Wall Street
Some of you know I’ve been keeping various indices and figures on spread sheets – the old-fashioned, hard copy, ledger paper kind since March 1990 – and one of the items I scribble down each week is U.S. steel production. I’ve been meaning to glance back from year earlier levels to see where we’ve come and it’s quite telling. For the last four weeks, in 000s tons, the numbers are 1715, 1720, 1734 and 1712…the last the first down week in 14. For 2009, the corresponding numbers were 976, 1027, 1006 and 965 as the economy, and markets, were bottoming back then. Quite a recovery, at least by this barometer of economic activity.
But what now? I got a kick out of those who got all giddy over the March same store sales figures for the largest retailers this week, up a strong 9%. I was half-listening to some of the numbers and thought, ‘Boy, February to March, that is strong,’ but of course it was 9% over March 2009. Like whoopty-damn-do. Heck, we were thinking depression March ’09 (though that was also when I was telling stock investors to stay the course). I mean with the significant improvement in the overall economy, I’d hope some of us spent $10.90 last month compared to $10.00 a year ago.
So, no, I’m not giddy. Many did quickly add that Easter came early, after all, and Macy’s, for one, said April would be flat.
In a nutshell, the two sides of the economic argument break down thusly. One side is best represented by the Federal Reserve’s Open Market Committee minutes for its March meeting, wherein the Fed mused household spending will continue to be constrained by a weak labor market, housing, tight credit and little wage growth. The Fed in turn will be keeping short-term interest rates low. Couple this with the European Central Bank, which isn’t expected to increase its rates until 2011 at this point, and you can see why economist Nouriel Roubini would say that central banks around the world will keep rates low longer than expected. This is seen as necessary because, remember, stimulus programs are coming off the books at the same time so it’s imperative to keep rates low to avoid a double-dip.
But the other side argues that the economy, pretty much around the world, is gaining momentum. Former Fed chairman Alan Greenspan said capital investment is coming back and that purchasing managers need to build inventories to protect their position. After all, he offers, it takes longer to acquire the raw materials. Morgan Stanley economist Richard Berner says consumers have fixed their balance sheets more than people think and that while the labor market will remain soft, modest gains in wages can be expected in the second half. Morgan Stanley sees a 10-year Treasury of 5.50% by year end, as the Fed begins to raise rates in the third quarter due to the increasing pace of the recovery.
Me? I agree with Chairman Bernanke, who gave a number of presentations this week and in one said there is no evidence of a sustained recovery in housing, and, more broadly speaking, “We are far from being out of the woods.”
I’ve said it’s about housing and jobs and with housing still stuck in the mud, wages, as I keep telling my inflation hawk friends, are as well. I have to laugh when those who’ve been crying wolf on inflation for years forget the basic principle that wages make up the single largest component of a finished product, and with excess capacity…around the world…someone tell me why I should be concerned about wage pressures? Where is the pricing power that would begin to allow employers to reward their employees? [Let alone the fact employers will be trying to figure out the impact of the new healthcare legislation on their balance sheets for months to come.]
Inflation, as measured by consumer prices in the OECD, the Organization for Economic Cooperation & Development, was just 1.5% in 30 developed nations in February from a year earlier, a record low. Again, while we’ve seen the headlines on commodities prices, the bigger picture is it’s still about global excess capacity. Goldman Sachs sees core inflation falling further this year, to about 0.3% in the U.S. and 0.2% in the euro area. Japan, as you’re well aware, as been in a deflationary mode for years. Certainly this kind of environment doesn’t bode well for corporate profits, let alone hiring sprees.
But coming off the lows of last year, and back to the fall of 2008 when the financial crisis hit in earnest, earnings, when compared to these levels, have been strong and a new round of reports vs. last year are going to start hitting this week. No doubt they will be strong as well; it’s just what happens in the second half of the year? There are a ton of geopolitical events that I expect to work their way into the equation and I’m continually surprised at how virtually not a single market strategist ever brings this up. Then again, they never do until it’s right on top of them.
And then you have this issue of tax increases. Not for nothing, but not everyone earning over $200,000 ($250,000 for couples) is rich. Yet it’s not just the expiration of the Bush tax cuts for the top bracket that is being eliminated, it’s all manner of other taxes, including on healthcare, capital gains and dividends, and god knows what else down the road that will begin to bite. USA TODAY, though, cited a Quinnipiac University poll in March that found that 60% of Americans support raising taxes on those earning more than $250,000, if the money is used to reduce the deficit.
But that’s the problem. Spending is off the table. That’s the single reason why some of us believe the system is broken. We’re not talking about Congress being able to pass legislation. It’s about its total inability, and that of the American people, to deal with the deficits. Congress is incapable of attacking the spending side of the equation, and the American people are incapable of sacrificing when it comes to their entitlements. Without cuts in both, the looming deficit time bomb can’t be defused. Ben Bernanke, in a speech this week, laid out the “difficult choices.”
“To avoid large and ultimately unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”
Ha! So, no, I’m not in the least bit optimistic about the future.
A few last items of import. The Greek credit crisis exploded anew as interest rates on Greek bonds soared, with the 2-year yielding a staggering 7.37% before rallying down to 6.93% on Friday. Greece thought it had found a short-term solution with the joint declaration in March that the European Union and IMF were prepared to backstop Greece should the government’s fiscal stability plan not work and default become an issue. But until Friday, Greece’s bonds and stock market were in freefall as Fitch Ratings piled on in cutting the rating on Greece’s debt to the lowest investment grade. George Soros told Bloomberg, “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.”
Greece still has to find buyers for $40 billion in debt by end of May at a time when long-term investors, not just the hedge funds, are losing faith rapidly.
PIMCO’s Mohamed El-Erian, in an op-ed for the Financial Times
“It should be apparent to all by now: despite the rhetoric out of some European capitals, the Greek rescue package is not going according to plan….
“In fact, market measures of risk signal more concern today than before the announcement (of EU/IMF aid if necessary).
“Meanwhile, worries are mounting about the health of the Greek banking system, raising the specter of disorderly outflows of deposits. Society is not buying into the government’s adjustment plan….
“Unfortunately, it is likely that things will get worse for Greece before they get better. In the short run, the persistence of alarming risk spreads will lead to even more cautious behavior among depositors and investors. Late movers will sell Greek assets rather than buy, putting even greater pressure on the government’s ability to raise sustainable funding for its forthcoming debt maturities in May.
“Against this background, we should expect an intensification of the European blame game in the weeks ahead. Greece will complain about the lack of meaningful support from its European neighbors. They, in turn, will point the finger right back, noting the urgent need for Greek austerity. And the IMF will be pulled in all directions, including by those hoping that the institution can engineer an immaculate recovery for Greece….
“Buoyed by a cyclical recovery, markets around the world have yet to recognize the complexity of this situation. When they do, it will also become apparent that Greece is part of a wider, and historically unfamiliar phenomenon – that of a simultaneous and large disruption to the balance sheet of many industrial countries. Tighten your seat belts.”
On Friday, however, European Union officials did apparently come up with a plan for a possible loan to Greece at interest rates below what it has been paying. We’ll learn far more by Monday, though as El-Erian points out, the crisis is far from over.
But there was a bit of good news this week. The U.S. and China are repairing their relationship as Treasury Secretary Geithner made a surprise, quick visit to Beijing to meet with a Chinese counterpart, which comes after Geithner postponed an April 15 deadline for a semiannual review of the currency policies of major U.S. trading partners that was close to branding China a currency manipulator. President Hu Jintao is coming to Washington this week to take part in President Obama’s summit on nuclear security and then the U.S. is sending more officials to Beijing in May as part of a series of talks known as the U.S.-China Strategic and Economic Dialogue. Then you have the G20 in June, where currency could be at the top of the agenda, and not just the U.S. blaming China. So it behooves China to make a token gesture on its currency and this will happen shortly.
Street Bytes
–The great rally no one respects continued as stocks rose for a sixth consecutive week and 8th in nine, with the Dow Jones touching 11000 late Friday before settling at 10997, up 0.6%. The last time the Dow was at that mark was Sept. 2008, shortly after Lehman Brothers filed for bankruptcy. The S&P 500 rose 1.4% and Nasdaq 2.1% to 2454, its highest close since June ‘08.
–U.S. Treasury Yields
6-mo. 0.23% 2-yr. 1.06% 10-yr. 3.88% 30-yr. 4.74%
Bonds staged a rally in part thanks to a well-received 10-year Treasury auction.
–Federal Reserve Bank of Kansas City president Thomas Hoenig is on the other side of the inflation debate and argues his fellow Fed board members should start boosting interest rates “soon,” warning a delay could unleash inflation. When rate increases are delayed, Hoenig says, “the outcome too often is greater inflation, significant credit and market imbalances, and an eventual financial crisis.” Hoenig has been the lone dissenter each of the last two Fed open market committee sessions where the rest of the board has opted to keep rates unchanged and at record lows for an “extended period.”
–With the discovery of the last four bodies, the final death toll at Massey Energy’s Upper Big Branch (Montcoal, West Va.) coal mine is 29, the worst mining disaster in the United States since 1984. The Mine Safety and Health Administration said the mine had 11 times the national rate for the most serious type of safety violation, including major issues with the four-mile-long ventilation system. As the Washington Post reported, “Even though it won the approval of federal regulators last October, it was shown in a test in March to be circulating less than half the volume of air intended to keep levels of combustible coal dust and methane within a safe range.
“In an accident in January, the federal safety administration found that for three weeks a foreman did not take action after a citation noted that air was flowing the wrong way in the ventilation system.”
The editor of Mine Safety and Health News, Ellen Smith, “said that she compared (the Upper Big Branch’s) record of serious violations – 48 in 2009 and 10 this year – to three other mines, and that (it) was by far the worst.”
By comparison, “The well-regarded Deer Creek mine in Utah had one such violation in the past 15 years…and the Jim Walters Resources Number 7 mine in Alabama, with three times as many miners underground, had two such citations.”
There is no way you can defend Massey and its CEO Don Blankenship. Our sympathies to the victims’ families.
[In an incredible miracle, 100 Chinese miners were rescued after being trapped for over a week in a flooded coal mine, a rare piece of good news for the industry here where there are nowhere near the safety precautions we have in the U.S. In 2002, 6,995 died in China’s mines, though the figure declined to 2,600 by last year.]
–A Pew Fiscal Analysis Initiative revealed that more than one in five jobless Americans have been without work for a year or more. Those who are 55 and older have had the toughest time.
–Former Citigroup vice chairman and executive committee member, as well as Treasury secretary, Robert Rubin, was defiant in defending his role in decisions leading to Citi’s massive losses as he was grilled by a congressional panel looking into the causes of the financial crisis. Former CEO Charles Prince, on the other hand, apologized numerous times.
Rubin claimed that despite his lofty title, he held minimal “operational responsibility” at Citigroup. Prince said he was “sorry…our management team, starting with me,” didn’t foresee the “unprecedented market collapse.”
Prince said he wasn’t aware that Citigroup traders decided to keep on the books $40 billion of “super-senior collateralized debt obligations,” pools of assets tied to subprime mortgages. Yet that very paper produced losses of $30 billion. Investors were never told of the exposure, which even those responsible at Citi didn’t know at the time if it was $13 billion or as much as $56 billion.
The same commission earlier heard from former Fed Chairman Alan Greenspan, who blamed the proliferation of securitized subprime mortgages for triggering the crisis.
“Heavy leveraging during the housing bubble set off a series of defaults that culminated in what is likely to be viewed, in retrospect, as the most virulent global financial crisis ever.”
In defending the Fed’s role in keeping short-term rates as low as it did, Greenspan said it was long-term interest rates that “galvanized” home prices, not the overnight rates he was in charge of. Greenspan also blamed the credit rating agencies for undercounting the risk of mortgage investments.
Economist Mark Zandi, though, pointed out that the Fed had the authority to set stricter mortgage lending standards, a la Canada and Germany, but failed to do so. Zandi also refuted Greenspan in saying, “There’s strong evidence that the Federal Reserve kept interest rates too low for too long.”
Otherwise, the hearings were a bore, and those Street executives most responsible kept their money. The only consolation for some of us is that in many cases their home life must be a living hell because their wives are beating the crap out of them since they no longer have high-profile events at which they can show off their body work.
–Meanwhile, Goldman Sachs, in a rare 8-page letter to shareholders in its annual report, sought to explain its noble actions during the financial crisis, explaining it not only didn’t “bet against” clients in the mortgage market, but, wouldn’t you know, Goldman actually helped matters. In part:
“The firm did not generate enormous net revenues or profits by betting against residential mortgage-related products, as some have speculated. Rather, our relatively early risk reduction resulted in our losing less money than we otherwise would have when the residential housing market began to deteriorate rapidly.”
And, Goldman asserts it did not hasten the demise of AIG by making aggressive collateral demands on credit protection bought from the insurer. I’m too tired today to argue, though suffice it to say I’m unimpressed.
–Online security experts in the U.S. and Canada recovered stolen documents from 44 computers in nine countries, most of which were located in India, including information on a high-ranking Indian military official. The culprits were Chinese hackers. But while New Delhi is upset over the breaches, it is more concerned with China’s ability to take down its financial systems or power grid.
–Five days before Toyota recalled 2.3 million vehicles for safety reasons, a U.S. executive, Irv Miller, wrote in an internal e-mail: “We need to come clean. We are not protecting our customers by keeping this quiet. The time to hide on this one is over.” Miller also wrote: “I hate to break this to you but WE HAVE a tendency for MECHANICAL failure in accelerator pedals of a certain manufacturer on certain models.” The note was sent out Jan. 16. On Jan. 21, Toyota announced the recall for sticky gas pedals. Miller retired on Feb. 1.
Separately, federal regulators are seeking to fine Toyota the maximum allowable under the law, $16.4 million, for waiting four months or more before notifying safety officials of the “sticky pedal” defect. Toyota could face similar fines if other violations are found worthy of the max.
–Wal-Mart has embarked on an aggressive price-cutting campaign as it’s having trouble hanging on to middle-class shoppers. Of course this means that Wal-Mart is squeezing its suppliers on roughly 10,000 items, or these folks won’t get the most visible shelf space.
–From Jenny Anderson of the New York Times, “State and local pension assets declined by 27.6% from the end of 2007 to the end of 2008, wiping out $900 billion, according to the Government Accountability Office.”
A big issue is the massive fees, some $17 billion worth since 2000, that the pension funds have paid out to private-equity firms with little to show for it in return. To be fair, though, most private-equity returns still beat those of all other assets, net of fees.
–Including its oil sands, Canada’s reserves are second only to Saudi Arabia – around 175 billion barrels. But oil sands production is only profitable above $65 a barrel. As I learned last summer in a trip to Alberta’s big city of Calgary, if you didn’t have any access to energy data, you could measure the price of oil by looking at the number of homeless there. If it’s rising, oil is probably around $45 a barrel. If it’s decreasing, oil is $80 or thereabouts.
–Five of Atlantic City’s eleven casinos are in serious trouble; either in bankruptcy or in imminent danger of closure. Aside from increased competition from the likes of slots in Philadelphia and Bethlehem, Pa., the latter itself not doing well either, the numerous major coastal storms the area has seen didn’t help one bit. Introduce sports betting, New Jersey!
–A significant percentage of Ireland’s college graduates are seeing starting salaries that are little more than they’d receive on the dole. Salaries plummeted over $5,000 last year as unemployment soared.
–Colorado State University’s hurricane forecast team has added its voice to those saying this year should see above-average activity for the Atlantic basin. Not that their guess is any better than yours.
–A well-known commentator on CNBC says you always sell Apple stock the day it introduces a new product. For the record, shares in Apple closed at $236 with the introduction of the iPad and finished a week later at $241.
–And shares in Palm rallied off the canvas on takeover rumors. Taiwan’s HTC, the world’s fifth-largest smartphone maker, is supposedly in discussions with the company.
–Actor Nicholas Cage, beset by massive financial problems, tried to sell his Beverly Hills mansion at auction for $35 million. The bidding opened at $10.4 million. There were no takers so as the Los Angeles Times reported, ownership reverted back to the foreclosing lender, who is actually just one of six holding a total of $18 million in loans on the property, which one realtor described as having a design that is “frat house bordello.” The loan tactic, though, was par for the course at the high end. Said expert Bob Baker, “The final loans [of which he has seen as many as 13 on a single property] are taken out to meet expenses. It’s a survival tactic.”
The problem with Cage, who was ranked the fifth-highest paid actor in the U.S. with earnings of $40 million last year, is that he set off “on a spending binge of epic proportions,” which by 2008 had led to his ownership of “15 palatial homes around the world,” four yachts, an island in the Bahamas, a private Gulfstream jet and millions in art and jewelry.
Geezuz, with my signed rock albums and a Lew Alcindor rookie card, I feel like such a piker.
–According to leading advertising forecaster ZenithOptimedia, global ad spending in 2010, including for billboards, newspapers and television, should grow by 2.2%. But the Publishers Information Bureau reported that magazine ad pages fell 9.4% in the first quarter of this year.
–Three Disneyland Paris employees have committed suicide since the start of the year, apparently, according to the leader of a Disneyland union, because of “brutal” working conditions.
–Carlsberg workers walked off their jobs in Denmark after the Danish brewer tightened work rules that had allowed workplace drinking by removing beer coolers. Now, the workers can drink beer (premium, I must add) only during lunch hours. Previously, it was like a free happy hour all day.
Well, the truck drivers struck in sympathy, even though they aren’t supposed to drink while working, but they can take three beers from the canteen because there’s no time to lunch there. [Their trucks do have alcohol ignition locks.]
Foreign Affairs
Afghanistan: There are some in President Hamid Karzai’s cabinet, as well as in parliament, who say the guy is unstable. Certainly his recent rantings, such as accusing the United States of rigging last October’s presidential election (when he himself was accused afterwards of stealing it), make zero sense. Karzai also told a closed-door session of parliament last weekend that he was considering joining the Taliban.
So, to paraphrase “The Sound of Music,” how do you solve a problem like Ha-mid-aaa?
The primary issue is that without a partner in charge in Kabul, the U.S. and NATO cannot begin to win over the support of the Afghan people, but right now the White House has no plan B. Some ministers are trusted, such as those running defense and the interior ministry, but the U.S. is left with working on local and provincial leaders, and focusing aid on them directly instead of funneling it through Kabul, and Karzai, who will only steal it.
I’ve felt we really have to seriously consider replacing him, though the preferred way to solve the crisis would be to encourage Karzai to go into exile through pressure within his own cabinet and party. What’s also clear is that the U.S. needs to cool it in terms of the public rhetoric, especially coming from Sec. of State Hillary Clinton, and it appears the administration will now take a softer line.
Iraq: The Iraqi National Alliance, which finished 3rd in the parliamentary vote a month ago and which contains the Sadrists, led by Moqtada Sadr, as its main faction (40 of 70 seats in the coalition), says it wants Ibrahim al-Jaafari to be prime minister over both current leader Nouri al-Maliki and presumptive winner Iyad Allawi. So the political process remains in a total state of confusion and it seems highly unlikely a government will be formed for at least a few months. In the meantime, a series of attacks claimed well over 100 lives, including the execution of 24 Sunni family members, most of whom were members of the Iraqi security forces, as well as attacks near the Iranian embassy and a series of bombings of apartment buildings. So as I noted before the election, it was a bit presumptuous of both Dick Cheney and Vice President Joe Biden to fight over who gets credit for the “success” in Iraq.
Iran: Connecticut Sen. Joseph Lieberman said on “Meet the Press” last weekend that when it comes to Iran, we are “at a turning point in history.” But now it would appear the chances for any new round of sanctions garnering the support of both Russia and China before mid-June are nil. As they would be severely watered down, anyway, what’s the point? Iranian President Ahmadinejad warned his country wouldn’t be pushed around and Iran’s chief nuclear scientist said he was finalizing plans on “one or two new nuclear facilities.” Then on Friday, Iran unveiled a new, higher-speed uranium enrichment centrifuge said to be capable of operating six times faster than most of the machines now in use in places like Natanz. If it’s true Iran has this capability, it is yet another violation of five Security Council resolutions requiring Iran to suspend its enrichment program.
“(The) Administration still rolls the sanctions rock up the U.N. hill, in a fantastic belief that Russian and Chinese support is vital even if the price is sanctions that are toothless. French President Sarkozy urged Mr. Obama a year ago to move ahead with sanctions even without the Russians and Chinese, but Mr. Obama insisted he needed both. A year later, everyone except apparently Mr. Obama can see who was right.
“The Administration also argued upon taking office that by making good-faith offers to Iran last year, the U.S. would gain the diplomatic capital needed to steel the world for a tougher approach. Yet a year later the U.S. finds itself begging for U.N. Security Council votes even from such nonpermanent members as Brazil and Turkey, both of which have noticeably improved their ties with Iran in recent months.
“The U.S. can at this point do more unilaterally by imposing and enforcing sanctions on companies that do business in Iran’s energy industry. But so far the Administration has shown considerably less enthusiasm for these measures than has even a Democratic Congress….
“Meanwhile, the CIA has recently reported that Iran more than tripled its stockpile of low-enriched uranium in 2009; that it has ‘[moved] toward self-sufficiency in the production of ballistic missiles’; and that it ‘continues to develop a range of capabilities that could be applied to producing nuclear weapons.’….
“President George W. Bush will share responsibility for a nuclear Iran given his own failure to act more firmly against the Islamic Republic or to allow Israel to do so, thereby failing to make good on his pledge not to allow the world’s most dangerous regimes to get the world’s most dangerous weapons. But it is now Mr. Obama’s watch, and for a year he has behaved like a President who would rather live with a nuclear Iran than do what it takes to stop it.”
Israel: Prime Minister Netanyahu has a real problem on his hands; that being once solid ally Turkey. Prime Minister Erodgan has described Israel as “the principal threat to peace” in the Middle East, while Israeli Foreign Minister Lieberman compared Erdogan to Chavez and Gaddafi. And this week, Jordan’s King Abdullah said relations with Israel were at their worst since the 1994 peace treaty between the two.
So it’s no mystery why Netanyahu canceled his trip to Washington for the Nuclear Security Summit, sending a deputy prime minister instead. The U.S. had informed the prime minister that Egypt and Turkey were preparing to confront Israel over its nuclear program and demand it sign the Nuclear Non-Proliferation Treaty and allow its alleged capabilities to be placed under international inspection. The conference itself is intended to focus on keeping nuclear weapons and materials out of the hands of terrorists. If the summit is hijacked by the anti-Israel crowd, it will be a huge embarrassment for President Obama.
Russia: One thing to remember, the arms control treaty signed by the United States and Russia in Prague this week, “New START,” is far from a fait accompli. For starters, the treaty must be approved by both the Russian Duma and the U.S. Senate. The former should pass it, the latter isn’t likely to without a huge fight. Plus, the Russians retained the right to cancel the treaty if they are dissatisfied with U.S. positioning of a missile defense shield in Europe, and if President Obama keeps his word on this front, the Russians themselves will rip the treaty up.
Foreign Minister Sergei Lavrov said, “Russia will have the right to abandon the [new] START treaty if a quantitative and qualitative build-up of the U.S. strategic anti-missile potential begins to significantly affect the efficiency of Russia’s strategic nuclear forces.”
I said last week that in principle there isn’t anything wrong with reducing each side’s nuclear warheads to 1,550. I was more focused on whether the treaty would allow the United States to at least modernize its remaining nuke force. While it’s unclear to me exactly what the language in the treaty is with regards to this important item, concurrently, the administration rolled out an updated Nuclear Posture Review that states:
“The United States will not develop new nuclear warheads. Life Extension Programs will use only nuclear components based on previously tested designs, and will not support new military missions or provide for new military capabilities.”
This is far from satisfactory. All you need to know is that Russia and China will of course be modernizing and expanding their nuclear forces as necessary (even with New START in the case of Moscow).
The same Nuclear Review spells out when nuclear weapons should be used, eliminating the seeming ambiguity of past language in that the United States is not going to use nuclear weapons against nonnuclear states that are in compliance with the Nuclear Nonproliferation Treaty, even if they attacked the United States with biological or chemical weapons or launched a crippling cyberattack.
Mr. Obama says these threats can be deterred with conventional force, and to allay concerns, the White House insisted that it would reconsider the use of nuclear retaliation against a biological attack should the level of it be truly devastating. Obama also added that “outliers like Iran and North Korea” that have violated or renounced the main treaty to halt nuclear proliferation would be dealt with separately. So the new policy is a mess. There was nothing wrong with the old one that all presidents, Democrat and Republican, had followed.
And then out of left field, this week we had the issue of Kyrgyzstan interject itself into the signing ceremony in Prague, it being a former Soviet central Asian republic that is in the midst of a revolution with at least 100 killed in violence in the capital of Bishkek and the president sent fleeing. The U.S. has a highly strategic air base there and Moscow is urging the new leaders who toppled President Bakiyev to shut the base, Manas, in a huge blow for Washington, which has used it to supply U.S. and NATO forces in Afghanistan.
So the bottom line is that while Obama will talk of “resetting” relations with Moscow, the events of the day once again intruded and it was like old times in more ways than one.
“(The) Obama pledge is to forswear development of any new nuclear warheads, indeed, to permit no replacement of aging nuclear components without the authorization of the president himself. This under the theory that our moral example will move other countries to eschew nukes.
“On the contrary. The last quarter-century – the time of greatest superpower nuclear arms reduction – is precisely when Iran and North Korea went hellbent into the development of nuclear weapons (and India and Pakistan became declared nuclear powers).
“It gets worse. The administration’s Nuclear Posture Review declares U.S. determination to ‘continue to reduce the role of nuclear weapons in deterring non-nuclear attacks.’ The ultimate aim is to get to a blanket doctrine of no first use….
“This administration seems to believe that by restricting retaliatory threats and by downgrading our reliance on nuclear weapons, it is discouraging proliferation.
“But the opposite is true. Since World War II, smaller countries have forgone that acquisition of deterrent forces – nuclear, biological and chemical – precisely because they placed their trust in the firmness, power and reliability of the American deterrent.
“Seeing America retreat, they will rethink. And some will arm. There is no greater spur to hyperproliferation than the furling of the American nuclear umbrella.”
*Saturday morning…a plane carrying Polish President Lech Kaczynski and numerous government officials, as well as his wife, crashed on approach to Smolensk. As I go to post, the report is there were no survivors. Ironically, the government party was in Russia to mark the 70th anniversary of the Katyn massacre, when the Soviets killed thousands of Poles.
Pakistan: The New York Times reports that since a combined Taliban and al Qaeda suicide attack on a CIA base in southern Afghanistan late December, “the bombardment of North Waziristan, and to a lesser extent South Waziristan, has become fast and furious.” Often there are four drones in the air at a time, “observing and tracking targets, then unleashing missiles on their quarry,” according to supporters of the government in Pakistan. In just the first six weeks of the year, 90 suspected militants were killed by the drones. They can’t hide or sleep under trees any more as a way of avoiding a strike. Homeowners are refusing to let them use their places to sleep. They use public transportation.
But despite the successes, attacks such as the attempted storming of the U.S. consulate in Peshawar, as well as a suicide attack at a political rally that claimed at least 50 lives, continue.
India: In the biggest incident in a decades-long conflict, 700 Maoist rebels in central India ambushed a police patrol and then attacked rescue teams, killing 75 officers. The Maoists claim to be fighting for the rights of millions of impoverished villagers and the guerillas operate in at least 11 of 28 states, pressing their campaign of violence against the government.
China: Russia is selling a large number of S-300 anti-aircraft missile systems to China, the same one that Russia had committed to sell to Iran but has yet to deliver. In Iran’s case it would aid in deterring any strikes on its nuclear facilities.
Separately, Japan is expressing concern over the execution of three Japanese convicted of smuggling drugs, saying it could hurt ties.
And regarding the drought in China’s southwest, the number of people finding it hard to get drinking water continues to rise, now some 20 million. The rainy season in these parts doesn’t start until mid-May.
North/South Korea: Surviving members of the crew of a South Korean naval patrol boat that sank last month say it was torn apart by an external explosion, so either a mine or torpedo. The South Korean government has come under fire itself for staying mum on the topic.
Thailand: Anti-government protesters (“Red Shirts”) stormed a key telecom company compound as soldiers and riot police fought the mob for the first time since protests aimed at ousting Prime Minister Abhisit.
Venezuela: Incredibly, as the Washington Post reported, after Russian Prime Minister Vladimir Putin returned from a visit to Venezuela, boasting of selling President Hugo Chavez another $5 billion in arms, State Department spokesman P.J. Crowley’s first words when questioned about this during a briefing were, “We don’t care.” As the Post then editorialized:
“(Crowley’s) initial response was all too indicative of the continued complacency with which the Obama administration regards the political, economic and human rights meltdown underway in a major U.S. oil supplier – and where it may lead.”
For his part, Chavez continues to arrest opposition figures, one of whom, a former presidential candidate, said in an interview “that Venezuela has become a haven for drug traffickers and terrorists.”
All of Venezuela’s arms purchases are clearly destined to be used against Colombia, and “The Obama administration’s response has been to ignore or soft-pedal most of this,” adds the Post.
I have long argued, for years, that it is the terrorism angle that should most trouble Americans. I was writing of how Hizbullah has a presence there long before it was a topic in the mainstream press. Yet first the Bush administration, and now the Obama White House act as if we don’t have a care in the world. No doubt when it comes to Israel, for starters, Hizbullah is picking out soft targets in Latin America. They, and their Iranian mentors, have done it before and it’s only a matter of time before they do it again. It’s also important to note again that Caracas is closer to Miami than Miami is to New York.
Britain: The long anticipated election has finally been called for May 6 as Prime Minister Gordon Brown attempts to beat the odds and hold onto power. Brown’s Labour Party has been in power since 1997, when Tony Blair swept away the Conservatives, but now David Cameron is attempting to lead them back into power as Britain struggles with its deepest recession in 60 years and strife from within the public sector. In polling, Cameron’s lead has shrunk to four points from nine, according to the Guardian, with the Tories (Conservatives) at 37%, Labour 33%, and the Liberal Democrats 21%. A poll for The Sun puts the Tories at 41% to 31% for Labour. [Two other surveys give Cameron 10- and 11-point leads.] Brown’s whole point is that now is not the time to make a change with a fragile recovery underway.
South Africa: It was kind of ironic that I chose last week to highlight the fact 3,000 white farmers have been killed here since the end of Apartheid, and then about 8 hours later we learned of the brutal slaying of white supremacist leader Eugene Terreblanche, who was clubbed and hacked to death by two black workers. It was in the 1980s that Terreblanche campaigned for a separate white homeland.
But while Terreblanche was a vile, despicable figure himself, the killing, and that of those farmers I highlighted last time, presents President Jacob Zuma with a huge issue just months before his nation hosts the World Cup. How the heck is it going to convince tourists to come when you have the potential, however small, for a full-blown race war? Zuma has refused to crack down on ANC Youth Leader Julius Malema who had been running around singing a hate song, “Kill the Boer,” with several white farmers having been killed after he first incited his followers with it. South Africa’s High Court has banned Malema from using the song, but Zuma hasn’t in turn taken the guy aside and told him to shut up…at least until after the World Cup, for crying out loud. I told you years ago, when Zuma emerged, that he was an out-and-out idiot, literally, but once he assumed office, others said he got off to a good start. But now we are seeing his true colors. He is incapable of leading South Africa and will drag his nation down with him. White flight will continue, only at a quicker pace, and the brain drain will condemn South Africa to decades of instability as the poor revolt over one broken promise after another.
Random Musings
–Supreme Court Justice John Paul Stevens made it official; he’ll be stepping down after the current terms ends, thus giving President Obama a chance to select his replacement before the fall, though Stevens’ departure isn’t likely to upset the makeup of the Court.
–Dan Quayle / Washington Post…on the tea party movement
“(Across) America, millions of people decided not to be silent. Prompted only by their convictions, they united against the unjustifiable expansion of federal power. So successful is the tea party movement that there is speculation it might launch a political party. Though nearly three-quarters of tea party supporters identify themselves as Republicans, according to a recent Quinnipiac University poll, 40 percent of them are open to voting for a third-party candidate of their own.
“The emergence of official tea party candidates would be very welcome news in the Obama White House. All at once, a powerful and energetic counterweight to the Democratic establishment would become a splinter group, destroying the unified opposition it has helped to create. A potential electoral majority on the threshold of victory would become two minority factions almost certain to share in defeat, and a movement inspired to stop the big-government agenda would suddenly become its tool.
“There’s a well-worn path of third-party movements in American history, and it leads straight to a dead end. A cause gathers strength, and its message speaks to millions; then, amid the excitement, a new political party is born, only to perform poorly on Election Day and disappear a cycle or two later. In practice, all that’s achieved is a fragmenting of the vote, usually to the benefit of whichever major party the movement had set out to oppose.”
Quayle then brings up Ross Perot, whose 19% in the popular vote in 1992 helped defeat President George H.W. Bush, though, personally, I was proud to have voted for Perot myself then. I agree with Quayle, however, that any tea party attempt to field a candidate in 2012 could be disastrous for the Republicans. I want a true third party in America; just not one built around them.
–Now if General David Petraeus ran as a third party candidate, he’d have my vote; not that there is any chance of this happening. He has shown zero desire to enter the political arena. But we still have about another year before we’ll need to apply maximum pressure.
–President Obama stupidly called out Rush Limbaugh and Glenn Beck for being purveyors of “vitriol,” which will only cause them to be more, you know, vitriolic. Instead, at least in the case of Limbaugh, Obama should invite Rush to go golfing with him, Rush loving the sport. He couldn’t possibly turn him down.
–Michigan Democratic Congressman Bart Stupak announced he would not seek reelection. Stupak faced fierce criticism, from both sides, after giving in on anti-abortion language in the health-care bill. Unless they nominate a clown, Republicans will take this seat.
–As the investigations continue into the Catholic Church’s sex abuse scandal, fingers are now pointing to the late Pope John Paul II, who it was assumed would be beatified quickly. As the London Times reported:
“The most serious claims related to Cardinal Hans Hermann Groer, an Austrian friend of John Paul’s who abused an estimated 2,000 boys over decades but never faced any sanctions from Rome.
“Cardinal Christoph Schonborn, Groer’s successor, criticized the handling of that scandal and other abuse cases last week after holding a special service in St. Stephen’s cathedral, Vienna, entitled ‘Admitting our guilt.’
“Schonborn condemned the ‘sinful structures’ within the church and the patterns of ‘silencing’ victims and ‘looking away.’
“Cardinal Joseph Ratzinger – who became Pope Benedict – had tried to investigate the abuses as head of the Congregation for the Doctrine of the Faith, according to Schonborn. But his efforts had been blocked by ‘the Vatican,’ an apparent reference to John Paul.
“Asked by The Sunday Times whether John Paul’s role in the cover-up of abuse should be investigated, Schonborn said: ‘I have known Pope Benedict personally during 37 years of amiable acquaintance and I can say with certainty that…he made entirely clear efforts not to cover things up but to tackle and investigate them. This was not always met with approval in the Vatican.’”
In Austria, 20,000 Catholics left the church in March.
–The Archbishop of Canterbury Rowan Williams caused quite a stir when he commented on the Catholic Church in Ireland.
“I was speaking to an Irish friend recently who was saying that it’ quite difficult in some parts of Ireland to go down the street wearing a clerical collar now,” Williams told the BBC. “And an institution so deeply bound into the life of a society, suddenly becoming, suddenly losing all credibility – that’s not just a problem for the church, it is a problem for everybody in Ireland, I think.”
Dublin Archbisohp Diarmuid Martin, who has been praised for his actions, said, “Those working for renewal in the Catholic Church in Ireland did not need this comment on this Easter weekend and do not deserve it.”
Meanwhile, it’s about seven months away but the pope’s first official visit to Britain in November has already generated a ton of controversy, including many complaints concerning the cost.
–The situation in Rio de Janeiro is yet another example of extreme weather as the city is suffering under its worst rains in 50 years, but more importantly in terms of the 2016 Summer Olympics, an infrastructure that just can’t handle it. Not to worry, say officials. For starters, the Games won’t be held during the rainy season, but there’s clearly a ton of major work to be done.
“Scientists have discovered that the size of the Arctic ice cap has increased sharply to levels not seen since 2001.
“A shift in the chilly winds across the Bering Sea over the past few months has caused thousands of square miles of ocean to freeze.
“The same phenomenon is also partly responsible for the cold winter experienced in New York and the eastern U.S. this year. It allowed ice blasts of air to escape from the Arctic and make their way south.”
–Glacier National Park lost two more glaciers and one researcher with the U.S. Geological Survey warned the remaining 25 could be gone by the end of the decade. Back in 1850, when the Little Ice Age ended, there were as many as 150, with 37 meeting the qualifications to qualify for a title, 25 acres. So like having a glacier named after you isn’t something you necessarily want.
–It appears catastrophe has been averted following the grounding of a Chinese coal carrier on the Great Barrier Reef. It leaked oil but the spill was contained and at last word, the ship hasn’t split apart. The ship was a full nine miles outside the shipping lane and the captain deserves a lengthy prison term. It also turns out the company, China’s state-owned China Ocean Shipping (Group) Company, known as COSCO, has been involved in three major incidents in less than three years, including one in San Francisco Bay and the other in Norway.
–Australians are in the midst of a serious debate on just how many people the country can sustain as the population, particularly in the Sydney area, continues to boom. It’s all about the adequacy of water supplies.
–Uh oh…a vast study of 500,000 Europeans confirms that the association between fruit and vegetable intake and reduced cancer risk is weak. Writing in the Journal of the National Cancer Institute, the team, led by researchers from the Mount Sinai School of Medicine, in New York, concludes that “even the small reduction in cancer risk seen (could be due) to the fact that the kind of people who ate more fruit and vegetables lived healthier lives in many other respects too.”
“In the best case scenario, an extra two portions of fruit and vegetables each day could prevent 2.6% of cancers in men and 2.3% of cases in women, the study concluded.” [BBC News]
However, the researchers admit that certain substances, such as lycopene from tomatoes, may reduce the risk of prostate cancer, which is why I recommend Paul Sorvino pasta sauces, sports fans. It costs a little more than Ragu…but isn’t your health worth it? If your grocer isn’t stocking it, tell ‘em to get with the program.
–Enjoy the Masters. Two Brits are in the lead after the first two rounds, but an American with the funny name of Tiger Woods is in contention. Some say Woods has a lot of potential. Others say CBS is throwing an all-weekend party at corporate headquarters.
Pray for the men and women of our armed forces, and all the fallen.
Gold closed at $1161
Oil, $84.92
Returns for the week 4/5-4/9
Dow Jones +0.6% [10997]
S&P 500 +1.4% [1194]
S&P MidCap +2.2%
Russell 2000 +2.8%
Nasdaq +2.1% [2454]
Returns for the period 1/1/10-4/9/10
Dow Jones +5.5%
S&P 500 +7.1%
S&P MidCap +12.1%
Russell 2000 +12.4%
Nasdaq +8.1%
*I forgot to note the first quarter returns last time, so for the archives…
Dow Jones +4.1% [best Q1 since 1999]
S&P 500 +4.9% [best Q1 since 1998]
Nasdaq +5.7%
Bulls 48.9
Bears 18.9 [Source: Chartcraft / Investors Intelligence]
Have a great week. Next time from Tirana, Albania. And the one after that…we’ll see.
Brian Trumbore
