For the week 4/12-4/16

Friends, I of course write this column up on Friday, then sleep on it, briefly, and wake up at 4:30 Saturday morning to proof one more time and check any last headlines, in case, for example, scientists suddenly realize that the sun is about to go out in two weeks, which would cause some of us to change our plans. Nothing is worse for me than a late-breaking development because to comment extensively on it flies in the face of my ‘24-hour rule.’

 

But it was around 5:00 p.m. local time on Friday here in Albania when I checked the market after working all day (including on the issue of the volcano and how the heck I’m going to be traveling this coming week), stocks were largely unchanged, took a little nap, and around 5:30 checked my laptop for a stock update. Huh, I mused. The S&P is down 19! [Dow Jones down well over 100.] Wonder where the terror attack was? So I check the news and saw the headline, “SEC Accuses Goldman Sachs of Fraud.”

 

“By failing to disclose conflicts of interest in mortgage investments it sold as the housing market was faltering…The agency alleges Goldman failed to disclose that one of its clients created – and then bet against – subprime mortgage securities that Goldman sold to investors.”

 

The client in question turned out to be Paulson & Co. As in John Paulson. As in John Paulson, $billionaire for having the “smarts” to bet against subprime mortgages.

 

While I have access to CNBC here in Tirana, I not only purposefully kept it off, until now that is, but I’m putting together my usual full column and won’t be able to examine the SEC’s case and the evidence, as well as the opinion pieces, until this coming week, if then, due to where I’m headed.

 

That said, I felt like Scrooge on Christmas morning after surviving the night with the spirits. I was as giddy as a schoolboy on seeing the Goldman news. Yes! Yes! Yes! After all I’ve written over the years about these dirty bastards, I will gladly take a hit to my portfolio to see real justice. In fact I ran down to dinner and the first words I said to the waiter I’ve gotten to know when he asked me how my day was were, “Great! Have you heard the name Goldman Sachs?”

 

Actually, I was surprised he hadn’t because he’s definitely an intelligent sort, but I proceeded to give him a very quick synopsis of what the SEC had just done. You know what? He bought me a beer (premium, it goes without saying) after seeing how excited I was.

 

As I told the gentleman, it’s all about justice, and while the case is far from going to trial, if it ever does, this is what so many of us have been waiting for. Justice is what everyone in the world can identify with…be they in Minneapolis, Hong Kong, Sydney or Tirana. It’s the only thing the little people ever ask for. A level playing field and, when the rules are skirted, justice. 

 

Only in this circumstance with Goldman, the defenders are already out in full…men like CNBC’s Jim Cramer. For my Wall Street followers out there, I did flick on CNBC around 2:00 p.m. ET, 8:00 p.m. in Albania, to catch the debate. I saw Cramer’s pitiful performance, and that of the other CNBC reporters, save David Faber, who was gun shy and didn’t really say everything that was on his mind, as in, ‘Listen, people. The SEC is accusing Goldman Sachs of fraud! It doesn’t matter how big or small… it’s fraud! It’s wrong! You can’t defend it! End of story, if the government’s case holds.’

 

I have so much on my mind right now. I wish this happened on Thursday because I’ve busted my butt all day on writing about other stuff and I need time to proof it all, and get at least a few hours sleep before posting. But for now some random thoughts.

 

Do not believe a word the Goldman apologists are saying. You’re smarter than that…including, most especially, my good friends on the Street. Some of you won’t like what I’ll say in the coming weeks, but then it won’t be any different than what I’ve written for years. Compared to other pundits what separates me is that I’ve been there. I was on Wall Street 16 years. No one with the New York Times or Wall Street Journal for that matter can say the same. I was in senior management of a major mutual fund company. Granted, I wasn’t an investment banker, thank God, but I dealt with and came across them all the time. I have a credibility that others in my field just can’t offer. I walked away from a top position and left [lots of money] on the table…which means I also have an idiot gene in me, but that’s my problem, not yours.

 

But what have I been writing of since I started StocksandNews in 1999, since I warned you of the tech bubble, calling the Crash outright, and then in 2004 and 2005, years before most others who then climbed on board, foretold not just the housing bubble in the U.S., but also of the issues in Ireland, Spain and elsewhere (this last bit setting me apart from Marc Faber, to cite one who almost got it totally right).

 

I have also written incessantly about the likes of Goldman and their complicity in it all. I praised, appropriately, the reporting of the likes of Gretchen Morgenson (who a long, long time ago exposed my very first firm, Thomson McKinnon. It hurt, but she was right).

 

Just in recent weeks, I wrote of how disgusted I was with CNBC and their Goldman apologists, and about two months ago, I wrote of how I gave a presentation to the local chamber of commerce and how in preparation for it, I mused about the days growing up in Summit, N.J., home of Jim Cramer, and what a great community it was…emphasis on community…but how I hated what Summit had become. A community dominated by the new Wall Street, of excess riches and people who would run you down in the crosswalk in a heartbeat because they were missing some big appointment, probably with their mistress.

 

I despise these people…totally. And, yes, I may have just lost a few friends. No problem. I have others. 

 

So in thinking about my childhood and the kind of place Summit, Wall Street Central, used to be, I gave you the example recently of how as a kid you used to admire the doctors, lawyers, and bankers…the latter referring to the old-fashioned kind. I cited the example of Walter Shipley, former chairman of Chemical and Chase Manhattan Bank in the 1990s, who still calls Summit home as he did way back when his name became synonymous with successful banking executives (he was president of Chemical in the early 80s). I wrote of how Walter Shipley knew enough not to get involved in products he didn’t understand… and how he kept his banks clean. It was a time when banks lent money. That was pretty much it. If you didn’t deserve a loan you didn’t get one. It was a time when bankers were respected. Men like the late Walter Wriston, to throw out another true titan and legend. They didn’t get any better than the two Walters.

 

These were the ones with the biggest houses in town, along with the doctors and lawyers, and they deserved them. They were respected by all…and most of us aspired to be like them someday, once we learned we couldn’t hit a fastball.

 

Then it all changed. It started in the 1980s of “Wall Street” fame. I’ve told you of how younger people today just can’t imagine how wild it was then. The movie nailed it perfectly. Drugs were rampant, for one. Heck, everyone also went out for a liquid lunch. It was the thing to do, until suddenly it changed around 1985. I worked on the same floor as the top executives at a large Wall Street firm and these guys got hammered every day at lunch! Every day! [No wonder we went under….but I digress…]

 

But the Street really changed with the tech bubble, and that’s when the cash started flying, especially in the IPO market. Then came the whole securitization game.

 

I’m already running over…it’s getting late and I’ve got to get through the rest of the column. But I heard a few folks on CNBC, the same freakin’ apologists, say that the SEC’s announcement on Friday was all about the timing and President Obama’s goal for financial reform legislation.

 

GOOD! What the hell difference does that have to do with fraud?! You could go back through the history of my columns and I bet I said it a hundred times…before it became popular to do so…corruption makes the world go ‘round.

 

And how many times did I talk about a topic such as emerging markets, relating the story of how when I was in the fund game we’d say things like don’t put all your eggs in that basket because there is no transparency in those markets…and then look what happened with Enron, WorldCom et al. I used that example to prove the United States was no better than anyone else! 

 

So when I expressed my excitement to the waiter in the restaurant here in Tirana, it was indeed about justice, and maybe finally turning the page on an ugly chapter in American history.

 

What does the native in some Latin America hellhole want when the copper guys come and rape his land? Justice. What did the victims’ families of Srebrenica want when the Serbs slaughtered 7,000 of them? Justice. Why do some continue to hunt down those who were responsible for the Holocaust? Justice. And on a far lighter scale, but nonetheless important, what did the victims of Enron, or the 2008-09 financial crisis want? At least some justice. 

 

That’s what Goldman Sachs is all about. Finally, just maybe, justice will be served.

 

And to close the circle, if the White House pulled this off for the purposes of enhancing the chances financial reform legislation will pass, I’m all for it.   While I know Republicans appear stuck on the language regarding ‘too big to fail,’ I suspect this is a big victory from a PR standpoint for the Democrats, and Republicans may just have to suck it up.

 

I have consistently written I want Wall Street regulated to the hilt. If any of your congressional representatives, for example, vote against a bill that would add more transparency to the derivatives market, throw the bum out. And while it’s not going to happen immediately, I repeat, there is zero reason for the credit-default swaps instrument. Zero. This isn’t about some farmer hedging his crop. It’s about lining Wall Street’s pockets.

 

We can become a great nation again.   As I told my waiter, this is important to him, an Albanian, one who is struggling mightily just to find the means to have a fun night out once in a while, because it will set an example for all. I’ve been all over the world. Most folks still look up to America. But it’s time to not only earn that trust anew, but the trust of all Americans as well.

 

—

 

There was some other news on the global financial front, though in some cases it was more of the same. Federal Reserve Chairman Ben Bernanke talked of a “moderate economic recovery,” with the same restraints of housing, labor, and the fiscal condition of state and local governments, the latter which doesn’t get nearly enough attention among Street strategists but most directly impacts job markets and sentiment when you read in the local paper that your borough is laying off police, firemen, and sanitation workers. Others, these days, might cheer when they hear of layoffs at the state level (did I just cheer?) but it nonetheless impacts economic growth, of this no one can deny. Government spending, after all, was a major part of the bubble, and we’re learning fast, it’s aftermath on the debt side of the equation.

 

San Francisco Fed Bank President Janet Yellen, while talking up the good that is transpiring in the economy, still added “it’s important not to lose sight of just how fragile this recovery is.”

 

Speaking of government spending, that is a big cause of Greece’s crisis, which is rapidly coming to a head as on Monday, Prime Minister Papandreou meets with officials from the European Union, the IMF, and European Central Bank to, it would appear, discuss exactly how much his country will need to stave off bankruptcy.

 

The problem for Greece is that they came up with proper budget constraints to reduce their deficit but the market continues to believe it isn’t enough and Greece’s interest rates rocketed anew, like back to 7.00% on a 2-year piece of paper (versus 1.00% here) and 7.50%, or thereabouts, for a 10-year bond, or more than 4% above comparable German paper.

 

Investor George Soros said last weekend that the “European Union was on the brink of disintegration unless Germany steps up and provides loans at below market rates,” but he added, “Germany doesn’t want to be the deep pockets helping out the profligate southerners.” And German Chancellor Merkel continues to have a real tussle on her hands in convincing a reluctant parliament to go along.

 

But should Greece receive the long talked about loan package, which the EU and IMF need to work out themselves in terms of who loans what and in what order, one thing we do know, the terms will be substantially less than the market bears now.

 

In all-important China, GDP for the first quarter came in at a staggering 11.9%, above expectations, with March figures on industrial production and retail sales up a still strong 18.1% and 18.0%, respectively, even with the government’s tightening measures.

 

The average home price in China rose 11.7% the past 12 months, the highest rate yet and even I will concede that’s bubble territory. It wasn’t when it was 8% just recently. So the government issued a number of new regulations, on top of about three layers of old ones, that once again increase the down payment on a second home as well as larger first ones; plus mortgages rates are rising again. But just to be clear, the down payment on a large, first home is now 30%. Had we had that in place back in the day, chances are there is no financial crisis, or at least it’s severely limited in scope.

 

Staying in the region, retail sales in Hong Kong were up a record 36% in February from a year earlier, owing almost exclusively to visitors from the mainland, up 49% the same month. That, as much as anything else, gives you a sense of how China’s economy can grow 11.9%. I always get a kick out of the doubters of China’s financial information. It’s rigged, they say. Well, maybe it’s not 11.9%, maybe it’s more like 9%, but it’s not as if there aren’t other indicators you can match China’s numbers up against, such as Hong Kong’s retail sales, or Japan’s exports to China. Not everyone is lying. Goldman doesn’t have its hands everywhere, thank goodness.

 

And how about Singapore? Its GDP in the first quarter was up 32% over the previous three months! Good lord.

 

As for real estate, Morgan Stanley announced it lost a cool $5.45 billion out of $8.8 billion invested in one of its private-equity funds. Boy, that’s strong. Real strong. Of course I’m sure the managers in charge were still able to buy their wives and mistresses all kinds of shiny jewelry last Christmas. “My husband is doing so well!”

 

Meanwhile, the folks at RealtyTrac said foreclosures rose 35% in the first quarter from a year ago as banks are finally getting around to removing properties from their books and thus forcing the issue with homeowners. Households facing foreclosure also rose 16%. But housing starts for March came in a little better than expected, though they are still at moribund levels.

 

–Stocks finished mixed, thus breaking the S&P 500’s winning streak at six, but the Dow and Nasdaq rose for a seventh straight week, up 0.2% and 1.1%, respectively. Without the Goldman news on Friday, and a subsequent downdraft, stocks across the board would have finished up. 

 

It was the first real week of first quarter earnings and Alcoa’s were disappointing, Intel’s were solid, JPMorgan Chase’s were good, Google’s disappointed late Thursday and its shares fell $45 Friday, or 7.5% (though Google’s actual earnings were more than solid), and General Electric’s beat expectations, as did Bank of America’s.

 

But while Intel’s news was best in terms of its outlook, I thought it was more of the same with the others. Yes, there has been improvement, but no one has yet to give the all-clear, which is what you want to begin hearing but are unlikely to until at the earliest late summer. Maybe things are much better. March retail sales came in at +1.6%, beating estimates, and industrial production for March rose 0.9%, also solid, but I’m just not a believer as yet that the recovery will stick and how can I be when I keep harping on the potential impact of the hot spots?

 

–U.S. Treasury Yields

 

6-mo. 0.22% 2-yr. 0.95% 10-yr. 3.77% 30-yr. 4.67%

 

Bonds rallied, yields fell, as a result of the ongoing Greek crisis as well as the Goldman news on Friday that led to a flight to safety and out of risk assets.

 

Also helping Treasuries was the data on March consumer prices, which showed the core rate was unchanged for the month and up 1.1% over the past year. The widely watched personal consumption expenditures price indicator, a key Fed inflation barometer, came in at a tame 1.3% for February, down from a 1.5% annualized rate the month before.

 

–The Wall Street Journal’s Deborah Solomon reported on how the projected cost of the U.S. government’s bailout of the financial sector and the auto companies could be as low as $89 billion, including TARP, capital injections into Fannie and Freddie, various loan guarantee programs and the Federal Reserve’s moves in buying mortgage-backed securities and propping up the money markets. Even AIG, according to Treasury officials, “is on track to repay its loan to the Fed through asset sales,” while Treasury will be selling its hefty stake in Citigroup and General Motors moves to repay its $6.7 billion government investment.

 

Which is all well and good, and provides Democrats with some better talking points come November, but the key in the long run is going to be the disposition of Fannie and Freddie. As Ms. Solomon admits, with $125.9 billion in direct injections thus far, the two will be relying on the federal government for years, plus they have the unlimited credit line.

 

“According to the CBO, losses related to the investment portfolios of Fannie Mae and Freddie Mac are projected to total $370 billion through 2020, though the figure will fluctuate depending on the health of the housing market. The Treasury’s $89 billion estimate for the total bailout cost doesn’t incorporate CBO’s projected losses at Fannie and Freddie because, for budgeting purposes, the Obama administration technically considers them private entities. Taxpayers are potentially on the hook for losses at Fannie and Freddie.”

 

How conveeenient. So you can see where this is headed. Read the fine print next fall when Democrats try to paper over the impact of the mortgage giants. No doubt, the White House has some good news to trumpet. The Fed’s moves, and Congress’ adoption of TARP, helped save the financial system from total collapse. Republicans who just blindly shout and scream aren’t facing the facts.

 

But at the same time, Democrats will be trying to pull the wool over our eyes when it comes to Fannie and Freddie, and look for Congressman Barney Frank, who played a huge role in creating these behemoths back in the day, to explode on more than one occasion when he’s confronted with the facts. 

 

–There are lessons to be learned in Iceland’s banking crisis. The nation’s independent “truth commission” concluded the former prime minister and central bank governor were culpable and that Iceland’s financial regulatory authority was “understaffed and lacked experience” in failing to rein in the banks. The central bank failed to recognize the risks created “by a banking sector that at one point held short-term liabilities 16 times greater than the country’s foreign currency reserves.”

 

The three major banks responsible for sending Icelanders plunging into the depths of despair, with wiped out savings, grew 20-fold in just seven years, plus, as was the case in Ireland, the banks lent ungodly amounts to the owners of these same institutions. Most of the individuals in charge, incidentally, fled the country like the true cowards they are. May they be tracked down by trolls and served up in a stew; trolls being known for hearty soups, in case you didn’t know.

 

–In looking at Barron’s mutual fund quarterly, just a few items of note. For the ten years ending March 31:

 

The S&P 500 had an annualized return, dividends reinvested, of

-0.65%.

 

Over the same period, the annualized returns of various fund categories were as follows:

 

Large-Cap Growth -0.13%

Large-Cap Value +2.77%

 

Small-Cap Growth -0.78%

Small-Cap Value +8.79% [Go NFJ! Old investment friends of mine…you can get their expertise through PIMCO Funds. Good people…rare in a business replete with total a-holes.]

 

Intermediate Investment Grade Debt +5.59%

Emerging Markets Debt +10.98%

Money Market +2.35% [0.001% today…thank you, Uncle Bernanke]

 

Of course as PIMCO’s Bill Gross and Mohamed El-Erian have been warning, investors shouldn’t be so smug in the future when it comes to fixed income.

 

–In an exclusive interview with the New York Post, a former Goldman Sachs 40-year metals trader at the London Bullion Market Association detailed how the likes of JPMorgan Chase and HSBC manipulate the market and often “sell something (gold, for example) they do not own,” which is fraud in the eyes of the Goldman guy. [I wrote this bit before Friday’s news on his old company surfaced.]

 

Of course all commodities are manipulated at a certain level. We saw that clear as a bell when oil hit $147 summer of ’08. Short term, virtually every market is rigged, that’s a fact. It’s why, personally, I don’t feel like I can trade and take short-term positions, though on a limited basis I am doing just that these days in the case of natural gas as simply a play on a more active hurricane season. Otherwise, I tend to stick longer-term because over time, I expect more of my bets to be winners than losers as events even out. It’s also why I focus on geopolitical events and macro outlooks (China’s economic fate being an example of the latter) as much as I do because they can overwhelm the short-term schemers regardless of their designs.

 

–President Obama publicly blamed the management of Massey Energy for the West Virginia coal mine disaster that claimed 29 lives, saying not enough was done to alleviate safety concerns. Certainly the mine in question had far more than average serious violations, including for the critical venting of methane, though while the president requested a speedy interim report, I would have chosen a little different language until a more definitive explanation for the explosion is offered.

 

–Apple announced that initial sales of its iPad were so strong, it was forced to delay the introduction in Europe and elsewhere to take care of U.S. demand first.   Israel, though, banned the iPad over concerns its strong wireless capability could disrupt other devices. The product is under review there for now.

 

–Continental Airlines said it was reviving merger talks with United that had broken down in 2008, now that United and U.S. Airways were said to be in discussions.

 

–Massachusetts is moving $millions in state investments out of Bank of America, Citigroup, and Wells Fargo to protest credit card interest rates.

 

–A spokesman for Chinese President Hu Jintao said China would “vigorously” develop a cleaner economy.

 

–“A U.S. judge ordered China’s biggest producer of plasterboard to pay $2.6 million in damages to families whose homes were affected by defective product, a judgment that could lead to further litigation,” as reported by Toh Han Shih in the South China Morning Post.

 

The Consumer product Safety Commission has received over 3,000 complaints to date and eventual damages could total over $1.1 billion by some estimates. Florida Senator Bill Nelson added:

 

“Homeowners didn’t cause this. The manufacturers in China did. That’s why we’ve got to go after the Chinese government.”

 

Well that’s pretty stupid rhetoric coming from a U.S. senator, but I’d expect nothing less. Of course he’s right, and homeowners should be furious, and be duly compensated, but Nelson doesn’t understand China with his last remark. I’m sure his online checking account has just been emptied for starters.

 

–Back on March 22, shares in my Chinese specialty chemical/biodiesel holding traded as low as 61 cents. On April 6, following release of fourth quarter results that were solid, but more importantly reaffirmed guidance on a great start to the new plant’s operations in the first three months of this year, the shares hit 99 cents. This week they were back down to 65 before closing at 70. Seldom in all my years of investing has a stock sold off more irrationally. But it further buttresses my argument, for those playing along at home, that when first quarter results are announced, in a few weeks, this is when we could see the real pop.

 

I also can’t emphasize enough, however, that the company’s fortunes are tied to the health of the overall Chinese economy and any uncertainty on this front, as has been the case recently, will of course impede further advances in the stock. It’s why I also say I’m prepared to hold it another two years, or, to tighten it up a bit, until the end of 2011.

Iran / Israel: One of the main purposes of President Obama’s nuclear summit, further details of which are covered below, was to promote another round of sanctions against Iran, bringing Russia and China on board, though while French President Nicolas Sarkozy called for sanctions no later than May, because “The moment of truth is nearing,” it hardly appears that any sanctions that come out of the UN Security Council will be worth a hill of beans. Russian President Dmitry Medvedev is insistent that new sanctions “should not lead to humanitarian catastrophe when the whole Iranian community would start to hate the whole world.” In other words, no sanctions on Iran’s importation of gasoline, for example. You see, Russia wants to keep its arms business and nuclear plant relations with Iran. Ditto China, which needs Iranian oil. Yes, it’s a total farce, and so much for a U.S.-Russian reset in relations.

 

It also doesn’t help that some U.S. officials were trumpeting an old line that Iran may have enough nuclear material for a bomb by year end, but don’t worry about it having a weapons delivery system for another 2-5 years. So I guess all of the ballistic missile testing that Iran has been displaying is for the purposes of delivering large water balloons.

 

This week, Israeli Prime Minister Benjamin Netanyahu was back to his old hard-line self in a speech marking the start of Holocaust Martyrs and Heroes Remembrance Day.

 

“We are witness today to the new, old fire of hatred. Hatred of Jews inflamed by organizations and regimes of Islamic extremists – most of all Iran and its satellites.

 

“Iran’s leaders are rushing to develop nuclear weapons as they freely announce their desire to destroy Israel. But in the face of these calls to erase the Jewish State from the face of the earth time and time again, we see at best mild protests, and these too seem to be fading.

 

“We don’t hear the forceful protests that are required, we don’t hear strong denouncements, or the angry voice. But, as usual, there are those who direct their criticisms against us, against Israel.

 

“The world accepts Iran’s declarations of annihilation yet we still do not see the international determination required to prevent Iran from arming. I call on the enlightened nations to rise up and denounce this intention to destroy, and to act with real determination to prevent Iran from obtaining nuclear weapons.”

 

President Shimon Peres added:

 

“It is our right and duty to demand of the nations of the world not to repeat their indifference, which has cost millions of human lives, including theirs. The United Nations must be attentive to the threats of annihilation coming from one of its members, against another member state.” [Jerusalem Post]

 

So what now? It looks like more than ever my call that Israel would strike at Iran’s nuclear facilities last November was the right one…only Israel blew it. They had the Arab world on their side then, as well as the cooperation of the United States, despite public comments to the contrary.

 

Remember, Arab leaders, such as in Saudi Arabia, of course would condemn any actions for public consumption, but they would be cheering inside, and back then, Israel and the Palestinians were at least talking. Israel also had the power of Iran’s ignoring at least three rounds of sanctions specifically calling for the cessation of its uranium enrichment program. What more did it need to act?

 

But that was then…this is now. There won’t be any Arab support, nor is there any from the White House. Israel is all alone. They will still be forced to act, though who the heck knows on the timing. There is no way they just sit back and rely on U.S. intelligence to tell them not to worry for at least two years. And as noted in the above speeches, Israel of course knows any sanctions at this point are going to be laughable. It’s simply an issue that has to be in the back of every investor’s mind, for one, just as every Israeli can’t possibly spend a single day without thinking of the threat facing their very existence.

 

Lastly, President Obama echoed the sentiments of Gen. David Petraeus in reiterating that U.S. policy, and success, in Afghanistan and Iraq is directly tied to the Israeli-Palestinian situation. This is exactly what many in Israel don’t want to hear, but it’s the truth. [Many of my fellow conservatives disagree with me on this one.]

 

Afghanistan: A deadly assault on a bus carrying civilians outside the Taliban’s spiritual home of Kandahar has further inflamed tensions, just as the United States and NATO are preparing a massive, controlled assault on Kandahar to take it back this summer. The goal is for the forces to take their time and gradually win over the hearts and minds, but regardless of the circumstances behind the killings, the process has been dealt a severe blow. This is exactly what Gen. Stanley McChrystal did not need at this time.  President Hamid Karzai’s consternation was justified. In this region we have to fight a perfect war and it’s virtually impossible to do so. The only hope in winning the people over is skilled diplomacy and lots of cash…and even that may not work.

 

Pakistan: Not that this comes as any great surprise, but the Washington Post reported that members of Pakistan’s intelligence agency, the ISI, freed at least two senior Afghan Taliban figures it had captured. We’ve always known the ISI has Taliban sympathizers and that the government was playing both sides of the fence to hedge its bets and ensure its survival, but this is the very thing that should keep policymakers up at night in Washington. How powerful are the sympathizers and at what point do they attempt to take down the government, thus throwing control of Pakistan’s growing nuclear weapons force into the hands of the bad guys?

 

Iraq: Iran offered a surprisingly conciliatory message to Iyad Allawi, the former Iraqi prime minister whose coalition of Shia and Sunnis garnered the most seats in recent parliamentary elections. Iran, being a Shia dominated nation, and having heavily interfered in Iraqi politics in the past, instead said it would welcome Sunni participation in a new government. But it’s still not known how Iran will influence the Shia factions in Iraq to form a new government. One thing is for certain, Tehran desires a weak Baghdad, but it also wants stability.

 

Poland: In a devastating plane crash last Saturday at Smolensk, Russia, Polish President Lech Kaczynski, his wife, the president of the central bank, the secretary of state, the Army chief of staff, naval and land force commanders, the head of the National Security Office and other dignitaries perished. 97 in all.

 

The aircraft’s passengers were headed to a memorial marking the 70th anniversary of the Katyn Massacre, where Soviet secret police killed an estimated 22,000 Polish officers. Air traffic controllers several times told the plane to abort and divert to another airport due to dense fog, but it’s clear that the young pilot was overruled by his military boss on board because the president did not want to be late for the ceremony. [Or Kaczynski himself issued the order to land.]

 

But while the tragedy represented yet another disaster in Poland’s depressing history, and while in the first moments there were suspicions of Russian involvement (some of which will never go away), these should have been quickly dispelled as Russians, including Vladimir Putin and Dmitry Medvedev, did everything right in honoring those who died, including giving President Kaczynski’s body a military sendoff before it was returned to Poland. Poland is also holding snap elections and the interim transition of power has gone exceedingly smoothly amidst the national mourning.

 

Tony Halpin / London Times

 

“Katyn has symbolized bitter divisions between Poland and Russia for 70 years. Now the new tragedy associated with its name appears to have united them to an extent unprecedented since the Second World War massacre.

 

“The outpouring of Russian sympathy for grieving Poles, at official and street levels, may have done more in 48 hours to erode mutual suspicion than any amount of diplomacy since Poland emerged from Moscow’s shadow after the collapse of the Soviet Eastern Bloc….

 

“The government newspaper Rossiiskaya Gazeta called the catastrophe ‘our common sorrow’ and the opposition Novaya Gazeta declared in Polish: ‘We are with you.’ President Medvedev and Prime Minister Putin have been visibly moved by the enormity of the latest loss of Polish life on Russian soil….

 

“History is not easily overcome and everyday politics has a habit of corroding goodwill once the initial shock of a tragedy has worn off. It remains too early to say whether Russia and Poland are entering a new era of improved understanding or merely expressing common emotions at an accident whose impact will fade with time.

 

“For now, however, shared grief over the ‘second Katyn tragedy’ has created more space for Russians to consider the first.”

 

Thailand: At least 24 were killed in protests last weekend that extended throughout the week as Prime Minister Abhisit vowed not to step down under pressure from the ‘Red Shirts’ who support ousted Prime Minister Thaksin. Thaksin, despite being a billionaire, was viewed as a champion of the rural poor. What’s unclear is just where the military stands, which while neutral, had recently obtained increased powers for itself, thus leading to the strong possibility of yet another military coup here. On an economic note, you can imagine how Thailand’s tourism industry has been battered. In Bangkok, hotel occupancies have collapsed to under 10%.

 

Russia: In other developments, outside of the Polish plane tragedy, a Russian municipal court judge who had taken a hard stance against teenage skinheads who killed immigrants was himself murdered as he left for work in a contract-style hit. Earlier in the year, Judge Chuvashov had handed down sentences to nine young men, “White Wolves,” for their roles in killing dark-skinned people at random.

 

Meanwhile, Russia clearly had a role in the overthrow of Kyrgyzstan President Bakiyev, who was forced to flee the capital, Bishkek, amid violent protests. By week’s end, Bakiyev had fled to Kazakhstan as both Moscow and Washington recognized the new interim government which promised to hold elections in six months after a new constitution was put in place. Washington and Moscow also both have military bases here.

 

Which was the reason why Russia encouraged the insurrection because it sought the removal of the Americans. The Kremlin, through a media campaign that told of Bakiyev and family stealing billions of dollars, fed the flames of dissent, Vladimir Putin being upset that Bakiyev, after earlier talking of expelling the U.S., instead took increased rent from Washington. The new leaders, however, have vowed to honor previous agreements on the bases.

 

Separately, Russia has banned adoptions of Russian children from the United States after an American woman sent her adopted Russian child back home to Russia, alone. An estimated 3,500 Russian children were in some form of adoption status for 3,000 American families.

 

Hungary: Out of nowhere, in parliamentary elections a vile, fascist group of extremists, Jobbik, tallied 17% of the vote, in what a Financial Times editorial described as a “shamefully strong showing.” For the first time, Jobbik now has seats in parliament. The good thing is that the winner, the center-right Fidesz party, has a chance at securing a 2/3s majority which would allow it to push through needed reforms, including the integration of smaller municipalities into larger ones. It’s in the rural areas that Jobbik wreaks havoc against the likes of the Roma, the gypsies, because the smaller units don’t have enough police resources, for one.

 

South Africa: President Jacob Zuma sought to calm racial tensions following the murder of far-right leader Eugene Terreblanche. Zuma, doing what I said he needed to last time, ordered African National Congress youth league leader Julius Malema to shut up, after Malema has been going around singing a song “Kill the Boer.”

 

For his part, Malema, 28, another mental midget who reportedly failed his woodwork exam, lives in luxury, including a $1 million penthouse, with everyone wondering how he’s getting the funds seeing as he had zero employment before taking over the ANC youth operation. Evidently he’s been capitalizing on work contracts associated with the upcoming World Cup.

 

This guy needs to be put away and Zuma has to do more than tell him to “shut up.” Malema is spewing hatred among a largely uneducated mass and South Africa could erupt in a heartbeat.

 

As for the whites, far from all were followers of Terreblanche’s Afrikaner Resistance Movement, or AWB, but the violence being directed against white farmers is appalling. As reported in the Los Angeles Times, in one recent case “a man’s soles were stripped from his feet while alive. An elderly woman’s breasts were sliced off; another was gang-raped. Another was raped with a broken bottle.”

 

So far this year, 19 white farmers have been killed. Terreblance’s followers have vowed they will carry out their revenge at a time and place of their choosing.

 

And yet there are some investment advisors, with an intelligence on par with that of Zuma and Malema, who say South Africa is a good place to put one’s money! I kid you not. I have my own warning to the folks I catch doing this on CNBC from here on. You’ll rue the day you did so.

 

Northern Ireland: Political leaders on both sides condemned the bombing near Belfast outside an office of Britain’s MI5, the domestic security service, which resulted in one minor injury but was designed to send a message the peace process was broken. A splinter IRA group took responsibility. The British government is in the process of transferring police and justice powers to the power-sharing government in Belfast established more than 3 years ago.

–President Obama held his nuclear summit in Washington and while it’s popular for Republicans to blast everything this man does, it’s hard to criticize something like this. I’m one of those who believes any time you can get the likes of Russia and China to sit down with us is a good thing, let alone the premise of the whole deal, securing loose nuclear material in four years, is an admirable goal. Two of my favorite American political figures, Sen. Richard Lugar, Republican, and former Democratic Senator Sam Nunn, have been doing just such work themselves through an organization I support, the Nuclear Threat Initiative. How can you not back such efforts?

 

And the summit immediately bore some fruit with Ukraine’s announcement it would get rid of its stockpile of weapons-grade uranium by 2012. Ukraine has enough highly-enriched material for “several nuclear weapons” and is just the kind of situation Obama and the likes of Nunn-Lugar are targeting. Good. 

 

Editorial / London Times

 

“The summit may end today with more than platitudes. It may spur real commitments to combating nuclear terrorism – largely because of the example set last week by America and Russia. Their signature in Prague of a New Start agreement, cutting their nuclear arsenals by a third, sent a strong signal that a world without nuclear weapons is not a pious dream.”

 

Of course both sides have more than enough power remaining to blow the world up several times, but New Start and the nuclear summit “send a message that what matters now is the threat of proliferation. Unless Russia and the U.S. had signed a new treaty to replace the expired 1991 Start pact, it would have been hard to get today’s summit to focus on practical steps – more inspections, controls to block smuggling – to halt a drift to proliferation by countries with civilian nuclear power.”

 

And everyone also knows it’s still all about Pakistan’s expanding nuclear program, India’s and China’s, let alone those of North Korea and Iran. Certainly the president knows this, as he himself acknowledged, but I have to laugh at those who think this summit was nothing more than pure theater. If they didn’t get together, is the world somehow safer? In the end, it comes down to intelligence and having leaders at a given point in time who aren’t afraid to act. That’s my problem with Obama and Iran, specifically. President Sarkozy and Prime Minister Netanyahu are right…time is running short. The American people need to be prepared for the coming blowback because conflict with Iran seems inevitable. Certainly Israelis are gearing up for the consequences.

 

–Talk about a joke, look at the current Republican presidential field for 2012. I mean Mitt Romney? At the Southern Republican Leadership Conference in New Orleans (I need to get back there to see the World War II Museum again), Romney came in first in a straw poll with 439 votes to Congressman Ron Paul’s 438, Mr. Paul being another joke.  [Note to Paul supporters: Come back to us! Have you heard his thoughts on Iran? He’s nuts.]

 

Meanwhile, Sarah Palin came in third, with former House Speaker and serial philanderer, Newt Gingrich fourth. Palin was in Boston this week, which led David P. to wonder if I, being in Albania, could see Italy from my room? No, but I do look down on the main hotel entrance and some nice trees about 100 yards away.   I asked David if Sarah could see Iceland from Boston Harbor. Someone would have to tell her that any dark clouds on the horizon weren’t necessarily emanating from the volcano.

 

So, yes, us elephants are wondering just when, or from where, a viable presidential candidate is going to emerge?

 

–George Will / Washington Post

 

“A puzzle from Philosophy 101: If a tree falls in a forest and no one hears it, does it make a sound? A puzzle from the prairie: If an earthquake occurs in Illinois and no one notices, is it really a seismic event?

 

“Gov. Pat Quinn called it a ‘political earthquake’ when the state’s legislature recently voted – by margins of 92 to 17 in the House and 48 to 6 in the Senate – to reform pensions for state employees. There is now a cap on the amount of earnings that can be used as the basis for calculating benefits. In some states, employees game the system by ‘spiking’ their last year’s earnings by accumulating vast amounts of overtime pay.

 

“An even more important change – a harbinger of America’s future – is that most new Illinois state government employees must work until age 67 to be eligible for full retirement benefits. Those already on the state payroll can still retire at 55 with full benefits.

 

“The 1935 Social Security Act established 65 as the age of eligibility for payouts. But welfare state politics quickly becomes a bidding war, enriching the menu of benefits, so Congress in 1956 entitled women to collect benefits at 62 and in 1961 extended the entitlement to men. Today, nearly half of Social Security recipients choose to begin getting benefits at 62. This is a grotesque perversion of a program that was never intended to subsidize retirees for a third to a half of their adult lives.

 

“It also reflects the decadent dependence that the welfare state encourages: Because of the displacement of responsibility from the individual to government, 48% of workers over 55 have total savings and investments of less than $50,000.”

 

Mr. Will goes on to talk about the few who are willing to face the facts, such as Wisconsin Republican Paul Ryan and Republican Florida Sen. candidate Marco Rubio; the latter calling for two simple changes for those 10 or more years from retirement. Raise the retirement age and index benefits to inflation rather than wage increases, which would significantly reduce the system’s unfunded liabilities. Responding to this, opponent Republican Gov. Charles Crist said Rubio was being “cruel, unusual and unfair to seniors living on a fixed income.”

 

Bull, Governor, go take a hike (as he appears to be ready to do in opting to run as an independent). And go Rubio…and Paul Ryan. I’ve said countless times Americans don’t have the courage to sacrifice when it comes to entitlements. We’re going to find out if this is indeed the case in just the next two years because it’s one thing for Rubio to get elected. It’s another for those who then may face a slight benefit cut to see where they really come down when push comes to shove.

 

–Speaking of George Will, he nailed it the other day in talking about Republican National Committee chairman Michael Steele. The best political chairmen are those whose names the vast majority don’t know, men like former Republican RNC head Bill Brock. In the case of Mr. Steele, it’s all about him. Sorry, Bro. It isn’t, but then I reiterated the other day how I haven’t given a dime to the RNC since 2000, and for good reason.

 

And so it was that the headliner in my discussion then, in bringing up the RNC and remembrances of a New Jersey senate race between Republican Bob Franks and Democrat Jon Corzine, where Corzine outspent Franks $63 million to $6 million (the exact figures, which I didn’t have at my fingertips last time), yet Franks lost by only 3 points because the RNC failed to support him, died suddenly. Yes, Bob Franks…gone…the victim of an aggressive form of cancer at the way too young age of 58. One of the very few politicians I ever trusted. A graduate of my high school, classmate of my brother’s. Very, very sad.

 

Former Gov. Tom Kean, one of the others I trusted (those of you outside the state can’t begin to understand how much we miss this man’s pragmatic leadership), said of Frank’s passing, “Looking at today’s political scene, there’s nobody like him. He loved the sport of politics, but he also thought politics was there for better government.”

 

The Star-Ledger noted, “Democrats and Republicans alike remembered Franks as an incomparable, decisive leader – an old-school politician who played political hardball, but never played dirty.”

 

The current Democratic senate president said, “Bob will always be remembered, quite simply and fittingly, as a good and decent man.”

 

Rest in peace, Bob Franks. You were a rarity, and will be greatly missed.

 

—

 

So why am I in Albania? It all started with a “CBS Sunday Morning” segment last November on an author who had done research on World War II and the treatment of Jewish refugees. The specific story involved a reunion between a Jew and the Albanian family that protected her, a family she hadn’t seen since the war.

 

To say the least it was quite touching and as it evolved, in Albania they believe in the principle of ‘besa,’ whereby strangers are protected as family. It’s a fact, as documented by the Holocaust researchers, that the Albanians did not turn over a single Jew to the Nazis when the latter occupied the country. This was confirmed for me the other day when I visited the national history museum here in Tirana. 

 

Well, as you know I’m a spur of the moment type guy, and act quickly, so after watching the story I thought it’s time to go to Albania and just show them a small token of my appreciation for their incredible acts of kindness and compassion by giving them some of my tourist dollars. [I’ve told some people I’ve come across the past few days the story of why I’m here and they get a kick out of it. They also must be thinking, ‘And he’s not even Jewish!’]

 

But Albania is a very complicated place, as is the entire Balkans. For starters, Albania is trying to get into the European Union and just this week, finally completed the EU’s 2,200 question application. [‘Do your cows give milk?’ ‘Do your chickens lay eggs?’ That sort of thing…at least I’m imagining so with that many questions.]

 

Of course if you know the least bit about Albania this is a joke. Recall I traveled to Bulgaria and Romania right before they were admitted to the EU in 2007, just to get a sense if they were ready and of course they weren’t. Especially in the case of Bulgaria, it is hopelessly corrupt. I was amazed the EU wanted to expand simply for the sake of expansion.

 

Albania is also hopelessly corrupt and consider this. They held a big parliamentary election last June 28, which I remembered reading of at the time was incredibly close, but the result, almost ten months later, is still being contested! The Democratic Party, a center-right organization, won and is led by Prime Minister Berisha, while the Socialists finished second and are led by the mayor of Tirana (which contains about 1.2 million out of a total population in Albania of around 3.6 million).

 

I am staying at the best hotel in town, a Sheraton, and it has the perfect location. Within a few blocks are the presidential palace, parliament, the interior ministry and the biggest university. All buildings look incredibly shabby, by the way; everywhere I’ve been, for that matter. In fact to digress, the university’s main building looks like crap but spray painted on the wall is “President Obama…we love you!” Go figure. And I haven’t seen a single black in this country.

 

Anyway, I missed the other day that there was a demonstration outside parliament wherein the Socialists appeared on the steps all wearing masks across their mouths. You see, they refuse to participate in any parliamentary discussions until the election is resolved to their satisfaction. Against this backdrop, Berisha goes running around the world, looking for badly needed investment, plus he proudly brandished the completed EU app that took years to put together. Yet also understand, I wouldn’t be in the least bit surprised to see the political chaos devolve into something far worse. The two sides are even fighting over who gets the development contracts for a major project involving the main town square down the road from here.

 

With this as background, I hired out a driver, as I do everywhere I go, to get a true flavor for the place. I asked the girl at the travel agency what the guy’s name was. “Elton.” “Elton John is taking me around?” [At least she laughed.]

 

Elton turned out to be fantastic. Of course I wouldn’t have hired him if he couldn’t speak English and he did a good job with our language. It also turned out to be a lot longer trip than I really wanted.

 

Let’s just say I have never seen worse roads in my life. A few of the main highways were OK, but once you got off them, it was pothole after pothole. I mean in major towns you were just crawling (or you’d instantly blow out all your tires), thus the reason for the length of the trip.

 

Elton was exceedingly open about his country. Probably in his mid-30s, he and his wife are expecting their first child. He has a political science degree but zero job prospects in that field. I would later learn everyone seems to have a poli sci degree, many what they claim is a masters in same, but no one can get a government job without connections. [I also seriously wonder just how good a university education is here after looking at some of the schools both in Tirana and outside the city.]

 

Elton’s father, still alive and unemployed for three years, used to work in the interior ministry under the long-time dictator, Enver Hoxha (pronounced “Ho-zha,” I learned). This was a bad man, to say the least. Much like Ceausescu in Romania, only Hoxha didn’t get executed on Christmas Day as Ceausescu was.

 

Elton told me he didn’t vote, but he clearly favored the Socialists and strongly hinted he liked the old days before Albania, like the rest of Eastern Europe, turned to democracy.

 

But back to some of what I saw. I am well aware that I have to watch myself in this place, yet within five minutes Elton was telling me about the places even he never goes to. “Too dangerous,” he kept saying. Albania, it turns out, has a classic north-south problem. People in the south, I was told, were largely good people; northerners were bad. We drove (crawled) through one town, whose name escapes me where, Elton said, “Look at these people. You notice anything?” “They look kind of mean.” “They are. They just go from one bar to another, all day, and then fight each other.” I could tell I wouldn’t have lasted five minutes if he had deposited me there. [Both Elton and a friend back home, Mark R., told me I need to see the movie “Taken,” a recent Liam Neeson flick about the Albanian mob.]

 

Well, my day traveling about wasn’t all spooky. We went to the medieval town of Kruja, which is spectacularly built on the side of a mountain and was the sight of a main fort held by the Albanian national hero, Skanderbeg. Very cool. We spent a lot of time there walking the streets. Actually, come to think of it, the high school boys weren’t exactly smiling at me. My wallet was firmly in my front pocket. I also didn’t take a lot of pictures, like only 3 the entire day, because it’s just not the kind of place where you want to whip out the camera with the locals staring at you.

 

I also wanted to see the Adriatic and the resorts on the water there, like a major city named Durres. Unfortunately, the weather was awful when we were there so I opted not to get a beer at the beach, but you never saw an uglier, overbuilt beach resort in your life. That’s the thing about almost all developing nations. When corruption rules the day, no one concerns themselves with prudent planning. I mean we’re talking one monstrosity on top of another. Elton showed me mile-long stretches that had once been all trees, with spectacular vistas of the Adriatic, and now from the main road, just a few hundred yards from the water, you can’t see any of it. Normally, when I have a driver like this, out of respect I keep my mouth shut when it comes to most of my impressions, but Elton was a good guy and I just told him, “This is stupid!” He heartily agreed. I also commented that in the summer, when everyone hits the beach, the traffic must be a total nightmare and he showed me where it can take two hours to go one mile. I kid you not.

 

So to wrap up, for now, this place is a mess. But I also need to get one thing straight. The people I’ve come in contact with, except for a total asshole bartender outside of the immediate hotel area, could not be nicer. The guys are some of the best I’ve met, and the girls couldn’t be cuter, both in looks and personality. Even this one bank in town I’ve been going to for money exchanges (awesome rate, compared to the hotel) has nice employees. I never find that anywhere else. 

 

But otherwise, buyer beware. It’s not raining now so I need to get in a long walk before I tackle all my travel issues (it’s supposed to rain later). One thing is for sure, I won’t be whistling “Zip-pi-ty-do-daa” while strolling down the boulevard. I’m going to be well aware of my surroundings.

 

Lastly, speaking of travel issues, the volcano and the ash cloud has thrown me for a loop, along with hundreds of thousands, nay, millions of others. I was supposed to fly to Paris, via Rome, on Sunday, for an overnight stay before taking a flight to Beirut, Monday morning. But with the uncertainty on whether Charles de Gaulle Airport would even be open, let alone the resulting chaos in terms of which plane is where, on Friday I had to come up with alternative plans and I think I have one. I’ll leave it at that. Lots of calls and emails to make today to finalize things to ensure I’m also not losing too much money. Plus I need Air France to honor a return ticket later on to get me back to Paris from Beirut. But if I get there in one piece, and leave in one, too (just a little Beirut humor there, kids), it’s all worked out with minimal monetary loss…he typed, hopefully.

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

 

God bless America.

 

—

 

Gold closed at $1137

Oil, $83.10

Dow Jones +0.2% [11018]
S&P 500 -0.2% [1192]

S&P MidCap +0.7%

Russell 2000 +1.7%

Nasdaq +1.1% [2481]

 

Dow Jones +5.7%

S&P 500 +6.9%

S&P MidCap +12.9%

Russell 2000 +14.3%

Nasdaq +9.3%

 

Bulls 51.1

Bears 18.9 [Source: Chartcraft / Investors Intelligence]

 

Have a great week. Next time from the lovely shores of the Mediterranean, I think.

 

Brian Trumbore