Wall Street
I was watching the gut-wrenching news out of Haiti and the stories of survival and of course one thing that stands out is the heroic action of the doctors, who only ask to be given the tools (including the appropriate supplies) in order to work their magic. At the same time this week we had more news on the banking front, both in terms of bonuses and proposed reforms and legislation.
So I thought back to my youth, say 1966-76, ages 8-18, when there were three professions that were the most respected and were paid commensurately; doctors, lawyers and bankers. All three were looked up to in those days and, not coincidentally, they always seemed to live in the finer sections of town and no one begrudged them their success.
There was another subset, in the big commuter town I grew up in, Summit, N.J., that was comprised of Wall Streeters and they weren’t as easily defined for a kid growing up; you knew they did something important (at least you thought it was), and were paid well for it, but you didn’t know exactly what the job entailed. As you got older, though, you learned that some either ran their firms, old line outfits that with few exceptions are long gone, were involved in the municipal business, mutual funds or were classic stock brokers, things of that sort. There was never any reason, at least in the era I’ve outlined, not to respect this profession too.
Then in the 1980s, things began to change with the emergence of the corporate raiders and the likes of Michael Milken (who for the life of me I have trouble respecting today despite his “good works” because he really was one of the all-time dirtballs in financial history). Computers were increasingly sophisticated and you had the advent of program-trading, which played a huge role in the Crash of 1987. Wall Street, to some, became a dirty word, but it was exciting and I, for one, jumped at the chance to join the party when an opportunity was presented to me in the fall of 1982, the great bull market having commenced that August.
But fast-forward to today and a Street that, coupled with way too loose monetary policy on the part of the Federal Reserve, and irresponsible personal behavior on behalf of Mr. and Mrs. America, as well as around the world, and Wall Street’s reputation has never been lower. It’s well-deserved. The leaders of the biggest firms were reckless, and/or idiots, and the practices often fraudulent. Wall Street became little more than an exercise in seeing who could game the system and in one form or another we all paid a price.
Meanwhile, you have the doctors in Haiti, trying to work miracles in awful conditions that have to sap one’s soul, yet from time to time a miracle is indeed performed. May doctors ascend back to the top of our profession rankings, and with the huge costs associated with their schooling and training may they be the ones receiving government assistance in the future. May this be the profession some of our best and brightest aspire to. May there be a time in the not too distant future where a kid asks his parents ‘Who lives in that house?’ and have the parents say with respect, ‘Oh, that’s Dr. Jones. He’s done some great things, Bobby.’ ‘I want to be a doctor too, then,’ the kid will reply.
You all know my favorite saying around here…wait 24 hours…which among its many meanings is about not jumping to conclusions, or painting everything with a broad brush. Such is the case when it comes to the proposed banking regulations, taxes and reforms put forward by the Obama administration the past 10 days that have so riled the equity markets. Suffice it to say, the big drop in stocks will not help in terms of both investor and consumer confidence and I would offer that the risk of a double-dip increased as stocks fell. This is a very fragile recovery and it can still go either way. I can’t help but add I’m happy I sold my home the other week and the checks cleared. Cash isn’t a bad thing to be holding these days, even if the interest on same is virtually nil.
But as for the potential reforms and regulation, each one needs to be taken separately. I said I was against the bank tax last week and then the other day Warren Buffett blasted President Obama’s plan as a “guilt tax.” “I just think a tax that’s enacted with the idea that the headlines will be appealing and that a certain amount of vengeance will be achieved – I don’t think that’s the greatest form of tax policy.” Enough on that one. We’ll see how Congress handles it.
Then you have the “Volcker Rule,” named after former Fed Chairman Paul Volcker, now an economic adviser to Obama.
Volcker had been ignored for much of the first year of the administration, but in the past month he’s made waves around the world with some of his comments, many of which I’ve noted in this space; nuggets such as the best financial innovation of the past few decades is the ATM, and investment bankers can’t point to being responsible for a single fraction of growth in the global economy. In turn he regained the ear of the president and his closest advisers, to the detriment of Treasury Secretary Tim Geithner who has favored a more moderate approach to reform of the banking system.
Volcker wants the big banks to exit the risk-taking business, at least in terms of using client money for functions such as proprietary trading. In what is being dubbed “Glass-Steagall light,” the banks that have federally insured deposits could not then use that money to execute trades for their own accounts. If you want to do that, fine, just don’t call yourself a commercial bank at the same time and expect the government to bail you out when things go horribly bad. This presents a big issue for the likes of Goldman Sachs, Morgan Stanley and Citigroup, for example. They can go back to their old ways and become either a trading house or bank, but they can’t do both.
Now I’m grossly oversimplifying and we don’t have all the details of the proposals yet, let alone know how a dysfunctional Congress will treat it all, but the idea is to eliminate in Volcker’s words the banks’ “unmanageable conflicts of interest.” Restrict banks from making speculative investments that do not benefit its customers. The problem is in drawing the line…what’s legal and what’s not, under the proposal. In the end, though, the biggest banks will have to divest themselves of some of their operations, though I’m guessing it will be nowhere near the market-mover the Street made it out to be the past few days.
“President Obama and Democrats have settled on demonizing Wall Street as a campaign theme for November’s elections. If history is any guide, Mr. Obama and New York Senator Chuck Schumer will now persuade Wall Street to underwrite this campaign. Ah, the politics of hope and change. How refreshing.
“Phony populism aside, yesterday Mr. Obama introduced his first serious idea into the debate on reforming the financial system. In calling for an end to proprietary trading at firms with a federal safety net, the President showed that he now understands an important principle: Risk-taking in the capital markets is incompatible with a taxpayer guarantee.
“Under the President’s still-sketchy plan, firms that hold government-insured deposits or are eligible to receive cheap loans in an emergency from the Federal Reserve would not be able to trade for their own accounts….
“Mr. Obama has at last joined the most important policy discussion: How to eliminate the moral hazard now embedded in the U.S. financial system. Political assaults on banker compensation have done nothing to address this core problem that enables gargantuan bonuses….
“If we are going to have a Fed and a political class as reckless as we have, then we need a more comprehensive answer to financial risk. Bankruptcy for risk-takers who bet wrong is the best option. Barring that, strict limits on margin and leverage, especially for holders of insured deposits, can be helpful. Mr. Obama’s suggestion yesterday of limits on the size of financial firms – with the limits still to be determined – deserves a hearing but would seem more problematic.
“Still, we’re encouraged by yesterday’s announcement. The Democrats appear to finally realize that too-big-to-fail is a problem to be solved, not the foundation of a modern banking system.”
Mild words coming from the Journal, I think you’d agree. It helps that Paul Volcker, the author of the proposal, is so highly respected.
But the threat of new regulations was not the only thing spooking Wall Street the last three days of the week, one in which the Dow Jones fell over 430 points. You also had the sudden uncertainty concerning the re-nomination of Fed Chairman Ben Bernanke, along with concerns over China and its ability to engineer a soft-landing for its boom economy, as well as tepid profit outlooks from some of America’s largest corporations.
It would appear Bernanke will still win another term, with this coming to a head in the next few days, and as an investor in China myself, I’m confident that despite the announcement the economy grew at a whopping 10.7% pace in the fourth quarter, the monetary authorities there, through the gradual tightening policy now in place (though not formally until March it would seem), will avoid a collapse in its property bubble, as well as prevent inflation (now at 1.9%) from taking hold. Yes, that’s exhibiting a lot of confidence but I think China can do it. Those who are skeptical, however, do have a point. The banking system here has never been tested like this.
[Just a few other notes on China of importance, particularly as these pertain to the rest of the region. December industrial production was up 18.5%, slightly down from November’s pace, while retail sales rose 17.5%. GDP for all of 2009 came in at 8.7% after a 6.1% start in the first quarter.]
As to the outlook from the likes of G.E. and IBM, both of whom exceeded expectations, it was pretty solid, though in the case of IBM in particular, it’s more about internal trends rather than any broad-based outlook for industry in general as service contract signings rose but consultancy revenues fell, the latter a better gauge of business sentiment as it’s a discretionary item.
Then you have the banks. While Goldman Sachs’ profits soared, those with a consumer bent such as Citigroup and Bank of America reported further heavy losses owing to retail lending and credit card defaults. However, the banks largely maintain the worst is over as they lowered future loan loss provisions. But as bank executives readily admit there remains a ton of uncertainty out there.
Globally, IMF managing director Dominique Strauss-Kahn said that a key lesson from the global financial crisis is that authorities need to beef up supervision – more so than regulations – of financial institutions.
“You may have the best regulations in the world, but if it’s not supervised correctly, it’s no use.”
Strauss-Kahn echoed that while the IMF will be raising its growth outlook, “recovery remains very fragile.”
To that end there is an overriding theme in the world these days. The global recovery was dependent on global stimulus and some measures are expiring, as institutions such as the IMF warn the premature lifting of any stimulus could be disastrous.
Lastly, you had the election of Republican Scott Brown to fill Ted Kennedy’s senate seat in one of the major political upsets in American history. I detail it below but Brown’s win did indeed kill health-care reform as currently proposed. Commentator George Will said before Tuesday’s vote that the health-care plan in its Senate form in particular was nothing more than “serial corruption…from the $300 million for (Louisiana’s) Mary Landrieu, the estimated $1 billion over ten years for (Nebraska’s) Ben Nelson, to the payoff for the unions.” Voters obviously saw it the same way and a president who talked of transparency should be hanging his head in shame. As I noted in last week’s review, the union move was the final straw.
Street Bytes
–In what was the worst week since last March’s lows, the Dow Jones dropped 4.1% to close at 10172, while the S&P 500 lost 3.9% and Nasdaq fell 3.6%. As noted earlier, earnings largely came in better than expected but there was nothing exciting in the comments on future guidance. Executives are for the most part optimistic, but remain cautious. The stock market has already priced in a lot of good news so it requires more than ‘caution’ to exceed the recent highs. Late Friday you also had a reminder how geopolitics can wreak havoc at any moment with Britain’s raising of its terrorism threat level to “severe”. India is also on high alert for a possible plane hijacking, according to intelligence there.
Treasuries and the dollar rallied on a flight to quality, which was aided by the ongoing issue of Greece and its massive debt problems. As a member of the European Union, there is no precedent for handling the financial crisis there. It’s a painful example of how the EU’s one size fits all currency does not always provide an easy remedy.
–The French and German governments took the extraordinary step of warning their citizens to avoid using Microsoft’s Internet Explorer browser because of the level of attacks on Google and others due to a flaw in it. This past week I had my own issue with IE involving StocksandNews that was a pain in the neck to rectify. Microsoft says a patch has now been issued. But in Europe, the company’s highly-publicized problems have allowed Firefox to capture 40% of the market share compared to IE’s 45%.
–Goldman Sachs, in reporting profits of $4.95 billion for the fourth quarter, far above Wall Street’s expectations, subtracted $500 million from its bonus pool rather than adding more to it in an attempt to deflect some of the criticism being levied at the company for its mammoth earnings and pay. The move means that instead of a rumored $700,000 per employee, the bonuses are more like $500,000, though top producers will still receive $mega-millions. It’s not known when the difference will be made up, and what the composition will be (in stock and/or cash), but you can be sure it will. Internally, though, it’s all about CEO Lloyd Blankfein and his own compensation, which will be revealed sometime next week. Employees won’t be happy if he gives himself a lot more in contrast with expecting “sacrifice” from the rest, though I can’t imagine he’ll do that.
–On the issue of compensation, Robert Samuelson had the following in his column for the Washington Post.
“A study of Harvard graduates found that those who went into finance ‘earned three times the income of other graduates with the same grade point average, demographics and college major,’ reports Harvard economist Lawrence Katz, the study’s co-author.
“Is it possible that what Wall Street does is three times more valuable to society than other well-paid occupations? That’s hard to believe. It’s not that Wall Street is just the vast casino of popular imagination. It helps allocate capital, which – done well – promotes a vibrant economy. In 2007, Wall Street firms enabled businesses to raise $2.7 trillion from the sale of stocks, bonds and other securities. But Wall Street sometimes misallocates capital, as the 1990s ‘tech bubble’ and today’s crisis painfully remind. The huge social costs (high unemployment, lost income) refute the notion that Wall Street consistently creates exceptional economic value that justifies exceptional compensation.
“The explanation for Wall Street’s high pay lies elsewhere. Most of us are paid based on what we produce or, more realistically, what our employers produce. By contrast, Wall Street compensation levels are tied to the nation’s overall wealth. Investment banks, hedge funds, private equity firms and many other financial institutions trade stocks, bonds and other securities for their own profit….
“People who are trying to protect or expand existing wealth are playing for much higher money stakes than even hardworking and highly skilled producers. That’s the main reason they’re paid more. Similar percentage changes in production and wealth translate into much larger gains or losses in wealth…Many lawyers enjoy the same envious position of being paid on the basis of wealth enhancement or protection….
“All this provides context to today’s pay controversies. Wall Street may be greedy – who isn’t? – but the explanation for its high compensation is its economic base (wealth, not production). That’s why it’s so hard to control or regulate….
“The transformation has made Wall Street a greater source of potential economic instability. Some compensation packages exacerbated the crisis by offering big bonuses if big risks paid off. Because government provided a safety net for the whole system, it’s justified in taxing the industry – as President Obama proposed last week – to cover the costs, as Douglas Elliott, a former investment banker now at the Brookings Institution, correctly argues.
“A larger issue is: How much should society concentrate on existing wealth as opposed to creating new wealth? Wall Street’s lavish pay packages may attract too many of America’s best and brightest. ‘It’s bad for the rest of the economy,’ says economist Thomas Philippon of New York University, a student of the financial sector. ‘We also need smart brains outside finance.’ If that somehow happens, the crisis may yet have a silver lining.”
[By the way, related to my above opening, in 1966, commissions were 62 percent of a brokerage firm’s revenues. In 2007 that figure was 8 percent.]
–The National Association of Home Builders reported confidence for future demand dropped again, but in the critical six-county Southern California market, the median home price in December rose 4% over Dec. 2008, the first year-over-year increase in 2 ½ years. It now stands at $289,000 vs. a peak of $505,000.
–Google reported revenue growth of 17% in the fourth quarter, its best pace in a year as the company earned $1.97 billion, though while both earnings and revenues exceeded the Street’s expectations they weren’t good enough and the share price tumbled.
Separately, CEO Eric Schmidt made it clear he wants to continue doing business in China despite the recent spat between the two, signaling the company will soften its stance to being censored in China. Thursday, Microsoft CEO Steve Ballmer told an audience that, “I think you have to respect sovereign nations to make that decision” when it comes to the laws and customs of any country where it does business.
–Citigroup’s largest shareholder, Prince Alwaleed bin Talal, has finally lost patience with Citi management, led by Vikram Pandit, telling Fox Business that the “honeymoon is over now” and that 2010 is make or break for Pandit and staff. Losing $7.6 billion as Citi did in the fourth quarter didn’t help the Prince’s mood.
–The California Public Employees’ Retirement System (CalPERS) earned just 11.8% on its portfolio in 2009, drastically underperforming its benchmark, after falling 27.1% in 2008. Real estate holdings plunged 47.5% for the year, compared with an internal benchmark of a 15.4% drop for property investment returns.
So…you have these ongoing concerns whether the country’s largest public pension system can cover the costs of its 1.6 million workers, retirees and their families. The fund’s assets reached $203 billion by year end, but that’s still far below the peak of $253 billion in 2007. The target long-term return for the portfolio is 7.75% and should it fall short, taxpayers would have to make up the difference. This is the most glaring example of a big issue facing much of the nation at the state and local level. [Of course you could also cut benefits, which is the growing cry among those in the private sector who see their taxes continue to rise to meet the obligations of state and local employees.]
–With China’s surging growth, at some point this year it will surpass Japan as the world’s second-largest economy, perhaps in the first quarter, depending on Japan’s figures.
–In the latest Index of Economic Freedom, as put together by the Heritage Foundation and The Wall Street Journal, “of the world’s 20 largest economies, the U.S. suffered the largest drop in overall economic freedom.” Scores declined in seven of ten categories, particularly in the areas of financial and monetary freedom and property rights; driven by the “federal government’s interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed ‘too big to fail.’ These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.”
1. Hong Kong
2. Singapore
3. Australia
4. New Zealand
5. Ireland
6. Switzerland
7. Canada
8. United States
9. Denmark
10. Chile
140. China [Taiwan is no. 27]
–Kudos to Southwest Airlines for turning a profit in the fourth quarter, thus extending its winning streak of annual gains to 37 years. But it wasn’t easy. Southwest had to earn $116 million in the last three months to make up for a $99 million loss over the first nine.
And congratulations to Continental Airlines, the official airline of StocksandNews, which turned a surprise profit of its own in the fourth quarter, earning $85 million, though revenue was down as business travel continues to suffer.
–Then we have the case of Japan Airlines, which will now reorganize under bankruptcy after repeated efforts on the part of the government to keep it afloat. JAL will cut one-third of its workforce, or 15,700 jobs (yikes), while slashing 34 international and domestic routes. The carrier is also retiring all 37 of its Boeing 747s and 16 MD-90s, replacing them with 50 small and regional jets. [Plus, in a deflationary move, this being Japan, retirees narrowly approved pension cuts last week.]
–Speaking of the 747 aircraft, it celebrated its 40th anniversary this week. Oh, it wasn’t easy, with many pilots refusing to fly the giant plane at first. The 747 almost bankrupted Boeing, yet all these years later it is not only the most recognizable plane in the sky, it’s probably about the most reliable. Boeing has built more than 1,400, most of which are still in the air today (and you can bet someone will pick up JAL’s planes).
[I was once involved in a leasing deal for a 747 to KLM Airlines back in the ‘80s, which looking back probably worked out pretty well for investors, even after recapture of some of the tax benefits.]
–If you are obese, beware…Air France-KLM will make those of you who are unable to squeeze into a single plane seat pay nearly double (75 percent). It’s actually about safety and the issue of wearing seat belts.
–David P. reminded me that many of us in the flying public ignore a rather outrageous issue, that of taxes. On a recent booking of a flight from Boston to Florida, of the $138 total cost, $29.50 was comprised of six different taxes, plus you could throw in $5 as a seat selection charge.
–Snow is in short supply at the Winter Olympic venues in Vancouver. And then there is the drama surrounding the host of the alpine events, Whistler Blackcomb, the owners of which, Intrawest, owe $1.4 billion in debt. Creditors are threatening to foreclose on the company within the next 10 days. As reported by the New York Post’s Josh Kosman and Mark DeCambre, it’s a showdown between the estate of Lehman Brothers and Intrawest owner Fortress Investment Group, the latter having bought Intrawest in a $2.8 billion leveraged buyout in 2006. Fortress recently missed a $524 million debt payment. FIG made a proposal to the creditors but evidently the two sides aren’t talking. Fortress CEO Wesley Edens has behind the scenes threatened to keep the Games from taking place at Whistler.
–New York City’s unemployment rate spiked to 10.6% in December from 10.0% in November in yet another sign that the recovery is uneven. New York lost 9,100 jobs last month, including 5,800 in the private sector. [Wall Street added 600.]
Across the nation, unemployment rose in 43 states last month, this after the unemployment rate fell in 36 states in November. In New Jersey, our jobless rate hit 10.1% last month, a 33-year high.
–Irish home prices have now fallen 34 consecutive months, down 31.5% from the peak.
–Some interesting tidbits on orchestras and compensation. The Cleveland Orchestra just reached agreement with its striking musicians that will for the first two years of a three-year+ contract freeze salaries, followed by 3 and 2 percent raises over the following 18 months. Management had been seeking a 5 percent pay cut and the musicians struck for a few days.
The median pay for the Cleveland Orchestra is $140,200, plus musicians receive 10 weeks of paid vacation. The minimum salary at the New York Philharmonic is $129,740, 12 percent above the $115,440 figure in Cleveland. In 2007-08, the top-paid musician at the Cleveland Orchestra was concertmaster William Preucil, who made $433,817 in pay and benefits. Music director Franz Weiser-Most earned $1.3 million for the same period, though in January 2009, he volunteered to take a 20 percent pay cut.
Anyway, if you are a super-talented musician, say among the top 1,200 in the nation (assuming 12 top-flight orchestras in the country), I have to admit it’s a little better paying job than I thought considering it’s in the arts field. Then again, if an orchestra has five oboes, you’ve got to be among the top 60 oboe players to get a shot. I used to play the trumpet in high school and out of 6 million trumpet players in the nation, I ranked 5,994,457. My compatriots Jimbo and Trader George were about ten notches ahead of me. All three of us were better poker players. [Philip Boroff / Bloomberg]
–With my move, I have piles of paper all over the place and in going through some of it I found a piece of scrap with a quote on it from the Panic of 1873.
“With the reckless speculation in railroads and wholesale stock manipulation…you could say that America had mortgaged itself to the future; only now it was finding it difficult to pay the interest and principal.”
–Finally, we note the passing of Glen W. Bell Jr., 86, the founder of Taco Bell.
Born in 1923, Bell worked for the U.S. Forestry Service before joining the Marines, where he served as a waiter for top military brass in the South Pacific, a job that taught him about balancing the right amount of food for diners, along with the importance of service. In 1948, he founded a hamburger drive-in in San Bernardino, and then a second (after selling the first), where he developed and sold his first 19-cent taco, thus separating himself from competitors such as Mac and Dick McDonald.
But then came a string of new fast-food brands that he influenced…Taco Tia, Del Taco, El Taco and even Der Wienerschnitzel, whose owner he tutored.
Bell kept tinkering with tacos at his various hamburger stands and in March 1962, he opened the first Taco Bell in Downey, California. Within two years he had opened eight more, at which point he began to franchise; the first being in Torrance. By 1966, Bell opened his first franchise outside California, in Scottsdale, Arizona, and had 80 overall.
As is the case with all these Great American stories, expansion then took off, with the first Taco Bell opening in Florida in Nov. 1967, and by 1969, the company had its first public stock offering. In 1978, PepsiCo purchased Taco Bell, now 868 restaurants, for $125 million. Today, Taco Bell serves more than 36 million customers each week at more than 5,600 U.S. locations.
Foreign Affairs
Iran: We first had President Obama’s September deadline for Iran to cease enriching uranium and agree to serious negotiations. Then we had a December deadline. It’s now almost February and still no movement with the six parties [the five permanent members of the U.N. Security Council plus Germany, or P5+1] and the levying of harsher sanctions; China having said it is opposed outright, while Russia is waffling. Both previously voted in the Security Council for three rounds of sanctions, yet this week China urged more flexibility. For its part, Tehran is just laughing at us.
Recently, General David Petraeus, commander of U.S. forces in the Middle East and the Gulf region, confirmed the U.S. has contingency plans to deal with Iran’s nuclear facilities. Not that this is a surprise, far from it, but it’s perhaps the first time Petraeus has openly discussed the topic, saying the level of effect “would vary with who it is that carries it out, what ordnance they have, and what capability they can bring to bear.”
Meanwhile, Iran’s defense minister said Tuesday that Western warships stationed in the Gulf are the “best targets” for the Islamic Republic if its nuclear sites are attacked.
Afghanistan: In an incredibly brazen attack, Taliban gunmen laid siege to Kabul for a number of hours on Monday, with suicide bombers blowing themselves up at several locations, while other militants staged pitched gun battles with government forces. The Taliban said 20 of its fighters were involved in the attacks that targeted the presidential palace and justice ministry among other installations. Yet despite the intensity of the actions, evidently just five Afghans died, with at least ten militants going down.
As for President Hamid Karzai, the Afghan parliament once again rejected the majority of his cabinet selections, 10 of 17, meaning he has to go back to the drawing board a third time. In the first round, 17 of 24 were turned away.
Russian officials are increasingly ticked off that heroin and opium production here continues to soar, more than eight years after the start of the war, with Afghanistan producing 92 percent of the world’s supply of the two. Said Viktor Ivanov, head of Russia’s Federal Drug Control Service, “The narco-pressure on our country is growing. Drugs are being injected through our unprotected borders.” Ivanov added the U.S. managed to help eradicate 75 percent of Colombia’s coca crop in 2008, while only 3 percent of Afghanistan’s opium plantations were wiped out the same year. [I have no way of knowing if these statements are true.]
Finally, at least two more British soldiers were killed, bringing their toll in the war to 249, while Canada suffered its 139th casualty. Americans cannot forget the significant contributions being made by these two vital allies.
Pakistan: Defense Secretary Robert Gates paid a visit to both pump up Pakistani military officials as well as tell them they must root out the extremists or the country’s very stability is at risk. Gates also had to walk a tightrope between Pakistan and India. India has been pouring economic aid into Afghanistan, much to the consternation of rival Pakistan, though India has rejected deploying any troops there for just this reason, to avoid riling Pakistan too much.
But let’s talk about drone attacks. President Obama deserves great credit for ignoring the complaints of Pakistan and taking President George W. Bush’s policy of using drones and escalating it. For example, in 2008 there were 27 such attacks. In 2009 the figure was 45 (another report I saw said the total was over 50 for ’09). The policy is definitely having an impact in taking out the Taliban (and in some cases, al-Qaeda) leadership, even if the government in Islamabad complains with each strike.
Israel: President Obama, in an interview with Time magazine on his first year in office, said of the Middle East peace process that it is harder than he thought it would be, another example of his arrogance and hubris, as if while decades of U.S. peace efforts have largely failed, he could break through, no problem.
“This is as intractable a problem as you get. Both sides – the Israelis and the Palestinians – have found that the political environment, the nature of their coalitions or the divisions within their societies were such that it was very hard for them to start engaging in a meaningful conversation. And I think that we overestimated our ability to persuade them to do so when their politics ran contrary to that.”
Israeli Prime Minister Benjamin Netanyahu had no comment. Netanyahu himself, though, is planning another trip to Moscow in mid-February. He has never said what transpired during last fall’s secret mission there, though I have surmised a lot of it had to do with a potential Israeli strike on Iran’s nuclear weapons facilities and what it would mean for Russia.
On a different issue, Military Intelligence chief Maj.-Gen. Amos Yadlin, warned that Turkey is drawing closer to the side of Islamic radicals and further from the West. Yadlin told the Foreign Affairs and Defense Committee:
“In the past, Turkey had ambitions of becoming closer to the West, beyond its acceptance into NATO. They wanted to be part of the European market, and they thought that relations with Israel would help them advance in the American market. But then they received a cold shoulder from the Europeans and did not achieve what they wanted. In light of that, they changed their policies and are currently drawing away from secularism and going in a more radical direction.” [Jerusalem Post]
Yadlin is bang on, but in the report I read he doesn’t mention something important, that being Turkey’s membership in NATO. Does Turkey pull out?
[On Friday, though, the Turks rounded up 120 terror suspects that may be affiliated with al-Qaeda, and I do have to note that Turkey is not only contributing to the effort in Afghanistan, but has also given its approval to be a transit point for Americans leaving Iraq. So like so much else it is complicated.]
Iraq: It’s an issue that has flown under the radar with everything else that is going on in the world these days, but the process ahead of the upcoming parliamentary elections here is an unmitigated disaster. A solid secular coalition was emerging, including former prime minister Allawi (a favorite of mine…a real hard-ass), but many of its candidates have been barred from running.
“Iraq’s march toward a crucial national election has had the feel of a cheap carnival ride, with sickening plunges and barely averted derailments at every turn. Now a new twist poses the most serious threat yet to the prospect of a free and fair election – and a successful wind-down of the U.S. mission. Seemingly out of nowhere last week an obscure and opaque commission ruled that more than 500 candidates would be disqualified from the parliamentary vote – in most cases on the grounds they once supported the Baath party of Saddam Hussein….
“If the ban stands, an election that looked as though it would be one of the most free in the history of the Arab world would be badly degraded. At worst, the sectarian warfare that nearly tore Iraq apart could reignite.”
The Post claims that one who is likely behind the maneuver is Ahmed Chalabi, who is now regarded as an Iranian agent. Someone needs to take him out. The Post concludes:
“Though pressed by crises in Haiti and elsewhere, it is essential that the Obama administration use all the leverage at its disposal to press for a compromise in the coming days that would put legitimate Sunni leaders back on the ballot. Not just Iraq’s future but also President Obama’s own commitment to a ‘responsible’ end to the war is at stake.”
China: Secretary of State Hillary Clinton warned Beijing in a wide-ranging speech on Internet freedom that its alleged attack on Google would have “consequences” in comparing Chinese censorship to the Berlin Wall.
“Countries that restrict free access to information, or violate the basic rights of Internet users, risk walling themselves off from the progress of the next century….
“Countries or individuals that engage in cyber-attacks should face consequences and international condemnation. In an Internet-connected world, an attack on one nation’s networks can be an attack on all.”
Referring to the fact about 30 percent of the world’s Net users had restricted access, Clinton said:
“No nation, no group, no individual should stay buried in the rubble of oppression.”
And this week India’s national security adviser said China had attempted to penetrate his government’s most sensitive office, an incident placing further strains on relations between the two. For its part, Beijing feels threatened by India’s improving relations with Washington.
North Korea: Defense News reports that analysts believe Pyongyang will conduct a third nuclear test this year, while this week South Korea’s defense minister announced his country would launch a pre-emptive conventional strike against the North if there were clear indications of an impending nuclear attack. This isn’t new, but the timing of the tough talk is curious. Last Friday, North Korea threatened a “holy war to blow away” the South, as reported by the New York Times.
“Within minutes of the start of a war, North Korean artillery would roll out of underground bunkers and rain shells on Seoul, wiping out much of the capital, according to South Korean officials and military analysts.”
Of course the U.S., in defense of its ally, as well as its own 25,000 troops stationed in the South, would have no problem raining a few nukes on Pyongyang. The problem, as I discussed well over five years ago, is where does the fallout go? Depends on the winds. You certainly want to avoid contaminating big stretches of the South for decades to come.
Haiti: If the death toll reaches 200,000, not that we’ll ever have an accurate figure, it would only be the fourth time such a figure was reached in recorded history. 1976, China (255K); 2004, Sumatra (228K); 1920, China (200K).
“I have donated money to Doctors Without Borders, on the grounds that its medical staff has been in Haiti a long time and will be able to use the cash quickly. I have no illusions, however, about my tiny donation or about those doctors’ ability to help. I have no illusions about anyone’s ability to help, for this is not just a natural disaster: It is a man-made disaster first and foremost, and so it will remain.
“Though the earthquake itself was powerful, its impact was multiplied many, many times by the weakness of civil society and the absence of the rule of law in Haiti. As Roger Noriega has written, ‘you can literally see the dysfunction from space.’ Satellite photos of Hispaniola, the island split between Haiti and the Dominican Republic, show green forests on the Dominican side and bare, deforested hills on the Haitian side. Mudslides and collapsing houses were routine in Haiti even before this disaster. Laws designed to prevent erosion, and building codes designed to prevent criminally shoddy construction, were ignored. The rickety slums of Port-au-Prince were constructed in ravines and on steep, unstable hills. When they collapsed, they collapsed completely.
“So incredibly weak were Haiti’s public institutions that nothing is left of them either. Parliament, churches, hospitals and government offices no longer exist. Haiti’s archbishop is dead. The head of the U.N. mission is dead. There is a real possibility that violent gangs will emerge to take the place of leadership, to control food supplies, to loot what remains to be looted. There is a real possibility, in the coming days, of epidemics, mass starvation and civil war….
“I hope I am wrong. I am sure there are optimists out there, people who think this is Haiti’s chance to reconstruct itself, literally and figuratively, to rebuild government institutions, to attract donors and investment. Bill Clinton is such an optimist, and I am very, very glad that he and his wife spent their honeymoon in Haiti: How fortunate, at this moment, that the country has such powerful friends. Yet I also know that a successful recovery and reconstruction will require not just friends, not just money and not just optimism, but also a profound cultural and political shift, the kind of change that normally takes decades. And Haiti does not have decades, it has days – maybe hours – before fresh disasters strike.”
Ukraine: Prime Minister Tymoshenko managed to secure a spot in the February 7 run-off for president, taking 25% of the vote in an 18-candidate field, with former prime minister Viktor Yanukovych coming in first with 35%. [Upstart Sergei Tigipko, the banker-hunk, did pull off an upset in taking third with 13%. Current President Viktor Yushchenko, leader of 2004’s Orange Revolution, polled an embarrassing 5%.]
But now Tymoshenko and Yanukovych will wage a bitter battle to the end, pulling no punches. Undoubtedly there will be all manner of accusations of fraud and the danger would be a protracted legal battle following the vote. In the meantime, both are fighting for the supporters of the other 16 candidates. Tigipko is supporting neither, a smart move, muses the editor.
Vietnam: It’s easy to forget this economic success story is also as hard-line Communist as you can get and four activists are now facing death sentences for “subversion,” including blogging.
Nigeria: Clashes between Muslims and Christians claimed at least 400 lives here over the past week, the bulk of the fighting taking place in the central city of Jos. 1/3rd of Nigeria’s states have adopted partial Sharia law, while another issue is that security has been impacted by the incapacitation of President Yar-Adua, who has been in a Saudi hospital undergoing treatment for an undisclosed ailment.
Chile: Sebastian Pinera, a billionaire businessman, has become the first right-wing president to be elected in Chile since the dictatorship ended in 1990, though most don’t view this as a trend that will now sweep the continent, but rather just disaffection with the old guard and a desire for change. Pinera does have some former Pinochet cabinet members in his coalition but has vowed none of them will serve in his own administration.
Random Musings
“Believe it or not, that’s what President Obama told George Stephanopoulos in an ABC News interview Wednesday – one year after he took office.
“And one day after Massachusetts voters sent a blaring wake-up call – with quite a different message – when they handed liberal lion Ted Kennedy’s Senate seat to no-name Republican Scott Brown.
“Apparently, someone needs to set off a foghorn in the Oval Office, because Obama still doesn’t get it.
“Americans are nervous – outraged, in fact – about his agenda.”
–Incredibly, White House aides rejected the idea the Massachusetts race was a referendum on Obama. I read a lot of post-mortems on Scott Brown’s historic win and none better than the Washington Post’s Charles Krauthammer’s op-ed on Friday.
“On Jan. 14, five days before the Massachusetts special election, President Obama was in full bring-it-on mode as he rallied House Democrats behind his health-care reform. ‘If Republicans want to campaign against what we’ve done by standing up for the status quo and for insurance companies over American families and businesses, that is a fight I want to have.’
“The bravado lasted three days. When Obama campaigned in Boston on Jan. 17 for Obamacare supporter Martha Coakley, not once did he mention the health-care bill. When your candidate is sinking, you don’t throw her a millstone.
“After Coakley’s defeat, Obama pretended that the real cause was a generalized anger and frustration ‘not just because of what’s happened in the last year or two years, but what’s happened over the last eight years.’
“Let’s get this straight: The antipathy to George W. Bush is so enduring and powerful that…it just elected a Republican senator in Massachusetts? Why, the man is omnipotent.
“And the Democrats are delusional: Scott Brown won by running against Obama, not Bush. He won by brilliantly nationalizing the race, running hard against the Obama agenda, most notably Obamacare. Killing it was his No. 1 campaign promise….
“In a Fabrizio, McLaughlin & Associates poll, 78 percent of Brown voters said their vote was intended to stop Obamacare….
“Brown ran on a very specific, very clear agenda. Stop health care. Don’t Mirandize terrorists. Don’t raise taxes; cut them. And no more secret backroom deals with special interests.
“These deals – the Louisiana purchase, the Cornhusker kickback – had engendered a national disgust with the corruption and arrogance of one-party rule. The final straw was the union payoff – in which labor bosses smugly walked out of the White House with a five-year exemption from a (‘Cadillac’) health insurance tax Democrats were imposing on the 92 percent of private-sector workers who are not unionized.”
The Democrats “kept denying the reality of the rising opposition to Obama’s social democratic agenda when summer turned to fall and Virginia and New Jersey turned Republican in the year’s two gubernatorial elections.”
Independents, solidly behind Obama in 2008, not only went 2-to-1 in those two states, but went 3-to-1 for Brown. At that rate, forget the Republicans taking 20 House seats come November, try 50.
–A new figure is rapidly emerging in the Democratic Party, Virginia Senator Jim Webb. As the New York Post editorialized:
“Even before Republican Scott Brown shook the political world Tuesday…Democrats had themselves a new leader: Virginia Sen. Jim Webb.
“Not officially, of course. But no sooner had the polling booths closed than Webb stepped up and singlehandedly made sure his party steered clear of political suicide. How so?
“Webb said it would be wrong to ram through a health-care bill before Brown was sworn in, as some Dems suggested. He called the Massachusetts race ‘a referendum not only on health-care reform, but also on the openness and integrity’ of government – adding that it’s thus only ‘fair and prudent that we suspend further votes on health-care legislation until Sen.-elect Brown is seated.’
“In other words: Don’t double-down on stupid, boys and girls. You’re holding a losing hand….
“(But) you’d think the president would have been humbled by Tuesday’s outcome. Not Obama, who clearly is feeling more than a little sorry for himself.
“May we suggest that he call Jim Webb over for a reality check, and listen closely to the wise man’s words? He’ll save himself a world of hurt.”
“There is no evidence that Obama provided a boost for local candidates by campaigning in (New Jersey, Virginia and Massachusetts). I was told that one internal Democratic poll in Massachusetts showed that Coakley slid six points during the final weekend when both Obama and Bill Clinton were in Massachusetts, urging voters to support her.
“Nationally, as in Massachusetts, polls show independents defecting rapidly from support of Obama’s congressional agenda, and Democrats on Capitol Hill are deeply worried about the persistence of high unemployment.
“Obama may recover, as Ronald Reagan did from a similar second-year slump, but it will take a significant change of direction to turn things around.”
–And did I mention that aside from losing the above three states, President Obama put his personal prestige on the line twice in Copenhagen and emerged a loser both times there as well? [Touting Chicago to host the 2016 Olympics and the climate-change fiasco.] If he were a pitcher, that 0-5 record would have him demoted to AAA, though our system doesn’t allow for such a move.
–The U.S. Supreme Court ruled that the federal government may not ban political spending by corporations or unions in elections, a big blow to McCain-Feingold. More on this in the future as it’s not necessarily so cut and dry.
–Former Senator John Edwards admitted, finally, he was the father of a daughter with a campaign videographer with whom he had an affair during his run for the presidency. “It was wrong for me ever to deny she was my daughter and hopefully one day, when she understands, she will forgive me.”
Senator, there is zero reason for the kid to ever forgive you. You will instead have a permanent spot in the Dirtball Hall of Fame. Ours is a forgiving nation, I grant you, but not in your case. You weren’t working at some pharmaceutical company, or practicing law as you once did. You lied constantly while running for president, for crying out loud, and were almost Barack Obama’s choice to be his running mate, at which point when the truth emerged you would have torpedoed his campaign. How can you live with yourself? Just go away…far, far away. Don’t ever believe you have an audience in this country. You disgraced the flag. You disgraced your family. You, sir, are just a truly bad person.
–More food for fodder in the climate change debate. NASA announced on Thursday that the decade ending in 2009 was the warmest on record and that 2009 itself was the second warmest year since 1880, when modern temperature measurement began. The warmest year was 2005. Earlier, the National Climatic Data Center found that 2009 tied with 2006 as the fifth warmest on record, with this NASA-related outfit confirming the decade was the warmest.
–Meanwhile, the climate change deal signed in Copenhagen, a nonbinding agreement, I hasten to add, is in serious risk already. As reported by the New York Times:
“Fewer than two dozen countries have even submitted letters saying they agree to the terms of the three-page accord. And there has been virtually no progress on spelling out the terms of nearly $30 billion in short-term financial assistance promised to those countries expected to be hardest hit by climate change. Still unresolved are such basic questions as who will donate how much, where the money will go and who will oversee the spending.”
–But wait…there’s more! Despite the above climate change data, the U.N.’s Intergovernmental Panel on Climate Change has admitted that the group made a mistake in asserting that Himalayan glaciers could disappear by 2035. Now I’m not going to be like some and say the IPCC’s 3,000-page report is thus discredited in its entirety, but, as reported by the London Times:
“The report read: ‘Glaciers in the Himalayas are receding faster than in any other part of the world and, if the present rate continues, the likelihood of them disappearing by the year 2035 and perhaps sooner is very high if the Earth keeps warming at the current rate.’
“However, glaciologists have said the figures are ludicrous, pointing out that most Himalayan glaciers are hundreds of feet thick and could not melt fast enough to vanish by 2035 unless there was a huge rise in global temperatures. The maximum rate of decline in thickness seen in glaciers at the moment is 2 feet to 3 feet a year.”
Can’t say I’ve ever met a glaciologist, by the way. But this just in…Mark R. tells me that with the recent warmer weather in the continental United States, Lake Ontario will not be freezing over, thus precluding us from going ice fishing on it, with yours truly tabbed to pick up the domestic.
–You know all the times I’ve said you can’t trust that the fish on your menu is really what the restaurant says it is? Further proof of this came this week, courtesy of the Star-Ledger here in New Jersey, when the founder of a seafood company pleaded guilty in federal court to importing and selling falsely labeled goods. Thomas George “admitted that between 2004 and 2006, he imported more than 11 million pounds of (a cheap variety of catfish from Vietnam), also called swai or basa. But in every case, he called it grouper or sole.”
This is a big issue, nationwide…worldwide, for that matter. So much of the flakey white fish, in particular, tastes the same. Other chicanery includes passing off rockfish as red snapper; mako shark for swordfish; and arrowtooth flounder as Dover sole, according to a 2009 congressional study.
–But despite the above, “Fish oil may be the true ‘elixir of youth,’ according to new evidence of its effect on biological ageing. Omega-3 fatty acids from fish oil extend the genetic ‘fuse’ that determines the lifespan of cells, say scientists.” [Irish Independent]
Now here at StocksandNews, I take fish oil supplements and engage in Salmon Sunday and Tilapia Tuesday. I may have to add Mako Monday, or Swai Saturday, to my schedule.
“A nuclear weapons facility in Texas was temporarily under heightened security Friday (1/15) after two duck hunters were seen in the area. Supervised by the U.S. Energy Department, the Pantex Plant is the sole U.S. facility for assembly and disassembly of nuclear weapons.”
–I’m a sucker for the British Royal Family (save Prince Charles) and Prince William had a spectacularly successful visit this week to New Zealand and Australia, including an episode at an Aussie military firing range where he was incredibly accurate in going for a target 328 feet (100 meters) away, thus earning him the admiration of the commander on the base. Very cool, Willie. You’ll make a good king.
–And finally, “24” star Kiefer Sutherland, as told to New York magazine.
“I was on a plane the other day and someone said, ‘Oh I feel a lot safer on this plane with you on it.’ I was like, ‘Man, you don’t watch our show, because everyone around me on it gets killed.’”
Pray for the men and women of our armed forces, and all the fallen. Pray for Haiti.
Gold closed at $1089
Oil, $74.50
Returns for the week 1/18-1/22
Dow Jones -4.1% [10172]
S&P 500 -3.9% [1091]
S&P MidCap -2.9%
Russell 2000 -3.3%
Nasdaq -3.6% [2205]
Returns for the period 1/1/10-1/22/10
Dow Jones -2.4%
S&P 500 -2.1%
S&P MidCap -0.7%
Russell 2000 -1.3%
Nasdaq -2.8%
Bulls 52.4
Bears 18.9 [Source: Chartcraft / Investors Intelligence]
