For the week 11/23-11/27

So let’s start out with the Dubai World situation. To refresh your memory, as I myself did, the Untied Arab Emirates is a federation of seven independent sheikhdoms, of which Abu Dhabi and Dubai are the best known and two largest (Sharja is 3rd). Oil was first discovered in Abu Dhabi in the early 1960s and the price spike in the ‘70s transformed an impoverished region into one of the world’s wealthiest. In 1971 British troops withdrew from the Persian Gulf and the United Arab Emirates was formed. 

Abu Dhabi is more than six times the size of the other six states put together and provides the federal capital city of Abu Dhabi. As for the number two state, Dubai, it doesn’t have the oil that Abu Dhabi does, but it became the destination resort, so to speak, for all kinds of capital from around the world, including the oil riches from Abu Dhabi, Dubai’s big brother. Of course Dubai has been featured often in this space and I’ve chronicled the real estate bubble that now threatens the government’s finances…at least Dubai’s. 

So on Wednesday, Dubai World, which is the main corporate entity for the Dubai government with most of its investments in real estate and port operations, declared it wanted relief from making any debt payments for six months. Seeing as Dubai World has $59 billion in debt (of $80 billion total for the Dubai government), this caused a bit of a stink, especially when those who released a statement saying they wouldn’t be making any debt payments in the interim decided to take a 3-day holiday. As Church Lady was heard to say, “How conveeenient!” [Actually, Church Lady probably wouldn’t get a hearing in Dubai, but I digress.] 

One of Dubai World’s subsidiaries, Nakheel PJSC, the builder of the famous tree-shaped islands you all have seen pictures of, has a debt payment of $3.52 billion due on Dec. 14, with another $5.5 billion of Dubai World debt due over the coming four months. Needless to say, many banks, both in the Middle East and, as it turns out, Europe (but not in the U.S.) are on pins and needles, awaiting further word on just what the heck is happening. It’s no wonder then that world markets collectively gasped, fell about 4%, but then recovered some. Here in the United States, we were saved by the Thanksgiving holiday and only declined about 1.5% on Friday and finished essentially unchanged on the week. 

Dubai’s growth over the past decade has been absurd. Countless celebrities from Brangelina to the Beckhams have been taken in and stand to lose $millions on real estate that is down 50% in less than 1 ½ years as the global financial crisis compounded a simple fact…Dubai is way overbuilt, both office and residential. Today, more than 400 projects worth some $300 billion are either canceled or on hold. 

But aside from the fact everyone is waiting to see what the Emirates’ big players are going to do next, and how much money the banks could end up losing in any restructuring of the debt, as well as the issue of whether Abu Dhabi will come to the rescue of its arrogant kid brother, it’s the issue of credibility; as in Dubai’s is shot. It’s the way of the bazaar, really. There’s a history of deceit and excess.  

I do have to say, however, that one issue that was not covered on Friday while I had CNBC on was a familiar one…counterparty risk. When word broke of the potential for a large default in Dubai, the cost of credit-default swaps to insure against losses both there and other similar risks soared. But no one talked about who might be on the other side of these trades should they have to make good. As in, do we have another AIG on our hands? Have we not learned our lessons? [Nope.] I suspect that could be part of this coming week’s narrative. 

Meanwhile, the world continued to turn and as far as I could tell there were still 24 hours in a day (each year I ask Santa for 26 and he just laughs). The economic data for the week was alright. Sure, third quarter GDP was lowered to 2.8% from 3.5% but a downward revision was expected. Existing and new home sales for October came in very strong, both better than expected, and the S&P/Case-Shiller index for September showed home prices were up a 4th straight month, though barely. But then you had the data on a typical mortgage holder and how 1 in 4 today are underwater, 40% among those who bought at the 2006 peak, which means there are far more foreclosures to come. 

[At least single-family home prices in all of California rose an 8th consecutive month in October, a further sign of stabilization in this critical market, though the median home price is still off 50% from the peak.] 

Data on personal income and consumption for October was better than expected, particularly in the case of the latter but hardly anyone is translating a better consumer spending figure into strong holiday sales. [I’m not commenting on Black Friday except to say it’s irrelevant when gauging the next four weeks in total.] What we do know is that according to an Associated Press-GfK poll, 93% say they’ll spend less or about the same as last year. Separately, jobless claims for the week fell below the critical 500,000 mark for the first time in ages, and credit card delinquency rates are falling as well, both good. 

The Federal Reserve released the minutes from its last FOMC meeting and the Fed conceded that there are risks of asset bubbles and inflation from keeping short-term rates so low for as long as they are projected to do so, but that the actual odds of either were minimal. Looking to 2010 it sees paltry growth with unemployment still in the 9.3%-9.7% range come a year from now, which isn’t real good, sports fans. 

Overseas, Morgan Stanley economist Stephen Roach had some extensive comments in the South China Morning Post, reiterating that China is walking a fine line between bubbles and further stimulus. Roach, who is consulted regularly by Beijing, said China knows what it needs to do in steering the economy away from an export focused one to one of increased domestic consumption but the execution of a plan efforting this hasn’t been there. Roach also brings up a hugely important point. China has virtually no safety net for its rapidly aging population. 

Separately, the Chinese government continues to make waves that the day of loose money is over when it comes to bank lending and that increased capital requirements will be mandated next year. That’s one way of slowing the asset bubbles there, particularly the property one. 

In Japan, unemployment continued to tick down for a 4th month, just 5.1%, as stimulus programs work and the consumer begins to spend more. But deflation is very much in the cards as consumer prices for October fell a near record 2.2%. 

In the Eurozone, a leading manufacturing index rose in November, but bank leading, just as in the United States, remains very weak. 

Overall, Germany’s new finance minister echoed previous warnings from the likes of China that low U.S. interest rates and a weak dollar are fueling bubbles, even if the Fed says not to worry. Wolfgang Schauble said, “That low interest rate currencies such as the dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.” 

No argument here. The dollar is going to have its day, but it won’t be as a result of Dubai World…it will be Iran. 

But before we get to this topic, a note on health care. The latest USA TODAY/Gallup survey reveals Americans oppose the House and Senate bills by a 49-44 margin, hardly a resounding mandate for President Obama. Four Democratic senators (including Independent Joe Lieberman who caucuses with the Dems) hold the key to the upcoming Senate debate; Lieberman, Mary Landrieu, Blanche Lincoln and Ben Nelson, with the public option being the chief bugaboo for this quartet, along with public funding of abortions.   Also, when it comes to both bills in Congress, the joke is that for them to be close to fiscally responsible, aside from taxing the rich Congress will be called on to cut spending for both Medicare and Medicaid by $hundreds of billions when Congress has never authorized a single cut of even $2 in these programs. 

Robert Samuelson / Washington Post 

“In fiscal 2008 – the last ‘normal’ year before the economic crisis – Social Security, Medicare and Medicaid (programs wholly or primarily dedicated to the elderly) totaled $1.3 trillion, 43 percent of federal spending and more than twice military spending. Because workers, not retirees, are the primary taxpayers, this spending involves huge transfers to the old. 

“Now comes the House-passed health-care ‘reform’ bill that, amazingly, would extract more subsidies from the young. It mandates that health insurance premiums for older Americans be no more than twice the level of that for younger Americans. That’s much less than the actual health spending gap between young and old. Spending for those age 60 to 64 is four to five times greater than those 18 to 24. So, the young would overpay for insurance that – under the House bill – people must buy: Twenty- and thirtysomethings would subsidize premiums for fifty- and sixtysomethings. [Those 65 and over receive Medicare.]” 

Well, you add all the above up, including any fallout from Dubai World, and you can see that we still have a very fragile global economy, and in many respects the longer-term outlook is poor, particularly in the U.S. as we pile up debt and still try to meet our international obligations on the security front. 

And the banks aren’t helping matters by still refusing to lend to consumers and small business as they deal with their own ongoing balance sheet issues. The states are also bleeding profusely on the revenue front with tax collections down 11% in the recent quarter. 

But let’s turn to Iran. By some measures this was as infuriating a week as any. Even departing International Atomic Energy Agency chief Mohammed ElBaradei was furious. Consider that ElBaradei really believed a final resolution to Iran’s nuclear weapons program was going to be his lasting legacy but instead he was forced to say: 

“There has been no movement on remaining issues of concern which need to be clarified for the (IAEA) to verify the exclusively peaceful nature of Iran’s nuclear program. We have effectively reached a dead end, unless Iran engages fully with us.” 

ElBaradei knows Iran isn’t about to. Instead, an Iranian foreign ministry spokesman said, “We are looking for 100 percent guarantees,” whereby Iran would exchange its 3.5% enriched uranium for an equal amount 20% enriched uranium, a total non-starter. Plus, to further show the farcical nature of it all, Iran wouldn’t turn over a thimble full of uranium until it got all the 20% stuff first. 

What Iran has also done, however, is tick off Russia. As a senior Western diplomat told the Financial Times, “Russia is more and more upset with Iran after Iran’s brutal rejection of the nuclear proposal which was based on a Russian proposal in which Moscow itself was supposed to play a significant role. The regime took the risk of upsetting Russia which is less compromising than before.” 

And so, conversely, there is a chance Russia will actually back a U.S.-led bid for increased sanctions. Even China joined Russia on Friday in signing off on an IAEA censure of Iran demanding Tehran immediately freeze construction of its Qom facility and to stop enriching uranium per prior Security Council resolutions; a rare measure of unity by the P5+1, including the U.S., France, Britain and Germany. 

For its part, Iran’s representative at the IAEA meeting was defiant and this week Iran conducted extensive war games for its air defenses, even as the Mullahs continue to tell the world their nuclear program is for peaceful purposes. 

But here’s why I feel this week could in the end have been the one that did Iran in. 

Nobel Peace Prize laureate Shirin Ebadi, the heroic human rights lawyer, was out of Iran at the time of the contested June presidential election and she never returned, saying she is “in an effective state of exile.” It’s just too dangerous for her. Her husband, for instance, was arrested and “severely beaten” this fall, according to the Norwegian foreign ministry. 

So with Ebadi away, on Thursday, Iranian authorities confiscated her peace prize medal, taking it out of a safe-deposit box in Iran along with all her personal effects including the diploma awarded with the medal. Every decent-minded person’s blood should be boiling at this story. 

Earlier this week, son of Satan, Supreme Leader Ayatollah Khamenei, warned that slandering officials of the Islamic establishment “and spreading rumors about them are part of the enemies’ soft warfare strategy,” according to the Tehran Times. 

“Such actions are in line with the wishes of the enemy because the country’s officials, including the president, the Majlis speaker, the Judiciary chief, and the Expediency Council chairman, are at the helm of the country and people should trust them,” said Khamenei in a meeting with the vicious Basij in Tehran. 

“In this soft warfare,” he continued, “the enemy is attempting to use advanced cultural and communications tools…to create doubt, pessimism, and conflict among the people.” 

One thing is clear, friends. The Ayatollah needs to be taken out; the entire leadership along with him. They are often all together at Friday prayers. Here’s hoping they meet their end one day soon in that very spot. 

I assume some of you saw the “60 Minutes” segment last Sunday with the Newsweek reporter, Maziar Bahari, who talked of his time in prison in Tehran. The day before I wrote in this space, “Many of the Iranians are simply sick, totally nuts. There’s no other way to describe them.” Bahari, with his firsthand experience, echoed these sentiments. 

So how can anyone doubt that Israel is being forced to act, sooner than later? Israeli President Shimon Peres said this week that Iranian threats must be taken seriously. 

“Ahmadinejad wants to destroy a nation and he denies the Holocaust. His ambition is to rule the Muslim world with unmitigated force and terror.” The fact that he does not speak about the future, Peres continued, is indicative that he has no future. 

Speaking at a graveside ceremony Monday honoring Israel’s first prime minister, David Ben-Gurion, Peres portrayed him as a lone wolf who dedicated his life to a single vision: an Israeli homeland. 

“What was thought at the time to be impossible to accomplish, has become an amazing reality.” [Jerusalem Post] 

Israel will act to preserve the dream. For his part, President Obama needs to speak out forcefully against the Ayatollah, immediately, and blast the regime for taking Ebadi’s medal and savagely beating her husband. This message has to resonate among the opposition, who are wondering why we have seemingly abandoned them. It’s time to hold Obama accountable on this paramount issue before it’s too late. It’s time for the Ayatollah, Ahmadinejad and the rest to be sent straight to Hell. 

–We’ll find out this coming week, with further details on the fallout over Dubai World, just how much the risk trade has been affected. For this past week, though, U.S. stocks were basically unchanged, with the Dow Jones off a mere 9 points, 0.1%, the S&P 500 unchanged (up a fraction of a point), and Nasdaq down 0.4%. For all the talk about gold this year, with more below, it’s up less than Nasdaq, 36% to 33%. Heck, even many a high-yield bond fund is up more than gold. [Junk\’s run is over, however.]

–U.S. Treasury Yields 

Mortgage rates are already at all-time lows and with the 10-year back down to 3.21%, headed lower still it would seem as with Dubai World there was a flight to safety. 

[Meanwhile, Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, said Ben Bernanke’s confirmation for a second term isn’t guaranteed, though Dodd added he was leaning towards another one for Uncle Ben.] 

–Gold’s run continued, fueled by speculation (gold bugs hate to read this), but, just as in the tech bubble, this can last a long time. And, no doubt, concerns over paper currency and government debts are another reason for the surge, particularly the last two months, but actual physical demand, as measured by the World Gold Council, shows that the latest run hasn’t been matched by record purchases of the shiny stuff. As Tom Petruno of the L.A. Times notes, “The recent peak in buying of physical gold, in fact, was in the third quarter of 2008 – before the financial system meltdown accelerated.” 

But will the rise to near $1200 fuel further demand? There’s evidence gold coin sales are surging. I’d just say the whole trade is obviously tied to the dollar and for those playing the precious metal, be wary. At some point I’m going to be right on Iran and who the heck knows how strong the dollar will get then, and how much gold will correct. 

–In a significant move, President Obama has agreed to go to Copenhagen (Dec. 9) for the climate change summit and will pledge to reduce greenhouse gas emissions in the U.S. in the neighborhood of 17% below 2005 levels by 2020; this as China is aiming to reduce its own “carbon intensity” by 40% to 45% compared to ’05. 

But when it comes to climate change and global warming, American attitudes are changing with the percentage of those believing in global warming dropping to 72% from 80%, according to a Washington Post/ABC News poll. 55% believe the U.S. should curb its carbon output even if the likes of China and India do less. 

The poll numbers break down along party lines, with the number of Republicans believing in climate change going from 76% to 54%, and from independents 86% to 71%. Democrats are at 86%, down from 92%. 

–While it appears swine flu has peaked in the Northern Hemisphere (though it is still spreading in the Middle East and Eastern Europe), there are signs around the world the H1N1 virus has mutated to a drug-resistant strain, which bears watching come next year and a potential second round. There was a cluster at Duke University hospital for example that was drug resistant, as well as clusters in Britain, Norway and China that are being followed closely. 

–Toyota has a real problem on its hands. Its reputation could plummet due to ongoing safety issues. This week the automaker said it would have to fix the gas pedals on four million vehicles, including the top-selling Camry, because of sudden acceleration. At first this was tied to driver-side floor mats leading to the pedal getting stuck but federal regulators have pressured Toyota to do more. 

The National Highway Traffic Safety Administration started scrutinizing Toyota when a Lexus ES350 hit another vehicle near San Diego at more than 120 miles per hour, killing four people. The key was that a passenger had called 911 moments before the crash saying the pedal was stuck and the driver couldn’t stop. In terms of the Camry, the recall covers 2007-10 models. [Avalon, Tacoma, and three Lexus models are also involved.] 

[Earlier, Toyota recalled 110,000 Tundra pickup trucks because road salts can cause “excessive corrosion” of the frame; with the corrosion potentially leading to brake issues. Plus a spare tire underneath can be dislodged.] 

–The U.S. government issued an urgent recall of 2.1 million dropside cribs after 4 infants died of suffocation, one of the biggest product recalls of any kind in America. Many of the cribs carry the Fisher-Price logo. They were manufactured by Stork Craft and cover a period from 1993 to today. 

–Three trade deals signed during the George W. Bush administration with Colombia, Panama and South Korea have yet to be implemented as both President Obama and Congress dither. The delay in implementation has cost hundreds of thousands of jobs according to some labor experts. 

–With all the factories that have closed in the country, some utilities don’t expect power demand to recover to pre-recession levels until 2012, at the earliest. 

–AIG and former CEO and founder Hank Greenberg have finally agreed to settle all the lawsuits between them, with AIG covering Greenberg’s legal fees and returning a lot of his personal property. Greenberg has been cooperating the past few months with AIG’s management in helping restore some value to its operations. 

–Obesity is costing the country $100s of billions a year in healthcare costs and a recent study out of Emory University says that by 2018, more than half the adults in Oklahoma, Mississippi, Kentucky, Maryland, Ohio, and South Dakota could be obese. The chair of the report, Kenneth Thorpe, says that within a decade, nearly 1 of every 5 dollars spent on healthcare in the United States will be attributable to obesity-related conditions, including diabetes and high blood pressure. Thorpe adds that if the rate of obesity could just be held constant at current levels, the country would save $200 billion a year by 2018. Both the House and Senate healthcare bills contain provisions for the fast-food industry, requiring them to put calorie labels on their menus and displays. I have zero problem with this, and if there is going to be a new levy, I have no problem with a soda tax. Just don’t tax my beer any further, beer containing many healthy ingredients. [U.S. News & World Report] 

–The average hotel occupancy rate in the U.S. this year is expected to be about 55%. The domestic rate has dipped below 60% only twice before since the 1920s, according to Bjorn Hanson of the Tisch Center.  Occupancy is supposed to be up just a little in 2010. [Joe Sharkey / New York Times] 

–Deflation Watch / Real Estate Bubble Fallout: Goldman Sachs CEO Lloyd Blankfein and his wife put their Manhattan/Park Ave. duplex on the market for $15 million but there were no takers so they cut 10% off the price. Heck, there are two maid’s rooms. It’s a steal at $13.5M! 

–Speaking of Goldman, it not only told its employees there would be no big corporate Christmas bash, but in an ongoing effort to keep a low profile employees are not allowed to pay for their own parties. 

–The Pontiac Silverdome, outside Detroit, site of the 1982 Super Bowl and various rock concerts, sold at auction for only $583,000, or $7.25 a seat for the 80,000 capacity arena. Since the Detroit Lions, which had called it home, moved to Ford Field in 2002, the city of Pontiac was saddled by a $1.5 million annual maintenance bill as all kinds of alternative projects for the arena were floated only to fall through. The buyer, out of Toronto, says it will use the site as a soccer arena. 

–China car sales are expected to hit 13 million units this year, up from 2008’s 9.38 million, as China overtakes the U.S. as the world’s leading car consumer. GM China, for one, expects its own sales to rise 50% here. And Toyota has made China its prime growth target as it expects to sell 800,000 vehicles in 2010. 

–Wal-Mart’s quest for low, low prices is under a microscope as groups such as China Labor Watch complain that some companies are forcing their employees to work in sweatshop-like conditions. China Labor Watch said Wal-Mart is failing to pick up on the abuses, but the company said it was looking into specific factories noted in a CLW report. 

–The Chinese government has given its approval to a pest-resistant genetically modified strain of rice.  China grows 59.5 million tons but consumes virtually all of it, little being exported.  Earlier China approved a GM corn.  

–Disney won approval for a theme park in Shanghai, but only for one about a quarter the size of Hong Kong Disneyland, though everyone agrees it will eventually expand to at least the same size. The Chinese government is always concerned about how much Western culture to allow in. 

–China executed two people for their role in the 2008 tainted milk scandal that killed at least six children, with another 300,000 getting sick. A total of 21 executives and sales people of the Sanlu Group were convicted in the case. But a woman most widely blamed for the crime received life in prison, not execution, as victims’ families sought. 

–Deflation Watch, Part Deux: 250,000 public sector workers staged a one-day strike in Ireland to protest coming pay cuts as part of the nation’s new austerity budget following the economic collapse. The workers have already seen an effective 7.5% cut in pay and it’s thought the government will seek an additional 5%. 

–In the annual Zagat’s survey of airlines, Virgin American and Midwest Airlines received the highest scores of all carriers in the domestic ranking. JetBlue was tops among the larger airlines. For international flights, Singapore Airlines took first. 

–In yet another sign of the severe recession in the golf industry, sales of golf balls, clubs and apparel are off 10% this year. And the three major lenders for golf course developments – GE Capital, Textron Financial Corp. and Capmark Financial Group – have virtually stopped making golf-related loans. Capmark filed for Chapter 11 in October. [L.A. Times] 

–Speaking of golf, thank God Tiger Woods is OK after his traffic incident. Remember, wait 24 hours, folks, but of course I’ve read the stories as to what might have transpired prior to him getting into the car. 

–CNBC’s Jim Cramer caused quite a stir when he called for a tax on trades to help reduce the federal budget deficit. “Look, I take an unpopular stance, but you know I think the deficit’s bad and someone has to do something,” he said. Cramer is referring to a Democratic proposal to tax the sales of stocks, options and other securities 0.25%. It has little chance of passing. 

The issue for Cramer is if this proposal became law it directly impacts his audience most and traders are asking, ‘Why are we being penalized? We didn’t have anything to do with the financial collapse.’ One e-mail obtained by the New York Post read, “How can this scum [Cramer] come on TV and recommend several different stocks a night and want his viewers to buy them all and pay this tax???” 

–HSBC told its retail clients at its tower in New York City to remove their small holdings of gold as the bank focuses on large institutions. HSBC has one of the biggest vaults in the U.S., and as the Wall Street Journal noted this week, this is creating a logistical nightmare for those who have to remove their gold and silver, with some alternative sites having their own storage and security issues. 

It kind of reminds me of Al Pacino in Scarface who says, ‘The biggest problem I have is what to do with….,’ actually, I really shouldn’t go here. 

Afghanistan: On Tuesday, President Obama will address the nation and spell out his strategy for Afghanistan, including a request for further troops, 30,000-34,000 according to reports, not quite the 40,000 Gen. McChrystal had called for, but a significant number nonetheless as the strategy evidently will focus on taming the Taliban stronghold of Kandahar, as well as rapidly training the Afghan army. 

Obama’s biggest domestic problem will be dealing with his own Democrats, many of whom are loath to finance any further troop buildup. Across the country, the latest USA TODAY/Gallup survey shows only half of Americans endorse the idea of more troops, while 4 in 10 say the U.S. should withdraw. [On a related note, by a 2 to 1 margin, Americans want to see Guantanamo Bay remain open.] 

The president is also going to be asking NATO for further troop commitments at a time when the likes of the Dutch and Canadians are scheduled to pull out; and I’ve been writing the Brits are likely to as well because of the political pressures faced by Prime Minister Gordon Brown as voters go to the polls this coming spring. [Brown keeps saying his country is committed to staying there, but if the coming U.S. surge doesn’t go well, look for him to abandon ship in an attempt to save himself.] 

Meanwhile, to those who argue that there is a difference between al-Qaeda and the Taliban and that our war is with the former and not the latter, Indian Prime Minister Manmohan Singh, who should know, said “There is a close connection (between the two). They are chips off the same block.” [Singh also argues that Pakistan and the U.S. do not share the same goal in Afghanistan. “Pakistan would like Afghanistan to be under its control. And they would like the United States to get out soon.”] 

Israel: While there is zero doubt in the mind of your editor that 99% of the attention of Israeli Prime Minister Netanyahu these days is focused on how to set back Iran’s nuclear weapons program at least a year or two while limiting the blowback, Netanyahu, as I surmised last week, did indeed authorize a 10-month moratorium on settlement construction as a way of jump-starting the peace process, but it was hardly a true moratorium as the prime minister said some 3,000 units already under construction would continue, there would be no moratorium on building schools or synagogues, and there will be no suspension of building in Jerusalem. 

“Regarding Jerusalem, our sovereign capital, our position is well known,” he said. “We don’t put any restrictions on building (there).” 

Netanyahu believes his action puts the ball in the Palestinians’ court. “We have been told by many of our friends that once Israel takes the first meaningful step toward peace, the Palestinians and the Arab world would respond in a positive cycle…Well, the government of Israel took a very big step toward peace today, and I hope the Palestinians and the Arab world will seize the opportunity to forge a new beginning and future.” 

This of course is nothing more than a smokescreen. I like Netanyahu, and have offered he is the man for these times, but my position on the settlements is clear. That said it’s no wonder chief Palestinian negotiator Saeb Erekat called Netanyahu’s plan fraudulent. He’s right. It is. But the Palestinians have done zero to help themselves and have zero credibility. 

Last week I also made mention of Palestinian Marwan Barghouti, in an Israeli jail serving five life sentences for murder but a respected leader. I said at some point it’s clear he’ll be part of a prisoner exchange, “just maybe not in (the instance of negotiations over soldier Gilad Shalit).” 

Israel, we have now learned, is indeed discussing Barghouti, but strongly hinting he will not be freed this go ‘round. Hamas wants Barghouti included. Israel should release him. Looks like there will be a resolution next week. 

Lebanon: The new government began to discuss the critical issue of Hizbullah’s arms but in the end adopted the same clause as before; Hizbullah gets to keep them, with Parliament Speaker (and Hizbullah lackey) Nabih Berri saying the arms belong to all Lebanese “and their existence is linked to Israel’s withdrawal from all Lebanese territory.” 

To beat a dead horse, if I had two minutes with Prime Minister Netanyahu I’d tell him, “Give up Shebaa Farms and you take away Hizbullah’s raison d’etre.”  

Separately, a military court sentenced a Lebanese soldier and his wife to death for spying for Israel. 

Iraq: I wrote last time that the January election for parliament was in jeopardy and talks to keep it on track then collapsed, thus raising the prospect of a constitutional crisis as the election had to take place in January. The problem is the veto by one of the vice presidents of an election provision limiting the number of Sunni seats and now ethnic tensions are flaring up all over again (though violence thus far has been held in check). 

For its part the United States was supposed to begin a major withdrawal next spring, leaving the total force at just 50,000 by August, but this could be in jeopardy.   [And could limit a surge in Afghanistan.]

China: Following are some thoughts on the U.S.-China economic relationship from an editorial in the Washington Post. 

“Though umbilically connected by trade and capital flows, the two countries are pursuing incompatible economic policies. Without a course correction, both will suffer, and so will the global economy. 

“China has achieved its economic miracle through exports – producing far more than its people consume. The United States – where consumers have driven 70 percent of the economy in recent years – is its biggest market. The United States, in fact, consumed more than it produced, but China enabled this by accumulating $2.3 trillion in reserves and plowing much of it back into U.S. government bonds. 

“When the global boom went bust, the United States cut interest rates to zero and began running a fiscal deficit of 10 percent of gross domestic product. This made the dollar vastly cheaper, but China, to protect its export industries, has responded by linking its currency to the plunging buck. Thus, U.S. exports are not growing as much as they would otherwise, and neither are those of other countries in Asia…. 

“Economically, the solution is obvious. China must increasingly grow by producing to meet domestic demand; the United States must live within its means. Both sides have made some headway. China has plans to build hundreds of new hospitals; pension reforms, which would reduce the need to save for old age, are also said to be on the way. In the United States, private savings have risen from minus 2.1 percent of GDP in the last quarter before the recession to 6.2 percent now. But more action is needed: Not only must the United States seriously address its long-term budget deficits; China must also allow its currency, the yuan, to rise…. 

“And (today) the United States and China are at an impasse, with each demanding, in effect, that the other change first.” 

On the issue of security, Greg Torde had some of the following in an op-ed for the South China Morning Post. 

“Beijing’s backroom bullying of U.S. oil giant ExxonMobil last year has clearly upped the stakes. In private verbal warnings, Beijing’s envoys in Washington told ExxonMobil executives to scrap an oil exploration deal with Vietnam or risk damaging its China business. 

“In the closing days of the administration of President George W. Bush, senior officials, including Defense Secretary Robert Gates…expressed concern at China’s behavior. 

“The worries have continued in the new Obama era. In little-noticed testimony to the U.S. Senate in July, the U.S. deputy assistant secretary for East Asia and the Pacific, Scot Marciel, confirmed that Washington had raised objections with Beijing. ‘We object to any effort to intimidate U.S. companies,’ Marciel said. ‘Sovereignty disputes between nations should not be addressed by attempting to pressure companies that are not party to the dispute.’ 

“Significantly, a senior Pentagon official told the same hearing that, not only would U.S. forces remain ‘present and postured as the pre-eminent military force in the region,’ but would boost military diplomacy and cooperation with China’s neighbors in the area, among other measures. Deputy Assistant Secretary of Defense Robert Scher warned of the need to ‘prevent tensions in the South China Sea from developing into a threat to U.S. interests.’…. 

“A fresh academic study this week produced by Ian Storey and Clive Schofield, scholars based in Singapore and Australia, respectively, outlines a bleak scenario. 

“ ‘Conflict is not inevitable in the South China Sea, but if present trends continue, sovereignty and resource disputes will be an increasing source of interstate friction with the potential to spill over into military confrontation,’ the pair wrote. It is a warning increasingly heard in diplomatic staterooms across the region.” 

Russia: President Medvedev harshly criticized the United Russia party for recent election abuses, United Russia led by his mentor, Prime Minister Putin. But despite the headlines, it wasn’t a direct shot at Putin himself. Instead, the president urged United Russia to rid itself of bad elements at the regional level.  

“Elections must express the people’s will in free competition between ideas and programs, but they turn into a different story when democratic procedures are mixed with administrative ones,” Medvedev said. 

But while Medvedev has been saying some encouraging things on the democracy front recently, setting himself further apart from Putin (and the shadow ‘third force’ I keep alluding to), in actuality you’ve only seen a pickup in disturbing acts, such as the death of lawyer Sergei Magnitsky in prison, a story I covered last week. 

Magnitsky, recall, was working for William Browder, exiled founder of Hermitage Capital Management, one of the largest foreign investors in Russia. After Magnitsky presented evidence implicating the Interior Ministry in a theft of $230 million in government funds, he was arrested by the same folks. 

Browder, who once vigorously defended Medvedev and Putin before being driven out of the country (he’s now in exile in London), told the BBC following the death of Magnitsky that Russia was nothing more than a “criminal state” and that Magnitsky had been “held hostage and they killed their hostage.” 

[As to Friday\’s train derailment that at last word killed 39, a bomb attack is a suspected cause.  Too early to tell if this is indeed the case.]

India:  Prime Minister Singh’s trip to the White House was vitally important.  Relations with the Bush administration were good, but there are serious questions today, particularly when it comes to Pakistan and Afghanistan. India wants the U.S. to stay engaged in the region, so Singh and his government should like President Obama’s request for more troops; India’s main concern being that the U.S. cuts and runs, leaving India holding the bag, with Singh, as noted above, concerned that Pakistan would then pull Afghanistan into its fold. 

“Obama must keep in mind that South Asia is a tar pit filled with failed and dysfunctional states, save for one long-established democracy of 1.2 billion people that is the second-fastest growing major economy in the world, a check on China’s rising ambitions, and a natural ally of the United States. The prize is the relationship with India. The booby prize is governing Afghanistan.” 

[Pakistan President Zardari faces several new corruption and criminal charges as his amnesty agreement, reached in December 2007 as part of a deal between then-President Musharraf and Benazir Bhutto, expires.] 

Turkey: There are growing concerns over the Islamist government of Recep Erdogan and his outreach to criminal regimes in Sudan, Syria, and Iran. Erdogan has also been cracking down on the media, as he seeks revenge on those who have criticized his rule, with Erdogan threatening the largest media company, Dogan Yayin, by hitting it with an absurd $3.3 billion (with a ‘b’) tax; a sum greater than the value of the entire conglomerate. The European Union has expressed its outrage but Erdogan is not backing down. 

Editorial / Washington Post 

“Mr. Erdogan and his party were once seen by many in Washington as a model for how pious Muslims could practice democratic politics. That image is rapidly darkening. If it is not to be extinguished, Mr. Erdogan must stop coddling Muslim dictators – and stop following their practice of silencing domestic opposition.” 

Philippines: A state of emergency was declared in parts of the southern island of Mindanao after 100 gunmen stopped a convoy of 40 people on their way to file election papers in support of a local mayor, who was then going to run for provincial governor next year. The militants, tied to a rival clan leader, then slaughtered the 40, plus witnesses to the hostage-taking, with a final toll of 57 at last word. Female members of the convoy were reportedly raped before being killed and buried in a shallow grave. Some were beheaded. Up to 22 were in the media, making it the heaviest single loss of life in the history of journalism. 

Andal Ampatuan Jr., a rival to the victim Mangudadatu clan, was arrested for leading the massacre. The actual candidate was not in the convoy. Such feuds are not uncommon in this part of the Philippines, where there has also been an ongoing army operation against Islamist militants. 

Egypt / Algeria: The soccer row continues as Egyptian President Hosni Mubarak said he will not tolerate the “humiliation” of Egyptian nationals abroad, referring to violence in Algiers following two World Cup qualifying matches between the two nations. Egypt is also contemplating pulling out of international soccer for two years because its fans and business interests weren’t protected. Believe it or not, Libyan leader Muammar Gaddafi has been asked to mediate, his nation residing between the two. Those ought to be some wacky deliberations. 

Brazil: It’s bad enough that Iranian President Ahmadinejad continues to solidify his relationship with Venezuela’s Hugo Chavez (as well as with Bolivia and Nicaragua), but this week’s trip to Brazil and the “bear hug” given him by President Lula was downright distressing. Lula never brought up suppression of Iran’s opposition movement, or Ahmadinejad’s denial of the Holocaust, and instead signed 13 cooperation agreements when even Russia is increasingly ticked off at Iran. Lula declared that Iran had a right to its nuclear program just like everyone else, ignoring the extensive list of UN sanctions and resolutions demanding Iran cease with its uranium enrichment. 

And as the Washington Post points out, it’s Brazil that seeks a permanent seat on the UN Security Council, but if it wants to gain further global influence, “Brazil will have to reform the anachronistic Third Worldism that informs its foreign policy. By embracing pariahs such as Mr. Ahmadinejad or attempting to position itself between the democratic West and the world’s rogue states, Brazil will merely ensure that it remains the country of the future,” its potential long being overestimated in the past. 

Northern Ireland: Should there be a terror attack in London this Christmas season, as is increasingly feared by some security experts, your initial reaction should not necessarily be that it is of an Islamic nature; it could just as easily be the work of IRA diehards who this past week almost set off a 400-lb. bomb outside a Belfast police headquarters. The bomb caught fire but failed to detonate; about the fourth time, thankfully, this has been the case in the past few months. It’s as if they are missing one key figure to complete their mission. It’s scary. 

Somalia: The U.S. Justice Department rounded up 8 Somalis, living in the extensive Somali American community in Minneapolis, for recruiting young men to fight in Somalia. This brings to 14 the number accused in connection with a case where at least 20 have traveled from Minneapolis to Somalia to become part of the al-Qaeda-affiliated group known as Al Shabab, who are waging war against the U.S.-backed government. I had no idea some 60,000 Somalis live in Minneapolis, with many arriving in the 1990s as refugees. Due to economic circumstances, the youth make for easy targets for the more radical elements. Federal authorities are concerned that some of the men, who receive military training in Somalia, will then return to target the U.S. 

–In the latest Washington Post/ABC News poll, 55% believe the country is on the wrong track, while independents favor a generic Republican vs. Democratic candidate for Congress by a 52-30 margin. President Obama’s overall approval rating is just 50%. 

–Roger Cohen / New York Times…on a recent encounter with Henry Kissinger, where Cohen asked him how he thought President Obama was doing. 

“He reminds me of a chess grandmaster who has played his opening in six simultaneous games,” Kissinger said. “But he hasn’t completed a single game and I’d like to see him finish one.” 

–Incredibly, Tareq and Michaele Salahi crashed the White House state dinner for Indian Prime Minister Manmohan Singh in a scary breach of security, and as we’ve now learned shook President Obama’s hand in the reception line. Aside from the fact that heads must roll at the White House, be it the social staff and/or the Secret Service, the Salahis should be sent to prison. Let’s face it, we all had the same thought when we first heard this, such as that of former FBI profiler Clint Van Zandt. Forget that they didn’t have a weapon, having gone through a magnetometer. What if the guy was wearing a suit full of anthrax spores? [Once again, think back to some past seasons of “24.”] 

This whole episode is sickening on so many different levels, but first and foremost it shatters the myth the White House is impregnable, let alone our own feelings of superiority when we can’t even control a freakin’ guest list at a state dinner.  Controlling our borders and ports? Right. 

–Editorial / New York Post 

“Former Louisiana Rep. William Jefferson got 13 years in federal prison this month after being convicted of receiving a $100,000 bribe. 

“So, by that standard, Bayou State Sen. Mary Landrieu should go away for how long? The remainder of the millennium? 

“Jefferson was caught on videotape three years ago accepting a $100G bribe to promote a Nigerian telemarketing scheme. And then the feds found $90,000 in the family freezer. 

“But Landrieu had her hand out last week – and Senate Majority Leader Harry Reid laid on at least $100 million in Medicaid subsidies in exchange for critical support during the weekend health-care debate. [The price could eventually run as high as $300 million.] 

“Whereupon Landrieu – still boasting of her cash coup – promptly agreed to host a fund-raiser for Reid…. 

“What a piker, that poor Jefferson, huh? His real crime wasn’t being on the take – it was selling out for chump change. Now he’s looking at 13 years to ponder the unfairness of it all. 

–In a USA TODAY/ Gallup survey, 6 in 10 say Khalid Sheikh Mohammed should be tried in a military tribunal. 

–Following are excerpts from an Army Times piece by Jon Anderson and Joe Gould concerning attitudes towards Muslim soldiers in the aftermath of Fort Hood. 

“The divide is perhaps most clearly seen, at least symbolically, at the U.S. Military Academy at West Point where one of the cadet companies is nicknamed the ‘Crusaders.’ The company mascot can be seen at games wearing holy warrior regalia. Critics say it’s the equivalent of having another cadet company dubbed the ‘Jihadists.’ 

“ ‘It would be bad enough if Bob Jones University were doing that, but this is the U.S. Military Academy,’ Mikey Weinstein said, a former Air Force officer and counsel in Ronald Reagan’s West Wing who now heads the Military Religious Freedom Foundation, watchdog and advocacy group…. 

“Since the Fort Hood attack, Weinstein said the foundation’s caseload has jumped with Muslim service members calling about problems, going from 80 active cases to about 100.” 

But there are still “pockets of not just tolerance, but the same loyalty you’d expect from any battle buddy,” the reporters note. 

–As the evidence mounts in the investigation of Maj. Hasan, it’s increasingly clear the FBI was a total band of idiots. As ABC News disclosed, one of the 18 emails between Hasan and al Qaeda recruiter Awlaki had Hasan telling his mentor, “I can’t wait to join you” in the afterlife. ABC then reported that Hasan asked Awlaki “when is jihad appropriate, and whether it is permissible if there are innocents killed in a suicide attack.” 

The FBI had full knowledge of the content of the emails and, as Stephen F. Hayes of The Weekly Standard writes, “assures the press they are ‘benign.’ Unbelievable.” 

–Sarah Palin sold 700,000 copies of her book the first week (including pre-orders) with a total first printing of 1.5 million copies. Then publisher HarperCollins increased it to 2.5 million. But Bill Clinton’s “My Life” sold 900,000 in its first week. Palin scored a $1.25 million advance. 

A recent Washington Post/ABC News poll still has 60% saying Palin isn’t qualified to be president, but in The Des Moines Register’s Iowa Poll, more than 2/3s of Republicans there like what they see from her, obviously putting her in position to cause more noise should she run for president in 2012. Palin’s favorability rating is essentially the same as Mike Huckabee’s and Newt Gingrich’s, and above that of Mitt Romney.  But a quarter of Republicans view her unfavorably, or twice the figure for Huckabee. [USA TODAY] 

Matthew Dowd, a key adviser to President George W. Bush, writes in a Washington Post op-ed: 

“Polls show that Palin’s favorability numbers are a mirror image of those of Obama. She is respected and loved by the Republican base, while Democrats despise her. Granted, independent voters have significant reservations about her capability to be president, and this would be a hurdle in the general election. But to win the Republican nomination, Palin needs only to get enough support from the base to win early key states.” 

Kathleen Parker / Washington Post 

“Are the media treating her unfairly? Are they ‘bashing’ Palin, as her supporters describe any criticism? Was the Newsweek cover sexist? 

“Call me a guy but give me a break. Sarah Palin is the luckiest woman on the planet. 

“Hats off to the girl from Wasilla who, slightly more than a year ago, was virtually unknown and is now on the cover of Newsweek, hawking a book for which she was paid a few million dollars, drawing huge crowds and getting the kind of free publicity most celebrities have to jump on Oprah’s couch to get. 

“Oh, and yes, she got to sit on Oprah’s set as well. And we’re supposed to defend/feel sorry for/protect Sarah from…what? Wild success, popularity and riches? You must be joking. 

“I don’t doubt the sincerity of those who feel compelled to defend Palin. Women, especially, feel personally diminished when a female candidate is treated unfairly. Some of the commentary aimed at Palin during the presidential campaign was clearly over the top – vile and vicious in some cases – though I would challenge the common assertion that noting her lack of familiarity with national policies and issues constitutes ‘bashing.’” 

The only thing I will defend Palin on is the Newsweek cover, but simply from the standpoint that it wasn’t right for the magazine to rip off Runner’s World in such a fashion; the latter being the single best magazine of any kind, incidentally, with The Atlantic second on your editor’s list. 

–Oh brother. If I don’t leave the country soon, or at least move to South Dakota’s Black Hills, I’ll have to face an election campaign with Lou Dobbs here in New Jersey; the blowhard announcing that he’s not only contemplating a run for Democratic Senator Robert Mendendez’s seat in 2012, but Dobbs said he might use this as a stepping-stone for the presidency. So Dobbs joins my growing list of public people I wish would just go away. 

I mean here Dobbs bashed Latino immigrants ceaselessly from his CNN perch and then he has the gall to go on Telemundo the other day and say he now supports a plan to legalize millions of undocumented workers. Plus, he said this: 

“Whatever you have thought of me in the past, I can tell you right now that I am one of your greatest friends and I mean for us to work together.” 

Now I can’t stand Robert Menendez, another in a long line of Jersey crooks, but I’ve got to agree with a Menendez spokesman who offered, when told of Dobbs\’ comments: 

“I’m sure that (the senator) would relish eventually having an opponent from so far out of the mainstream who has never delivered a thing to the hard-working people of New Jersey.” 

–Oh brother, part II: A dozen hooded Ku Klux Klan members rallied at the University of Mississippi before last week’s football game with LSU. The thing that cracks me up about the Klan is that when you listen to some of them, you can’t imagine that there are any stupider people on the planet. 

–Then again, there is South Carolina Gov. Mark Sanford, who ranks with the above-mentioned group in terms of intelligence, though of a different degree. After an extensive investigation of his itinerary and use of campaign funds, Sanford will face ethics charges that he broke all manner of state laws in carrying on his affair with the Argentinian woman he called his “soul mate.” Put Sanford in the same cell as the Salahis. That would be fun.

–Uh oh…according to Us Weekly magazine, Angelina Jolie hates Barack Obama. 

“She hates him,” a source says in the latest issue. “She’s into education and rehabilitation and thinks Obama is all about welfare and handouts. She thinks Obama is really a socialist in disguise.” 

[Hubby Brad Pitt, however, loves Obama and the two argue constantly over this, which is yet another reason to worship Angelina; right guys? Except I have a problem with some of her tattoos, but I’ll just have to learn to get over it.] 

–The Large Hadron Collider is working! Yes, the $7 billion “big bang machine” has finally restarted following a 14-month shutdown for rust (and other things) and has smashed its first proton beams together… and we all lived to discuss it. Of course I have absolutely no idea what any of the future tests and projects are about except that hopefully they’ve learned to keep some key parts out of the rain. 

–Speaking of rain, and water, it’s becoming clearer and clearer that Mars once had vast oceans, with some concluding the planet once had a humid, rainy climate according to a report in the Journal of Geophysical Research. Now that is a cool prospect. Of course this explains why the Martians have been visiting us all these years…they’re looking for water. They could have made things much easier, though, if they had just known to ask. “What’s that you say? You want some water? But not in those plastic bottles containing the harmful chemicals?” 

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

Gold closed at $1175…up 8 of last 9 weeks
Oil, $76.05…super tight $76-$80 range last 7 weeks 

Returns for the week 11/23-11/27 

Dow Jones -0.1% [10309]
S&P 500 +0.0% [1091]
S&P MidCap -0.6%
Russell 2000 -1.3%
Nasdaq -0.4% [2138] 

Returns for the period 1/1/09-11/27/09