[Posted 7:00 AM ET…from Winston-Salem, N.C.]
Wall Street
9.5, 9.6, 9.6, 9.7, 9.5, 9.6, 9.6…
Too bad these aren’t Olympic gymnastics scores for Russian Ludmilla Peachikina as she wraps up the silver medal. Rather, they are some of the unemployment numbers we’ve seen in the United States, 14 consecutive months above 9.5%, actually, including Friday’s release of the September data, 9.6%, which has Republicans salivating as they head down the home stretch of the campaign. And, tragically, as USA TODAY put it on Friday, of the over 14.5 million unemployed workers, a record 30% were out of work at least a year in August, up from 23% in December.
This is also an incredibly dangerous stretch for global markets as the currency war has hit on all fronts and it could easily spin out of control. On the other hand, if enlightened leadership emerges, particularly from China in allowing its currency to strengthen some, we could see the recent rally in equities continue. It’s a case where literally 2 or 3 decision makers can make all the difference in the world…for good or bad.
I’m down at my 30th college reunion, Wake Forest, and admittedly there is other stuff going on (so please cut me a little slack this week) but here are just a few examples of the incredible crosscurrents in the markets these days.
The IMF has warned that nations can’t use exchange rates to solve domestic problems, yet some countries insist on using currency as a policy weapon. In these dicey economic times, everyone wants to devalue their currencies to juice exports, but such a broad-based move, in the IMF’s words, “represents a very serious risk to the global economy…Any such approach would have a negative and very damaging longer-term impact.” So spoke IMF head Dominique Strauss-Kahn.
At the same time that everyone is straining to keep their currency down, the U.S., Japan and Europe are all pressuring China to allow the yuan to strengthen, but China isn’t budging, with Premier Wen Jiabao telling a gathering in Brussels:
“Do not work to pressure us on the renminbi (yuan) rate. Many of our exporting companies would have to close down, migrant workers would have to return to their villages. If China saw social and economic turbulence, then it would be a disaster for the world.”
The first shot fired across the bow this week was by Japan when its central bank not only cut its key lending rate to essentially zero, but it set up a $60 billion fund to buy government bonds, i.e., quantitative easing. However, the central bank is so concerned about prospects for the Japanese economy that it said the fund would also buy other assets, like stocks.
“Although Japan’s economy still shows signs of a moderate recovery, the pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen’s appreciation on business sentiment,” the central bank statement read.
The previous week, Federal Reserve Chairman Ben Bernanke talked of more quantitative easing to juice the U.S. economy, and this week at a college forum he said, “I do think that the additional purchases (of government securities)…do have the ability to ease financial conditions.” New York Fed President William Dudley weighed in separately, “If we were to do more large-scale asset purchases, namely Treasurys, that would have a beneficial effect.” The Federal Reserve next meets Nov. 2-3 and it’s expected to announce further moves to boost growth the day after the election, Nov. 2, especially given Friday‘s lousy employment report.
At the same time, the European Central Bank, in holding the line on its interest rates yet again, said it was more focused on austerity, even as it knows a stronger euro could easily choke off the recovery. Legendary investor George Soros specifically warned Germany that its austerity plan risked throwing the eurozone into a deflationary spiral, as because of their history, Germans are always focused on inflation, not the risk of deflation. Soros said that all of Europe’s fixation on austerity could throw the continent “into a period of prolonged stagnation or worse.”
I have been writing of how earlier talk this summer that the European debt crisis was over was absurd. So what did we see this week? As China pledged to buy more Greek bonds as a show of confidence in that economy (more importantly, China sees cheap assets it can pick up as the Greek government sells them off to raise cash), the EU raised Greek debt estimates and said the economy there will remain in recession through 2011. So one could easily see the need for more bailout money for Greece, yet the people in other nations aren’t going to want to keep ponying up. Consider this, 53% of Germans today see the euro as a “bad thing.” That’s a staggering number that I believe can only go higher as the crisis simmers.
New French strikes are proposed for Tuesday and they could turn violent, though one good sign here is the people are increasingly turning against hard-line labor leaders because these strikes severely impact their own way of life.
The U.K. is actually going to delay some spending cuts because the government is concerned it is going too far, too soon with its austerity kick given how fragile the recovery is.
Back to the IMF, it is now forecasting that global growth will slow in 2011. The forecast for the U.S. was cut from 3.3% to 2.6% in 2010, and to just 2.3% in 2011, with unemployment next year averaging the same 9.6% it is currently.
Goldman Sachs’ noted economist Jan Hutzius has increased his odds of a double-dip in the U.S. from 15% to 25% to 30%. [I maintain we will not see one, technically…two negative quarters in a row. It obviously will continue to feel like a recession, however, especially if forecasters are right about unemployment staying above 9% for all of 2011.]
I also have to add that while there has been some happy talk the Christmas season could be better for retailers than expected and that there is hiring going on, any hiring above last year’s levels is minimal and I would go with the various forecasts showing 2% to 3.5% growth over 2009; hardly the stuff of big recoveries. Wal-Mart and Best Buy, two rather important barometers, say they are doing no more holiday hiring than last year.
More importantly, while Alcoa in its better than expected earnings report talked of a strengthening global economy, I saw a note that Sikorsky Aircraft was laying off 200 workers due to the ongoing economic slump, specifically the market for commercial helicopters, which is a good barometer on a number of levels. And Alstom, which just so happens to be the world’s third-largest power-equipment maker, is cutting 4,000 jobs, worldwide, reflecting the fact utilities are postponing the construction of additional power plants. So while we may be rushing to buy iPads, there are some bigger ticket items that probably tell us more about the state of things.
But I’ll tell you what was really depressing this week, a Wall Street Journal/NBC News poll that showed 53% of Americans say free-trade agreements have hurt the U.S., up from 32% in 1999. Among those earning $75,000 or more, it’s 50%, up from 24% in ‘99. This is bad news, recognizing many of you will disagree with me. It’s a major reflection of the tough times we’re all going through, and it’s an understandable reaction, but it’s still depressing. The future has to be through trade. We cannot withdraw into fortress America, but that’s where we’re headed…and much of the world of course feels the same way. China is the focus, clearly, and there is much to blame on this front, but it’s a time for real leadership and diplomacy and I see neither, which is what really bums me out.
Well, at least there could be some great news shortly. The rescue of the miners in Chile is imminent, far earlier than initially projected, and American technology and know-how have been of major assistance.
Street Bytes
–Stocks resumed their winning ways, after a slight slip the previous week, with both the Dow Jones and S&P 500 adding 1.6%, while Nasdaq tacked on 1.3%. All three major indices are now solidly in the black for the year. The putrid jobs report, complete with distressing news on the state and local government front, only meant that the Fed was even more likely to employ quantitative easing. So everyone rejoiced anew.
“Yes! The central banks are manipulating stock prices! This is tremendous!”
Forgive me for not seeing things in such a rosy light. We just went through a financial crisis that had the world on the brink of another Great Depression and it was largely the result of no one understanding what was on the books until it was too late.
Today, we’re to believe that the central banks around the world are geniuses in their maneuverings, even though this could lead to protectionism of the worst kind. As Michael Conrad said at the beginning of a shift on “Hill Street Blues,” “Be careful out there.”
–U.S. Treasury Yields
6-mo. 0.16% 2-yr. 0.34% 10-yr. 2.39% 30-yr. 3.75%
The 2-year is at an all-time low yield.
–What a mess…the entire foreclosure situation, as some, such as Bank of America, are delaying foreclosures until they get a handle on the process with the paperwork and whether things are being handled in a legal fashion. As in one simple step, the notary process, has been ripe with fraud. The notary is supposed to see you before affixing the seal, but what has come to light is documents are just being signed, robo-pen style, and the notary in many cases is issuing blanket approvals.
So tens of thousands of foreclosures, maybe more, could be in jeopardy as homeowners could easily contest the foreclosures as being illegal; all of which could drag this critical element in cleaning up the housing market another few years.
One of the big issues is so often these days, after the securitization of the mortgage market that took place at the height of the bubble, you don’t really know who owns the mortgage. And now you have prospective buyers, who thought they had a purchase of a foreclosed property all lined up, being told the property isn’t ready to be turned over to them. As detailed in various articles, you thus have folks who may have sold their current home, or gotten out of their rental agreement, only to find they can’t move into their new place. Unbelievable. What kind of nation is this? Let me just be polite and say America is in an extended slump, but we better snap out of it quick or we’ll be too many games behind to fully recover.
–The federal budget deficit declined from $1.4 trillion in fiscal 2009 to $1.275 trillion in fiscal 2010! Time to break out the Korbel!
–Mexico sold $1 billion in 100-year bonds. Yes, you’re reading that right. Heck, the yield was 6%. Why not? Mexico’s debt picture is good, even if the country itself is a mess.
–Some further bits and pieces on the Euro economy:
Germany’s August factory orders and industrial production were better than expected, up 3.4% and 1.7%, respectively, but…August exports were down and it’s this last number that is more important because it’s a reflection of the stronger euro and its negative impact on exports. This is entirely predictable and makes September’s and October’s numbers critically important in terms of the future direction of European Central Bank policy.
In the U.K., housing prices unexpectedly took a big tumble in September, down 3.6% from August.
In the eurozone overall, a combination services/manufacturing index declined in September from August, 56.2 to 54.1, another sign of a slowing economy after a solid rebound in the first half of the year.
[50 being the dividing line between growth and contraction, the services index in Ireland dropped from 52.9 to 48.8 in September, while in Spain it went from 49.2 to 47.9, just to give you an idea of how sick these two, along with Greece, continue to be.]
–As PIMCO’s Mohamed El-Erian so succinctly sums up the current environment for investors, it’s about tax, political and regulatory uncertainty.
–TARP, the $700 billion financial bailout program, turned two this week, and it would seem things have turned out a helluva lot better than we all thought way back in the dark days. The Treasury Department is now estimating the losses will only be $50 billion, which is darn good, actually. The thing is you’re not likely to hear any incumbents trumpet the news on the campaign trail. No sirree, Bob. And as much as Treasury Secretary Tim Geithner wants to help his boss in the midterms, thus the timing of the announcement, the vast majority of Americans, especially those going to the polls, won’t care that it worked. Plus, it was a Bush, not Obama, program in the first place. And it is true that while the losses should come in well below initial estimates, TARP did allow the big banks to solidify, and increase, their market share at the expense of the little banks by bailing them out.
And TARP wasn’t just about the banks. It was about bailing out AIG and the auto industry, and on these fronts, while there is a lot of recent optimistic talk the losses here won’t be that steep, either, there could still be sizable ones in both. And then there are the looming losses (part of the $50 billion calculation) as a result of the various housing bailout programs that were initiated, even though this was never the original intent of TARP.
So, yes, you’d be an idiot to run on this…and many an incumbent has already gone down thanks to their votes to support TARP. [See Senator Bob Bennett (R-Utah).]
–Robert J. Gordon is a leading economist out of Northwestern University and he’s also a member of the committee (NBER) that is the official arbiter of the business cycle and when recessions end, such as their recent pronouncement the current one technically ended back in June 2009.
But as noted in BloombergBusinessweek, Gordon is far from an optimist and says that the period from 2007 to 2027 will see the slowest growth for any extended period in our nation’s history.
Among Gordon’s issues, as reported by Bloomberg, “there’s no reason to predict another technological revolution like the Internet boom, which briefly boosted productivity in the early 2000s. Gordon says the past decade has disproved economists who believe that the Net had a ‘magic quality’ that would speed up productivity growth for an extended period. That was a common theme for investors at the time of the tech boom of the late 1990s, when some ‘New Economy’ believers insisted that productivity growth had reached a new, higher plateau. Not so, says Gordon: ‘What we’re going through now is a transformation to smaller devices without a change in the basic idea of computers communicating with each other,’ he says.”
–The Labor Department announced that households in the middle-fifth of the population reduced their annual spending to $41,150 in 2009; down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. And this occurred even as after-tax income remained stable over the two years. [Wall Street Journal]
–The gold story isn’t that complicated these days. The global uncertainty created by the currency war is right up the shiny stuff’s alley. Plus throw in all manner of central bank efforts to reflate their respective economies and, voila, gold does well.
I have been posting the gold price at the end of Week in Review since the beginning of this column, going back to PIMCO days. [Including the latter, it will be 13 years this coming November.] Personally, I played gold for a spell in the mid-90s and did quite well, but during this spectacular decade of positive returns for it, I have had all of about two trades in Newmont Mining, and I only broke even on them.
So I totally missed the run. Such is life. I’m not about to chase it now, and over this time period I’ve had some things of my own that have worked out and I’m still standing, though these days drinking more domestic than premium.
That said, for those now calling for a big correction in gold, and, let’s face it, gold’s fate is in large part tied to the dollar and any significant rally in the greenback would lead to a sizable decline in the precious metal, I’m personally not going to care until I see gold back below $1200. Until then, any declines (like Thursday’s from an early morning high of $1360 to a close of $1335) is one big yawner.
Plus, it’s not like the little guy is really into the trade. Sure, they’re buying coins and such, but this is no mania, sports fans. Which bodes well, one has to think, for the future of it. And until the Obama administration, for one, exhibits some real fiscal discipline (which would help the dollar), the gold bull’s have a good case. I can’t argue with it.
So good for you, Ted Turner (the real Ted Turner, as his friends like to say) and my friends at Strategic Energy Research (who have been touting gold for some time now).
Me? I’m still waiting for my China ship to come in (and I’ve been doing well with a sleeper uranium play).
While I’m rambling, for those of you playing the China stock along with me, as I’ve noted before, all Chinese small caps are suffering these days from the perception that the numbers are cooked. I don’t blame some of the skeptics. I follow a number of these issues and there are accounting items popping up all the time. Maybe I shouldn’t be as confident as I am in my own holding, but after visiting there twice, and having lunch the other day with the CFO, I just think they are doing things the right way and down the road, when confidence returns (and maybe that’s not for another year, year-and-a-half), investors will recognize the value.
[Stephen Roach had some important thoughts on China in Barron’s this week that I’ll cover next time.]
–According to the staff of the National Commission on the BP Deepwater Horizon Oil Spill, appointed by President Obama to investigate the causes of it, the White House was “over-optimistic” in its first assessments of the disaster.
“By initially underestimating the amount of oil flow and then…appearing to underestimate the amount of oil remaining in the Gulf, the federal government created the impression that it was either not fully competent to handle the spill or not fully candid with the American people about the scope of the problem.”
In other words, as I said in those first few weeks, we were being lied to. Plus, when the administration realized that its initial efforts were puny, it overreacted by throwing resources at the spill in general rather than being targeted in an efficient way. I saw that myself in my first trip to Grand Isle and all the boom that was laid out in totally haphazard fashion.
I also said the crime of it all was that the spill should have been attacked aggressively from day one at the source, and valuable weeks were lost as the White House held a circle jerk instead.
Alas, outside the immediate impact zones, this is not the midterm issue it should be. Obama was like a carnival barker during the spill…a carnival barker that needed to be awakened from his initial slumber.
–From Aaron Elstein of Crain’s New York Business…a sign of the times.
“At the height of Wall Street’s deal-making boom in late 2006, David Rubenstein, co-founder of private equity giant Carlyle Group, confidently predicted that within two years, someone would strike a $100 billion leveraged buyout. Last week, another titan of private equity vividly described just how far the industry’s ambitions have shrunk. ‘Nowadays you can do deals of up to $10 billion,’ Blackstone Group President Tony James said a conference…
“Roger Altman, chairman of merger advisers Evercore Partners…said top executives he speaks to still don’t see increased demand for their products. Mr. Altman also observed that lending to small and midsize companies remains depressed: ‘You cannot have a broad recovery with bank credit declining like that, which is a reason why we won’t have a healthy recovery.’”
–ObamaCare is truly the disaster many of us thought it would be. No, I still haven’t had the time to explore options in my own case where my premium rose 19 freakin’ percent, but now some benefits consultants are saying that for many employees, their health plan premiums could be rising up to 30% as insurance companies deal with covering dependents up to 26-year-olds as well as pre-existing conditions of new enrollees and coverage for the currently uninsured. The 30% is on top of already hefty increases put in effect this year.
As for McDonald’s, last week I mentioned how they were going to be forced to shelve low-cost health plans for low-wage employees, but now the administration is exempting such companies so that workers won’t lose coverage.
–Many people are doing what I’m doing these days…renting. The national apartment vacancy rate fell to 7.2% in the third quarter from 7.8% in the second, one of the sharpest drops on record. Rents increased to an average of $980 a unit.
–Former Societe Generale trader Jerome Kerviel was sentenced to three years in prison and ordered to pay his former employer damages in the amount of $6.7 billion. Kerviel maintains the bank and his bosses tolerated his rather substantial risk-taking (bets of up to 50 billion euro!) when he was making money but Soc Gen says no way. Kerviel is currently making about $1,245 a month as a computer consultant, so, rough guess, he’ll pay them off in about the year 448670…at which point one could expect the Cubs to perhaps have won three World Series in the interim…just sayin’.
–Google’s Android software has suddenly passed the iPhone and BlackBerry smartphone operating system platforms. Android, used by manufacturers such as Motorola, and promoted heavily by Verizon and AT&T, has surged to the point where Nielsen says Android passed Apple’s iPhone in sales among new U.S. smartphone buyers for the second quarter.
Overall, BlackBerry still commands 31% of the market, to Apple’s 28%, but Android is already at 19%. [My Palm is at minus 4%, which I didn’t think possible. OK, to be fair, I’m using mine more. It’s growing on me.]
Meanwhile, Verizon Wireless is finally going to sell a version of the iPhone, eagerly awaited by Verizon denizens and ending an exclusive that AT&T had with Apple.
–Russian hackers make up 11 of the 20 arrested in the U.S. on suspicion of working for an international group that stole at least $70 million from bank accounts worldwide, including $4 million or so in the States.
–Last year, experts at the International Energy Agency (IEA) proposed a target for China’s carbon emissions to peak in 2020 before declining if the world were to be saved from devastating climate change. Well, despite all of China’s talk about boosting energy efficiency, figures from BP show that China will steamroll through the IEA’s 2020 peak target next year, almost a decade early.
–Iraq raised its oil reserves estimate by 24% in its first revision since Saddam fell from power, giving Iraq reserves greater than Iran. Seeing as 80% of Iraq’s economy is based on oil, this is significant. But it also means that if Iraq starts producing at far higher levels than it currently is, the pressure on crude prices could be substantial. [Iraq’s current production is 2.5 million barrels per day and its goal is to increase this to 10-12 million barrels in the next five to 10 years.]
–Royal Caribbean’s newest entry in the cruise ship business, the Allure of the Seas, is officially the world’s largest, passing its sister ship Oasis of the Seas by a whopping 5 millimeters. Allure of the Seas can carry 8565 passengers and crew, and has 21 swimming pools and 24 restaurants. You couldn’t pay me to be on this. What a nightmare.
–Finally, Johnny Mac pointed out to me that one small Vietnamese bank is offering a large can of Bitburger Bier for a deposit of about $385. I’m going to be roughly in this region in about ten days so I’m thinking I bop over for happy hour.
Foreign Affairs
Afghanistan: There were more stories this week that the Afghan government was intensifying talks with the Taliban but there are zero signs such talks would meet three criteria for any deal. First, and foremost, is the treatment of women and girls in schools. Second, the Taliban would have to renounce violence and al-Qaeda, and third, accept the Afghan constitution, which goes back to the first topic, women. Further, one key Taliban element, the Haqqani network based in Pakistan’s North Waziristan, is not about to turn and suddenly become peacemakers.
On the ground, a White House report, without the input of generals, paints a very bleak picture, this ahead of the December review by Gen. David Petraeus. Aside from dealing with a corrupt central government, the training of the Afghan police and army is not going well at all.
It all kind of reminds you of the Country Joe and the Fish song from Woodstock:
And its 1, 2, 3 what are we fightin for?
Don’t ask me I don’t give a damn, the next stop is Vietnam…
And then there is….
Pakistan: Eventually, the Pakistanis will reopen the key border crossing NATO uses to ship supplies to Afghanistan, but in the meantime, the worst job in the world these days is being a fuel truck driver. Hundreds of fuel and supply trucks are lined up outside the Af-Pak border, waiting to go in, and they are sitting ducks for the Taliban, which at last word had torched at least 100 of them, including another 30 on Friday.
Pakistan’s intransigence is a result of an accidental NATO air strike that killed two Pakistani border guards, but the problems run far deeper. The above noted White House report states the Pakistani government is not going after the insurgents, showing a lack of will to do so, which is a big reason why the Obama administration has stepped up its CIA drone operation, 26 in the past month alone, the highest tally of the war. 8 German militants were killed in one strike, with at least one of the targets supposedly having something to do with the plot to launch terror attacks in Europe. And the Wall Street Journal reported what many have long suspected, that some members of the ISI, Pakistan’s spy agency, are urging the Taliban to fight the U.S. and NATO in Afghanistan. Pakistan is not happy about the allegations. Said a senior Pakistani official, “Whenever anything goes wrong in Afghanistan, ISI is to be blamed. Honestly, they see ISI agents behind every bush in Afghanistan.”
Well, it’s true! But back to the CIA drone operation, now there is talk it is being viewed by some as yet another war on Islam, and against Pakistan itself. The whole U.S.-Pakistan relationship is on very thin ice.
Israel: The pressure on Prime Minister Benjamin Netanyahu is immense as he struggles to hold onto his coalition while appeasing the U.S. The White House has offered all manner of incentives and security guarantees if Israel will just extend the moratorium on settlement construction 60 more days, during which time borders would be drawn up between Israel and the Palestinians. Once they are settled, then Israel can do whatever it wants on its territory as long as it stops building on what will be defined as the new Palestinian state. But Netanyahu is having trouble keeping his coalition together, including hard-line Foreign Minister Avigdor Lieberman.
But in the latest poll, Israelis support continuing West Bank construction, and not extending the moratorium, by a 54-39 margin.
Meanwhile, some say the White House is giving up too much to gain another 60-day reprieve. But this is the last shot. If negotiations break down, there won’t be further reason to talk until there is a new Israeli government in place, period. I think Obama and Co. are doing the right thing in pressing both parties now and laying all the chips on the table. And on Friday, the Arab League said it would give the White House another 30 days to convince Israel to reinstate the moratorium during talks.
Lebanon: Next week could be a critical one as Iranian President Ahmadinejad visits Lebanon. He is expected to tour the south of the country, the region of “resistance,” as well as resistance memorials. It will be his first visit here since taking office in 2005. Israel has warned Ahmadinejad’s presence will undermine regional stability.
Separately, Parliament Speaker Nabih Berri warned Lebanon was witnessing “intense anxiety” and that the threat of civil strife was spreading; this as Syria issued arrest warrants for 33 people, including senior Lebanese judges and international officials tied to the investigation of Rafik Hariri’s assassination. This is incredible, and distressing. One would certainly think at a minimum that Lebanon’s current prime minister, and son of Rafik, Saad, would think twice now about his recent reconciliation efforts with the Syrians.
One analyst at the American University in Beirut told Agence France Presse:
“The situation has taken a dangerous turn and the arrest warrants can be likened to a pressure cooker that has had its lid blown off. There is really noting to stop things from escalating further…it’s clear that the Syrians want the Lebanese government to discredit (the Special Tribunal for Lebanon) and to stop cooperating with the court.”
Hizbullah wouldn’t want to do anything stupid while Ahmadinejad is in country, but look out afterwards.
Iran: Syrian President Bashar Assad paid a visit to Tehran and together with Ahmadinejad, pledged to support “resistance” in the region, an obvious reference to the Palestinian situation and others opposing Israel. The trip came just two weeks after Ahmadinejad traveled to Syria, which doesn’t give the United States a warm, fuzzy feeling seeing as the White House is trying to pry Assad away from Iran.
Iraq: Despite securing the support of Moqtada al-Sadr, attempts by Prime Minister Nuri al-Maliki to form a new government could still be months away, especially if the Kurdish alliance doesn’t come around; the Kurds very wary of any coalition that doesn’t honor its demands of autonomy.
But on Thursday, Ayad Allawi, who was the top vote-getter in the March elections, said he had restarted power-sharing discussions with Maliki. Seeing as Maliki’s bloc with Sadr is almost all Shiite, and Allawi’s is 3/4s Sunni, this could be good. But Allawi has all kinds of demands, such as what happens to the oil revenues, that Sadr, more than Maliki, may not go for.
China: Some good news…Defense Secretary Robert Gates is to meet with his Chinese counterpart this week at a security conference in Vietnam. These would be the first talks in 10 months since China canceled all discussions and visits as a way of protesting Washington’s arms sales to Taiwan. There is also talk of Gates visiting Beijing, but not until next year. He should be there in a few weeks! This isn’t about groveling. It’s about avoiding a catastrophic mistake on the South China Sea, for one.
Separately, China has voiced its support for North Korea’s new leadership structure, which while not unexpected is nonetheless important. It certainly makes it easier for Kim Jong Un to consolidate his power in preparation for his father’s pending death.
[South Korea’s Internet community has one overriding question about the new leader. How did he get so fat when his country is starving?]
And on the nuclear front, South Korean officials are confirming that the North has resumed all operations at its Yongbyon facility, including enriching uranium. A security advisor to South Korean President Lee said, “Their nuclear program is evolving even now at a very fast pace.”
[One other note on China. Needless to say they are none too pleased Liu Xiaobo, a dissident recently sentenced to 11 years in prison, won the Nobel Peace Prize. Nope, China is pissed.]
Japan: Ruling party kingmaker Ichiro Ozawa has been indicted over alleged misrepresentations in a controversial land deal and the pending trial could lead to more instability in the DPJ. Just last month, almost half the party members backed Ozawa against Naoto Kan, the prime minister. Kan’s approval rating is falling fast over his handling of the fishing vessel dispute with China, from 64% to 49% in one month. The majority believes Kan caved to China’s demands to release the captain, even though it is believed he purposefully hit the two Japanese patrol boats. [For its part, at least China did release the last of four Japanese contractors it had taken in retaliation.]
Hungary: Talk about an environmental disaster, a reservoir of toxic red sludge, a byproduct from an aluminum plant, somehow broke through and raced into a number of villages, killing at least seven, destroying all life in one river, and eventually found its way into the River Danube, which flows downstream through Croatia, Serbia, Romania, Bulgaria, Ukraine and Moldova. The first reports of dead fish are coming in on the Danube, though it’s hoped the vast volumes of water in the river will dilute the sludge. The company responsible for the spill claims the sludge isn’t even categorized as hazardous waste by the EU.
Russia: As Prime Minister Vladimir Putin turned 58 this week, sacked Moscow mayor Yuri Luzhkov vowed to form a political movement to fight for democracy in Russia, calling the national parliament “a puppet” of the Kremlin.
“Our society today is governed by undemocratic laws and our society has degenerated, degenerated quite seriously in all spheres,” he told a British publication. Luzhkov claims he was sacked by President Medvedev as part of plans to control the vote in the 2012 presidential election.
Brazil: President Lula’s hand-picked successor, former Marxist guerrilla Dilma Rousseff, didn’t quite get the 50% needed to avoid a run-off slated for Oct. 31, which she is expected to win handily seeing as she got 46.7% of the vote in round one to 32.7% for her opponent, Jose Serra. It was the Green Party candidate’s success, at 19.4%, that presented Rousseff from getting an immediate victory. Neither she or Serra is seen deviating from Lula’s successful mix of social programs and investor-friendly policies that have made him a success story, as well as the Brazilian economy.
Britain: I like what Prime Minister David Cameron said at a Tory party conference the other day.
“Society is not a spectator sport. This is your country. It’s time to believe it. It’s time to step up and own it.
“Mine is not a vision of a more powerful country. It’s a vision of a more powerful people…People that believe in themselves, a Britain that believes in itself.”
Yes, Cameron is trying to steel the people for the battle ahead, the fierce budget cuts to come.
Iceland: There was another round of massive protests in this otherwise peaceful nation over the government’s handling of the debt crisis following the 2008 bank meltdown. Recall, in Iceland mortgage debt was tied to inflation and as inflation is rising, so does the mortgage balance. Of course at the same time the value of homes here has cratered and what is needed is a big mortgage writedown or this country will devolve into pure chaos. That appears to be where the government is headed. Iceland’s economy contracted at an annualized 8.4% rate in the second quarter, after shrinking 6.8% in 2009, when I was there, doing my best to pump things up through the purchase of premium.
Random Musings
–A Gallup Poll underscored the “enthusiasm” advantage for Republicans heading into the midterm election. While in this survey, Republicans only had a 3-point advantage when looking at a generic congressional ballot among registered voters, it grows to 18 points, 56-38, when looking at likely voters.
In the 1994 midterms, the GOP held a 12-point advantage when Gallup moved to its likely-voter model in mid-October. By Election Day the gap had narrowed to 7 points, which was enough for Republicans to win back the House and Senate.
However, a Washington Post-ABC News poll has Republicans favored among likely voters by only a 49-43 margin. This was the one that lit up eyes a month ago when the margin was 53-40.
–An AP-GfK poll shows whites without four-year college degrees preferring Republican candidates by twice the margin of the last two elections, when Democrats made significant gains in the House and Senate. This group now favors Republicans hopefuls 58% to 36%. In 2008, they favored Republican congressional candidates by 11 points.
–Donald Trump said this week, “For the first time in my life, I’m actually thinking about it,” a run for the presidency, that is. “I see what’s going on with this country and it’s never been worse.” Trump’s supporters have been doing some polling in New Hampshire. Run Donald. Let’s have some fun.
–Victor Davis Hanson / New York Post…on will Obama be a Carter or Clinton the next two years?
“Most likely, he’ll stick to his liberal orthodoxy – but in a way unlike Carter. Yet, like Clinton, Obama may still have a good chance of reelection.
“Here’s why: Banks, corporations and small businesses are sitting on trillions of dollars from two years of low interest rates, a rebounding world economy and huge cutbacks and downsizing. But they’ll stay on the sidelines as long as they’re unsure of the costs of ObamaCare and a proposed federal income-tax hike. Anti-business and anti-wealth diatribes from Obama make them even more skittish.
“Yet, if the Republicans regain the House, the Obama redistributive agenda will stall. That will give far more certainty to the business cycle, and probably provide the psychological lift for businesses to start hiring and buying.
“In a weird way, by losing the Congress, Obama may see the economy rebound – a turnabout for which he’ll take credit, despite the failure of his earlier big borrowing schemes, which will seem like ancient history by 2012.
“Without Democratic congressional majorities, he’ll also have to agree to vast budget cuts, as Republicans try to stave off fiscal insolvency.
“Again, Obama can let the GOP Congress take the hit for the unpopular pruning of entitlements, even as he points to a more encouraging balance sheet. In a Zen way, he’ll allow Republicans to restore financial sanity to his administration, even as he blasts them for cutting programs and hurting the needy.”
–I read the Stephen Hayes piece for The Weekly Standard on South Dakota Republican Senator John Thune and I’m sold. He’s making waves about running for president (it’s virtually a lock he will…and, remember, Iowa is a neighbor), so I’m putting him in my own top three (which will probably change a hundred times between now and Nov. 2012); Haley Barbour, Mitch Daniels, and Thune.
–Delaware Republican Senate candidate Christine O’Donnell premiered her new ad and told us “I’m not a witch…I’m nothing you’ve heard. I’m you. None of us are perfect.”
Good lord, girl. Don’t lump me with you!
In a 2006 Delaware Senate primary debate (O’Donnell lost the election ), she said China had a “carefully thought out and strategic plan to take over America” and accused one of her opponents of appeasement for suggesting the two countries were economically dependent and needed to find ways to be allies. “That doesn’t work,” said O’Donnell then. “There’s much I want to say. I wish I wasn’t privy to some of the classified information that I am privy to.”
Hmmm. Come to think of it, there do seem to be an awful lot of Chinese restaurants opening up in my area.
–New Jersey Gov. Chris Christie is catching heat in some quarters for his decision to shelve a new train tunnel between New Jersey and Manhattan. It’s badly needed, everyone knows this, and it is the largest federal transportation project in the country, with $800 million having already been spent. But Christie’s point is that New Jersey’s contribution, $2.7 billion, will only go up as the costs soar and the state can‘t afford it.
For example, in 2005 the project was estimated at $5 billion, with New Jersey sharing the costs with the Port Authority of New York and New Jersey, as well as the federal government. But today the estimate is up to $9 to $10 billion, and is destined to go higher still.
Christie wants to shift the money to state and local transportation projects, while at the same time refusing to raise New Jersey’s low gasoline tax. But as I go to post, Christie has had a meeting with Transportation Secretary La Hood and they‘ve agreed that Christie won‘t make any final decisions for two weeks while the governor weighs options presented to him.
–Kathleen Parker / Washington Post…on the suicide of Rutgers student Tyler Clementi.
“Was it a hate crime or simply a stupid prank that once would have been inconceivable? It was surely an act of unforgivable bullying. Should the alleged perpetrators be prosecuted for invasion of privacy, with which they have been charged, and/or a hate crime?….
“How did we get here? How could anyone think that another’s most private, intimate moment was fair game?….
“The emergence of social media, combined with mass access to technology – camera-equipped cellphones, pocket-size video cameras and blogospheric distribution – has enabled an insatiable market for spying and gossip. The result has been a cultural breakdown in decency and a blurring of the boundaries of what should be private and public….
“There once was a time when respecting others’ privacy was a matter of manners. Of course, it was also considered bad manners to display oneself – or one’s affections – in public. Some call it Puritanism. I call it civilization.
“Too late, you say? Not at all. We have a model for this sort of thing. There was a time when many Americans commonly smoked cigarettes in public. Some of us didn’t like it; it was bad for health and bad for society. Few smoke in public spaces today, in part because laws prohibit it but also because smokers were made to feel ostracized. They were targeted as pariahs.
“Whether or not you agree with the anti-smoking movement, you can concede that it worked. Why not apply the same template to those who would invade another’s space? We don’t want to outlaw cameras or otherwise limit free expression, but we can certainly make it unattractive and unacceptable to intrude on others. Next time someone takes your picture or posts it on the Internet without your permission, raise the roof. Point a finger. Stand athwart civilization and yell, ‘No more.’
“When others are victimized by another’s lack of scruples, be outraged. And never publish or distribute images of anyone without his or her permission.
“It’s the least we can do – and not do – for Tyler Clementi.”
–The Times Square bomber, Faisal Shahzad, received the maximum life in prison for his failed attempt to kill innocents, and then proceeded to give a 10-minute anti-American rant in court. In part:
“Brace yourselves, because the war with Muslims has just begun. Consider me only a first droplet of the blood that will follow me.”
See above story on Pakistan. Let’s just hope those to follow are as inept as Shahzad was.
–And then there is the case of monster home invader Steven Hayes, who three years ago, broke into the home of Connecticut Dr. William Pettit, and, with an accomplice, unleashed a reign of terror, including rape and fire, that left Pettit’s wife and two daughters savagely murdered. Dr. Pettit was sleeping and clubbed with a baseball bat in the head, nearly killing him before the attackers turned their fury on the mother and kids.
This week Hayes was found guilty on 16 counts and faces the death penalty when he’s sentenced in about a month. Dr. Pettit, an incredible example of courage throughout the whole ordeal, including the trial, said afterwards, “Good will overcome evil.” Pettit had urged prosecutors to accept no deal that would have spared Hayes, and still-to-be-tried co-defendant Joshua Komisarjevsky. Anyone who knows the facts says the same thing. The two should die.
But then when push comes to shove, so often in our country, with all the different state laws, we wimp out. The death penalty should be expanded, not abolished, and we shouldn’t give a damn what other countries say. All my life I have never understood those who are against capital punishment. Of course as a Catholic this puts me at odds with my church…so be it.
–In the most extensive survey of its kind, the Census of Marine Life looked for the first time at the history of exploitation of the oceans and the report is awful. On average, large fish and marine mammals have declined by 90% since records began.
But while endangered species include the blue whale and sea turtles, the study also found a decline in phytoplankton, the microscopic creatures that live in the bottom of the ocean and sustain much of the seafood eaten by humans.
The census involved more than 2,700 scientists in 80 countries. Ron O’Dor, a senior scientist on the project, said mankind’s greed has had a catastrophic effect on the ocean and every mammal, shellfish or large fish that was used by humans is now in danger of dying out. “There are only a few areas of the world where oceans are non-impacted by humans.”
At least in the course of doing the survey, scientists discovered 6,000 new species, including a hairy “yeti crab” and a 20-foot squid. It would be kind of cool if they’d discover a 200-foot squid, not that I’d want to be around when the monster attacked the research vessel.
–Lastly, a public thanks to my parents. I arrived in Winston-Salem on Friday afternoon and the weather is just gorgeous. In hitting the campus my first thought was, thank you, Mom and Dad, for letting me go to Wake Forest. It’s just beautiful.
Oh, they wanted me to go elsewhere, closer to “home,” Pittsburgh, where my relatives would supposedly watch over me, and one of the schools there I had been accepted into, but they left it up to me. And so I loved my four years at Wake Forest, even if I did almost drag it out into a fifth one. I can’t say I applied myself anywhere near the level I should have, but I did learn a lot and made some great friends. Now if only the football and basketball teams would win more.
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Pray for the men and women of our armed forces, and all the fallen.
God bless America.
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Gold closed at $1345
Oil, $82.66…volatile week for crude
Returns for the week 10/4-10/8
Dow Jones +1.6% [11006]
S&P 500 +1.6% [1165]
S&P Madcap +0.9%
Russell 2000 +2.1%
NASDAQ +1.3% [2401]
Returns for the period 1/1/10-10/8/10
Dow Jones +5.5%
S&P 500 +4.5%
S&P Madcap +11.7%
Russell 2000 +10.9%
NASDAQ +5.8%
Bulls 45.6
Bears 28.3 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
