of traders and investors reveals that Warren Buffett and Bill Gross are far and away the best “assessors of risks.”]

 

–For the record, and archives, the two Northwest Airlines pilots who flew 150 miles past their destination had their licenses revoked. It seems they were not asleep, but were instead engrossed in their laptops and new crew-schedules, and/or fantasy football.

 

–For the six months ending Sept. 30, the average U.S. weekday newspaper circulation dropped almost 11%, with nearly 2/3s of the 25 largest papers posting declines of 10% or more. Separately, the Wall Street Journal overtook USA TODAY to become the largest paper by circulation in the country. The Journal was the only one to show an actual increase in circulation, while USA TODAY’s plummeted 17%.

 

–CNN’s ratings continue to plunge, though its Headline News network is stronger in prime time than CNN itself. One ‘star’ performer, Anderson Cooper, is getting shelled, even losing to HLN and MSNBC rebroadcasts in the 10 p.m. slot. Fox’s Greta Van Susteren leads at that time overall with 538,000 viewers to Cooper’s 211,000. In the 8 p.m. hour, Bill O’Reilly gets 881,000 to CNN’s Campbell Brown with a lowly 162,000. Good gawd!

 

–As for Jay Leno, while the above was all about the cable wars, Jay isn’t faring well either, with 30-second spots selling for an average $65,678. By comparison, the hottest new network show, ABC’s “Flash Forward,” takes in $175,724. NBC’s “Sunday Night Football” remains the most expensive prime time entrant with a single spot costing $339,700, but this is down from $434,792 last year. [New York Post / Ad Age]

 

–According to Lord Stern, the author of an influential report on global warming, “Meat is a wasteful use of water and creates a lot of greenhouse gasses…A vegetarian diet is better.” Methane, which livestock love to emit at will without so much as an “excuse me,” is 23 times more powerful than carbon dioxide as a global warming gas. 

 

The thing is, while Lord Stern’s comments on eating meat may appear to be a bit of quackery, he is a former chief economist of the World Bank and will play a leading role, it appears, at the upcoming UN Climate Change Conference in Copenhagen in December. [Though some are now trying to silence him.]

 

The UN has warned that meat consumption is on course to double by the middle of the century. Let’s see, my favorite meat is veal…from the young ones…so that means…I better stop right here.

 

–Last week I wrote of how China is going to lead the way in combating climate change because it has to and then over the weekend Steven Mufson of the Washington Post had a piece addressing the topic. For all of China’s good intentions, “its greenhouse gas emissions are likely to head upward.”

 

“Hitting its renewable and nuclear energy targets will be challenging. The explosion in the number of wind turbines has created a transmission bottleneck; many turbines stand idle in Inner Mongolia and northeast China, awaiting new transmission lines and connections with the main power grids. The country lacks the skilled manpower to effectively construct, operate or regulate nuclear power stations. Key components might be in short supply, too.

 

“All that contributes to China’s continued reliance on coal – and its reluctance to guarantee a ceiling on its emissions at the Copenhagen summit.”

 

But China will keep moving forward. “If they invest in 21st-century technologies and we invest in 20th-century technologies, they will win,” said David Sandalow, assistant secretary for policy and international affairs at the Energy Department.

 

–Meanwhile, China is investing $1.5 billion in a 36,000-acre wind farm in Texas with the power to light 180,000 homes in a joint venture with private-equity and the U.S. Renewable Energy Group.

 

–My portfolio: I was reading a BBC News piece on Warren Buffett which contained nothing new, mind you, but it was just hammering home investing for the long term, whether you own the business outright or are a large shareholder, the latter being my situation with my China holding. It had another rocky week, this after announcing the new plant was complete and would start generating significant revenue in “6-12 months,” which is on schedule (after a lot of initial delays). But some owners of the stock weren’t satisfied and there have been more sellers than buyers, that’s for sure, the past few weeks. I’m in this one for the long term…up to another two years, as I’ve written ad nauseum. For those of you who are playing along with me, just understand this. To repeat, if the Chinese economy grows at a decent clip, say 8% or better, in 2010, this company will get its fair share of the action. If the economy falls off a cliff (which is also a possibility), I could get shelled.

 

Afghanistan: It was a deadly week with at least 22 Americans killed in accidents, bombings and firefights. October thus became the deadliest month of the war with at least 55 dead. And the Taliban assault grew more brazen by the day as an attack on a UN guesthouse in Kabul left ten dead, while the bombing of a market in Pakistan’s Peshawar killed over 100; the latter as Secretary of State Hillary Clinton traveled to Pakistan to deliver a harsh message, that the government there must do a better job of fighting the Taliban, while at the same time telling a group of Pakistani journalists that she found it hard to believe the government doesn’t know where Osama bin-Laden is hiding out. Thus far Pakistan’s offensive against the Taliban in South Waziristan has accomplished little of strategic value despite the government’s claims to the contrary.

 

Back to Afghanistan, the runoff between President Karzai and Abdullah Abdullah is still slated for Nov. 7 as Karzai insisted there would be no power-sharing agreement beforehand, adding he doesn’t want another Zimbabwe. [As I go to post, there are rumors Abdullah may pull out of the vote.] Meanwhile, the New York Times reported the CIA has supported Karzai’s corrupt brother, he being a long suspected drug kingpin, in exchange for use of an Afghan paramilitary and access to safehouses and intelligence.

 

On the issue of a troop surge, an NBC/Wall Street Journal poll showed that by a 62-25 margin, the American people believe the generals, not the White House, should make decisions on force levels, while only by a 47-43 margin do they favor increasing the numbers at this time. [Typical.]

 

As for Barack Obama and his inability to make a quick decision, Clive Crook wrote the following in the Financial Times.

 

“After eight years of government by gut instinct, most Americans welcomed the arrival of a deliberative president. Yes, get the experts in. Reflect, weight their advice. What a good idea.

 

“And so it is if you are attempting, say, to reform the healthcare system. (A shame it was not tried). There is even more to be said for taking your time if you’re contemplating going to war. But when you are already fighting one, it has drawbacks. The U.S. has been at war in Afghanistan for eight years – and it is losing. On this issue, Barack Obama is giving deliberation a bad name. He needs to make his mind up….

 

“The new president declared the fight a ‘war of necessity’ and ordered an extra 20,000 soldiers to Afghanistan in March. That was the outcome of his own, supposedly fundamental, review of strategy. Since then Mr. Obama’s chosen commander, Stanley McChrystal, has said that the Taliban is winning and is rumored to have asked for as many as 80,000 extra troops, with 40,000 as a compromise. Suddenly the White House is rethinking ‘necessity.’….

 

“The administration’s new strategy cannot wait for a fully legitimate government, (said Defense Secretary Gates). Whatever the outcome of the runoff election on November 7, it is not going to persuade Afghans to trust their government.   If it goes well, he said, it is just one small step in the right direction. The U.S. has to choose a strategy ‘in the context of that evolutionary process.’….

 

“The main thing is this. If the allies keep trying to do too much with too little, as they have up to now, the prospect is defeat that happens slowly and then suddenly. Whatever the administration decides, it must get ends and means in alignment, explain itself clearly, and, for heaven’s sake, make up its mind.”

 

This was also a week we learned of the resignation of a Foreign Service officer, Matthew Hoh, a former Marine captain as well, who was stationed in an Afghan province, Zabul, that was a Taliban hotbed. Hoh resigned because “I have lost understanding of and confidence in the strategic purposes of the United States’ presence in Afghanistan,” he wrote in a September letter that only now became public, though it received an airing at the highest levels of government. “I have doubts and reservations about our current strategy and planned future strategy, but my resignation is based not upon how we are pursuing this war, but why and to what end.” 

 

Hoh’s bottom line isn’t really new; that the Afghan people just don’t want the American presence because it is that very presence that draws the fire. The New York Times’ Thomas Friedman is among those basically echoing this thought, with Friedman writing this week that we must “reduce our footprint and our goals there…not dig in deeper.”

 

To which former Washington Post war reporter Tom Ricks said, “Friedman knows a lot about a lot of things, but he doesn’t know a lot about war.” Without security, Ricks says, there is no success and he believes, for one, that President Obama will choose the McChrystal plan, which is based on securing the main population bases.

 

When will Obama finally make his decision? Another week or two, we are told.

Iraq: Al-Qaeda claimed responsibility for twin suicide bombings that targeted government buildings in Baghdad, next to the Green Zone, and over 150 were killed. Back in August, a similar attack claimed 100. Both attacks were meant to disrupt the Jan. 16 national elections. Regarding the vote, parliament is finally making progress on an election law but the Kurds are balking at various provisions.

Israel: Hamas leader Khaled Mashaal, in exile in Damascus, said the fate of Jerusalem would be determined by confrontation, not negotiations, as Israel has been falsely accused of digging under the al-Aqsa Mosque compound, the 3rd-holiest site in Islam next to Mecca and Medina, though zero evidence has been supplied. Mashaal called for protests in the Arab world and Jordan issued a warning when Israel tried to break up demonstrations in and around the mosque, which is near what Israel considers the holiest site in Judaism. At this time, more than ever, Israel must restrain itself.

 

Lally Weymouth of Newsweek and the Washington Post interviewed Israeli Prime Minister Benjamin Netanyahu and asked him what he thought of the Goldstone report, which condemned Israel for its actions in the Gaza campaign.

 

Netanyahu: “I thought there were limits to hypocrisy but I was obviously wrong. The so-called human rights commission accuses Israel that legitimately defended itself against Hamas of war crimes. Mind you, Hamas…committed four. First, they called for the destruction of Israel, which under the UN Charter is considered a war crime – incitement to genocide; secondly, they fired deliberately on civilians; third, they hid behind civilians; and fourth, they’ve been holding our captured soldier, Gilad Shalit, without access to the Red Cross, for three years.

 

“And who gets accused of criminal behavior at the end of the day? Israel that sent thousands of text messages and made tens of thousands of cellular phone calls to Palestinian civilians [to warn them to evacuate]…”

 

Weymouth also interviewed President Shimon Peres, now 86, but as active as ever, for his reaction to the Goldstone report, which is headed to the UN Security Council.

 

Peres: “I think it’s a great victory for terror. Never before did any terrorist organization gain such recognition, in the most unfair way. [Referring to Hamas]

 

“First of all, we have a problem in the United Nations: There is a built-in majority against Israel. Israel doesn’t stand a chance to win any single issue because the Muslim and the Arab nations and the ones who follow them are a majority. I think Mr. Goldstone made a mistake by agreeing to preside over a committee which has an anti-Israel majority – it cannot be objective if the judges are not objective. And the terms of reference were one-sided: to investigate the war crimes of Israel. And the conclusions – they’re one-sided. There are 26 recommendations. Not one deals with terror. The terrorists are flying free and high. It’s unbelievable.

 

“Israel does not occupy Gaza. We left Gaza completely….And for eight years we restrained [while they fired missiles…about 12,000.] No country would stand it….When you read the report, you think Israel woke up in a poor mood and went to attack Gaza.”

North Korea: Chinese President Hu Jintao invited Kim Jong-il for talks, this as the United States is prepared to send an envoy to Pyongyang for bilateral discussions, as Kim has desired, the end of November. Then 6-party talks are to resume by end of the year.

 

[Earlier, Kim invited South Korean President Lee to Pyongyang, a huge embarrassment for the government in Seoul because while it doesn’t want to reject an offer of détente, this was to come only after progress on nuclear disarmament.] 

South Korea: Defense Secretary Robert Gates pledged that the United States would use its missile defense shield to defend South Korea against North Korean missiles, the first time the U.S. has formally offered such extended deterrence, even though the South has not joined the U.S. regional ballistic missile defense system on which Japan is cooperating, Seoul opting to build its own system. Under the new guidelines, the U.S would use its Aegis ship-based ballistic missiles to intercept North Korean missiles, and Washington could use cruise missiles as well as B-2 and B-52 bombers. This is all in keeping with redefining the mission of the 27,000 troops the U.S. has in South Korea, with the Koreans now being responsible for combat operations while the U.S. focuses on air and naval supporting roles.

 

Russia: Another human rights leader was killed, the 4th in 9 months, this time in Ingushetia. As the Washington Post editorialized, President Putin could put a stop to this in an instant, but doesn’t.

 

“Not since the time of Joseph Stalin, however, have the political killings been so blatant – or so chillingly common.”

 

What I find chilling is that this is but another example of my theory that a third force is going to emerge as the real center of power, overtaking both Putin and President Medvedev.   We shouldn’t be in the least bit surprised to learn of a coup here in the next 2 years.

 

Need a further example? As the London Times reported this week, more than 1,000 mourners, “mainly burly men wearing black leather jackets and chunky gold chains, gathered to pay their last respects to Vyacheslav Ivankov, Russia’s notorious crime boss.”

 

Ivankov died of his wounds from a July attack, an incident I reported on at the time, but the attention paid to this Godfather got the notice of parliament, some of whom branded the excessive media coverage of the funeral as “insulting.”

 

A writer and social commentator, Vladimir Solovyov, said, “It’s shameful but this shows who people think is the real boss. It’s part of Russia’s subconscious.”

 

That it is, as I’ve written on countless occasions. So I repeat, watch out…change could be coming and if you thought today’s Russia was unsettling, wait ‘til you see what may follow.

 

European Union: The search for its first president is nearing its end and it would appear former British Prime Minister Tony Blair will not get the nod owing to his failure to gain the support of France and Germany. Some in Europe were afraid that such a high-profile figure would seek to enlarge the role.

 

Britain: Meanwhile, Blair’s successor, Gordon Brown, is facing all kinds of labor issues including striking postal workers, trash collectors (bin men, as they’re called here), bus and rail, as well as coming airline stoppages. All the disputes are over wages and layoffs, as you’d expect.

 

Australia: Prime Minister Kevin Rudd met with China’s Premier Wen Jiabao on the sidelines of an East Asian summit and declared an end to diplomatic tensions between the two that arose over the arrest of a Rio Tinto mining executive, urging China to stay calm when disagreements flared in the media, Rudd offered.

 

China was Australia’s second-biggest trading partner behind Japan last year, with China and Japan accounting for 40% of all Aussie exports.

 

Honduras: Ousted President Zelaya has agreed to cast his fate with a Congress that has supported interim President Micheletti and elections are slated to be held Nov. 29. Should this come off, it will be a rare victory for U.S. diplomacy these days.

 

Zimbabwe: In a further sign the “unity government” is a sham, Robert Mugabe’s henchmen deported a UN investigator who was invited by Prime Minister Tsvangirai to explore cases of torture.

 

–According to the latest NBC/Wall Street Journal survey, by a 52-36 margin, Americans believe the country is headed in the wrong direction, hardly the case when Barack Obama first took office.

 

–Michael Barone / New York Post…on “Bam’s Brass”

 

“Last February, Obama told Fox News, ‘I don’t always get my most favorable coverage on Fox, but I think that’s part of how democracy is supposed to work. You know, we’re not supposed to all be in lockstep here.’

 

“Now we are. Maybe Obama thought everyone in Washington would be his great friend. Having encountered un-Chicago-like dissent and disagreement, he has responded with classic Chicago brass knuckles. We’ll see how far this kind of thuggery gets him.”

 

–Michael Barone / New York Post, part II

 

“President Obama, who found time to go on a 24-hour jaunt to Copenhagen on Oct. 2 to see the 2016 Olympic Games for Chicago, apparently can’t find the time for a 24-hour trip to Berlin on Nov. 9 for a celebration of the 20th anniversary of the fall of the Berlin Wall. Well, we all have our priorities, and the president can’t be everywhere at once, and Secretary of State Hillary Clinton will surely represent America ably in Berlin.

 

“Still, it seemed an odd decision to me – until I went back and got the speech that candidate Obama delivered on July 24, 2008, to a crowd of 200,000 in the Tiergarten in Berlin. As I reread the text, it struck me that there would be an embarrassing contrast between what Obama said in Berlin 15 months ago and many policies he has been pursuing as president….

 

“Last year, Obama told Berliners that we and they are ‘heirs to a struggle for freedom.’ This year, his administration has been busy trying to appease dictatorial and authoritarian regimes. So maybe he was wise to skip a return appearance in Berlin. Let Clinton gloss over the embarrassing contrast between his rhetoric then and his policies now.”

 

–Editorial / New York Post

 

“New Jersey Gov. Jon Corzine really has no shame.

 

“Just hours after Bergen County’s longtime Democratic machine boss, Joseph Ferriero, was convicted Thursday on three federal felony corruption counts – which could land him in prison for 20 years – New Jersey’s governor proudly defended having written him personal checks totaling nearly a half-million dollars.

 

“That’s right: Corzine, the Wall Street multimillionaire, and his family have funneled no less than $441,600 of their own money to keep Ferriero’s arrogant political machine rolling.

 

“And Corzine claims to be leading the charge on ethics reform in the state. Right.

 

“During Thursday night’s final gubernatorial debate, Corzine claimed – with a straight face – that ‘when I have written checks to the Bergen County Democratic Organization, it is not to Joe Ferriero.’

 

“Tell that to anyone who knows Jersey politics: Ferriero practically ran Bergen County single-handedly.

 

“Corzine insisted that he ‘took on Joe Ferriero myself, long before the federal prosecutors.’

 

“Yet, as one observer put it, if taking on Ferriero meant giving him nearly $500,000, feel free to take us on anytime.”

 

And so the fascinating race in my state winds down with independent Chris Daggett remaining at about 14% in the polls. This week Rudy Giuliani urged New Jersey voters to vote for Republican Chris Christie, and not Daggett, to assure a Christie victory. Out of principle, I am voting for Daggett to do my part to send a message to both parties that they truly suck.

 

–Only in New Jersey. Jennifer Golson / Star-Ledger:

 

“When Anthony Armatys was hired for a six-figure job with Avaya in 2002, he filled out all the necessary paperwork with the company’s human resources and payroll departments.

 

“But when he changed his mind and decided not to take the job with the Bernards Township telecommunications giant, the payroll department never got the memo.

 

“So Armatys started getting paid as though he was an employee. Part of his salary went into a retirement account and the rest was direct-deposited. The only problem was he never alerted the company to the error.

 

“By the time Avaya found out what had happened, Armatys had collected nearly a half-million dollars, using the money for every day expenses, Somerset County Prosecutor Wayne Forrest said.

 

“Officials caught up with Armatys when he tried to make an early withdrawal from his retirement account. Penalty fees aside, the withdrawal sparked an investigation that led to criminal charges.”

 

Armatys pleaded guilty to second-degree theft and faces six years in prison, plus he must repay Avaya $470,000.

 

–And Pete M. passed along another nugget from the Garden State.

 

“An aide to an Essex County assemblywoman was arrested this weekend after $700,000 in cash and two handguns were found in a township self-storage locker he apparently rented under a false name, officials said.”

 

So how was he caught? “On Oct. 6, management at Extra Space Self Storage Facility…went into the storage area after the renter got behind on payments, and they found the guns and some of the money in a fish tank….

 

“Management called North Bergen police who found the remainder of the money making up the nearly three quarters of a million dollars packaged in shrink-wrap.”

 

You can’t make this stuff up.

 

–Not that this should come as a great surprise, but testing by a team at the Cork Cancer Research Center shows that an extract in the curry spice turmeric, curcumin, long thought to have healing powers, can kill off cancer cells. The leaders of the study say that one cancer in particular could benefit, oesophageal, the rates of which have skyrocketed. The curcumin triggers lethal cell death signals. [BBC News]

 

–Former Republican Senator Edward Brooke received the Congressional Medal of Honor this week. Frankly, I didn’t realize the now 90-year-old was still alive, but in his two terms, 1967-79, Brooke, the first African-American senator post-Reconstruction, was the epitome of the moderate Republican.

 

–The Supreme Court is examining life in prison sentences for juveniles stemming from a 20-year-old case where a 13-year-old Florida juvenile was sentenced to life in prison for rape. This will be an interesting ruling.

 

–For those of us who believe homegrown terrorism is just as worrisome as the foreign variety, the raid on an Islamic separatist group in Detroit and Dearborn certainly added weight to our case. Christopher Thomas was gunned down by the FBI after refusing to surrender, while ten others were arrested. Thomas, a k a Luqman Ameen Abdullah, told his followers to oppose the FBI and the government and to die for the cause.

 

But what everyone should be aware of is this is but another example of the recruiting that is going on in our prisons, which is where most of this particular group were indoctrinated into the fundamentalist Sunni group that Abdullah headed. Most of the members of the group were African-American.

 

–No, President Obama isn’t a sexist, as reported by the New York Times, using an example of a pickup basketball game wherein no women were allowed. Utterly ridiculous, or ‘bunk,” as the president himself said. But, pitifully, the White House still felt pressured to allow a female staffer to play golf with Obama last Sunday after the report hit, the first time a woman has been in his foursome.

 

–A little story out there has upset me like few others recently. For two days, viewers of NBC’s “Today” show were told that White House correspondent Chuck Todd had lost a bet to ABC’s Jake Tapper over the baseball playoffs and that Todd would have to shave his goatee. So the second morning, there is Todd with White House press secretary Robert Gibbs, Gibbs holding a can of shaving cream and a razor, while Todd stretched it out until the commercial break, clearly not wanting to comply.

 

And he didn’t! So I wrote NBC, blasting them for stringing us along on a dumb story and then allowing Todd to get out of it.

 

Then again, maybe I’m the only one upset by this but I never liked Todd to begin with (he’s clearly out of his league for starters). Today, though, he is worthy of contempt.

 

–Lastly, so what am I doing in Newport, Oregon? Summer of 2008 I was in the state for the U.S. Olympic Track and Field Trials in Eugene and during a break in the competition I came to Newport just to see the Oregon coast, which I hadn’t visited before. Newport is a quaint place, a bit rundown in spots, that has a cool fishing village and the widest beach I’ve seen anywhere in the world. Back in ’08 I checked out a hotel on a cliff overlooking the Pacific and thought I’d like to come back sometime.

 

Little did I know, however, it would be so soon but I decided in August, as the college football season was getting underway, that USC vs. Oregon in Eugene on Halloween Night would be a critical contest and went ahead and got a ticket. So, it became a good excuse to combine a trip to Newport beforehand and voila!

 

I got down late on Wednesday and on Thursday took a drive up the coast and found other future places to stay. I just love this area, I’ve decided, and it’s always nice to visit spots like this outside the heavy tourist season. Actually, I heard the weather on the coast is rather lousy in the summertime anyway due to the fog (warmer air…water… you get the picture).

 

But I picked up the local paper Friday morning and saw the following front page headline.

 

“Close ocean encounters: Surfers say shark incidents are increasing in frequency.”

 

Oh baby…we’re talking great whites, sports fans! I had talked to some locals on Thursday and received a little feedback but this confirmed it. Right where I’m staying.

 

Well, I knew where my room would be ahead of time and I have a spectacular view of the ocean, a vast stretch of it, from my vantage point high up on the cliff so I’ve been scanning the waters while I’m writing this column from time to time (visibility being good today…oops, here comes the fog) for both whales and sharks. Alas, nothing. But the great whites are there, say the surfers. Further details in another column I’m responsible for.

 

For now, I’m heading down the coast from Newport this morning on my way to Eugene and the game tonight. It should be a rockin’ affair… two top ten teams and a contest with definite national championship implications, and Halloween. I promise to behave…. within reason.

 

—

 

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

 

God bless America.

 

—

 

Gold closed at $1045

Oil, $76.93

 

 

Dow Jones -2.6% [9712]

S&P 500 -4.0% [1036]

S&P MidCap -6.0%

Russell 2000 -6.3%

Nasdaq -5.1% [2045]

 

 

Dow Jones +10.7%

S&P 500 +14.7%

S&P MidCap +22.5%

Russell 2000 +12.7%

Nasdaq +29.7%

 

Bulls 48.3

Bears 22.5 [Source: Chartcraft / Investors Intelligence…look for these figures to move in a big way shortly.]

 

Have a great week. I appreciate your support.

 

Brian Trumbore