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10/08/2005
For the week 10/3-10/7
[Posted 7:00 AM ET]
The War on Terror
President George W. Bush, Oct. 6, 2005
“The images and experience of September the 11th are unique for
Americans. Yet the evil of that morning has reappeared on other
days, in other places .In the past few months, we’ve seen a new
terror offensive with attacks on London, and Sharm el-Sheikh,
and a deadly bombing in Bali once again. All these separate
images of destruction and suffering that we see on the news can
seem like random and isolated acts of madness; innocent men
and women and children have died simply because they boarded
the wrong train, or worked in the wrong building, or checked into
the wrong hotel. Yet while the killers choose their victims
indiscriminately, their attacks serve a clear and focused ideology,
a set of beliefs and goals that are evil, but not insane.
“Some call this evil Islamic radicalism; others, militant Jihadism;
still others, Islamo-fascism. Whatever it’s called, this ideology is
very different from the religion of Islam. This form of
radicalism exploits Islam to serve a violent, political vision: the
establishment, by terrorism and subversion and insurgency, of a
totalitarian empire that denies all political and religious freedom.
These extremists distort the idea of jihad into a call for terrorist
murder against Christians and Jews and Hindus – and also
against Muslims from other traditions, who they regard as
heretics .
“First, these extremists want to end American and Western
influence in the broader Middle East, because we stand for
democracy and peace, and stand in the way of their ambitions .
“Second, the militant network wants to use the vacuum created
by an American retreat to gain control of a country, a base from
which to launch attacks and conduct their war against non-radical
Muslim governments .
“Third, the militants believe that controlling one country will
rally Muslim masses, enabling them to overthrow all moderate
governments in the region, and establish a radical Islamic empire
that spans from Spain to Indonesia. With greater economic and
military and political power, the terrorists would be able to
advance their stated agenda: to develop weapons of mass
destruction, to destroy Israel, to intimidate Europe, to assault the
American people, and to blackmail our government into
isolation .
“Defeating the militant network is difficult, because it thrives,
like a parasite, on the suffering and frustration of others. The
radicals exploit local conflicts to build a culture of victimization,
in which someone else is always to blame and violence is always
the solution. They exploit resentful and disillusioned young men
and women, recruiting them through radical mosques as the
pawns of terror. And they exploit modern technology to multiply
their destructive power .
“The influence of Islamic radicalism is also magnified by helpers
and enablers. They have been sheltered by authoritarian regimes,
allies of convenience like Syria and Iran, that share the goal of
hurting America and moderate Muslim governments, and use
terrorist propaganda to blame their own failures on the West and
America, and on the Jews .”
[On Iraq]
“Some observers question the durability of democracy in Iraq.
They underestimate the power and appeal of freedom .We’ve
heard it said that the Shia, Sunnis and Kurds of Iraq are too
divided to form a lasting democracy. In fact, democratic
federalism is the best hope for unifying a diverse population,
because a federal constitutional system respects the rights and
religious traditions of all citizens, while giving all minorities,
including the Sunnis, a stake and a voice in the future of their
country .
“There’s always a temptation, in the middle of a long struggle, to
seek the quiet life, to escape the duties and problems of the
world, and to hope the enemy grows weary of fanaticism and
tired of murder. This would be a pleasant world, but it’s not the
world we live in. The enemy is never tired, never sated, never
content with yesterday’s brutality. This enemy considers every
retreat of the civilized world as an invitation to greater violence.
In Iraq, there is no peace without victory. We will keep our nerve
and we will win that victory .
“With the rise of a deadly enemy and the unfolding of a global
ideological struggle, our time in history will be remembered for
new challenges and unprecedented dangers. And yet the fight
we have joined is also the current expression of an ancient
struggle, between those who put their faith in dictators, and those
who put their faith in the people. Throughout history, tyrants and
would-be tyrants have always claimed that murder is justified to
serve their grand vision – and they end up alienating decent
people across the globe. Tyrants and would-be tyrants have
always claimed that regimented societies are strong and pure –
until those societies collapse in corruption and decay. Tyrants
and would-be tyrants have always claimed that free men and
women are weak and decadent – until the day that free men and
women defeat them.
“We don’t know the course of our own struggle – the course our
own struggle will take – or the sacrifices that might lie ahead.
We do know, however, that the defense of freedom is worth our
sacrifice. We do know the love of freedom is the mightiest force
of history. And we do know the cause of freedom will once
again prevail.”
The president’s speech was a titanic one, deserving of this
extensive coverage particularly since few actually witnessed it.
It’s also one that should have been given years ago. I have
blasted our leader for the long stretches where he was AWOL,
where he not only failed to provide the leadership our nation was
crying out for since the invasion of Iraq, but also failed to make
changes in a post-war operation that from the first hours went
immediately downhill. We all are paying a price, including the
families of those who with better planning and execution may
not have been burying loved ones.
But following are three disparate comments, from across the
spectrum, that help sum up the political divide in America these
days.
Senator Edward Kennedy: “The president seems to be saying
‘full speed ahead’ for our current failed policy in Iraq, when it is
abundantly clear that staying the course is the wrong course for
America. The administration’s policy has made Iraq a breeding
ground for terrorism, which it was not before the war, and the
American people know it. His policy has isolated America in the
world, created more recruits for al-Qaeda, and made it harder not
easier to win the war on terror.” [Financial Times]
New York Times columnist Thomas Friedman: “The president’s
speech on terrorism yesterday was excellent. He made clear,
better than ever, why winning in Iraq is so important to the wider
struggle against Islamo-fascism. But it only makes me that much
more angry that he fought this war as though it would be easy –
never asking for any sacrifice, any military draft, any tax hikes or
any gasoline tax – and that he tolerated so much incompetence
along the way.”
New York Post columnist John Podhoretz: “The war on terror
has always been an imprecise term, a vague placeholder for the
real name of the conflict into which we have been unwillingly
plunged. In a landmark speech President Bush made it plain
for the first time, really, that our enemy is not ‘terror’ per se but
something far more complex and therefore far more difficult to
defeat .
“It is the signal rhetorical accomplishment of his second term,
and unmistakable evidence that despite its recent political
troubles, the Bush administration remains steadfast and
implacable on the need to secure victory in Iraq for the sake of
the security of the United States and the West.”
I imagine most of you fall somewhere within the above
comments. But while you can argue about the past, it’s now all
about October 15 and the referendum in Iraq on the new
constitution.
Earlier in the week, the Shia-Kurd alliance ruled that for the
purposes of calculating whether or not the constitution was
defeated, 2/3s of all ‘registered voters,’ not just those who
actually participate, would have to vote ‘no’ in 3 of the 18
provinces. So say 67 of 100 who cast a ballot voted it down but
there were 150 registered voters; it would have still passed under
this rule.
Of course lowering the bar in such a manner was outrageous, and
spoke volumes about this beautiful ‘democracy’ we’ve created,
but 24 hours later the National Assembly gave into pressure from
both the UN and United States; thus reverting to the old rules of
2/3s of those showing up.
But if that wasn’t bad enough, last weekend the Kurdish
president, Talabani, was calling for the Shia prime minister, al-
Jaafari, to step down.
Meanwhile, the U.S. is contemplating bombing villages 3 or 4
miles inside Syria that are harboring insurgents. You may be
surprised to see me say this, but I hope we don’t. Such a move
would require perfect intelligence and we proved on more than
one occasion we don’t have that when it comes to bombing runs.
The better move here is to wait just another two weeks for the
UN / Detlev Mehlis final report on the assassination of
Lebanon’s Hariri. Assuming it points a finger at President
Assad, or his closest intimates, the U.S. would then have all the
ammunition it needs to act with full force if Assad didn’t
cooperate.
But as President Bush noted in his speech, it’s not just Syria, it’s
also about Iran and here Britain is carrying our water as it blasted
Tehran this week for its clear complicity in the deaths of British
soldiers in the south of Iraq. Since the start of the war, Iran’s
Revolutionary Guards have been infiltrating the region, doing all
they can to train the insurgents and foment violence. And to top
it off, they’re playing both sides of the Sunni – Shia conflict as
that best serves their purposes in making life difficult for the
Americans.
For now, though, it’s time for the referendum. Your guess is as
good as mine on what the end result will be.
Wall Street
Week in Review, 12/31/04
“Visible signs of a slowdown, owing to a rapidly deteriorating
global economic outlook, will appear by the summer and by year
end most will admit the world economy is entering a recession.
Deflation, not inflation, will become the watchword, though we
could have one last inflation scare beforehand.”
Well, I’m off on the timing of the slowdown, perhaps, but we’re
getting our inflation scare, that’s for sure, yet I still say deflation
is the watchword later on. The economy is in the process of
flipping, in no small part because real estate has peaked.
PIMCO’s Bill Gross had the following comments on the sector
in his latest newsletter on pimco.com.
“1) Housing prices will cool / stop going up very much / even go
down in some cities, WHEN
a. Interest rates rise to a high enough level to make the purchase
of a new home a burden instead of a boon for first time buyers.
b. Mild regulatory pressure begins to reduce the amount of
funny-money lending.
c. Speculators sniff the beginning of the end.
2) Home equitization should retreat shortly thereafter.
3) Consumption / the U.S. economy will then weaken when the
house ATM starts running out of fresh new $25,000 / $50,000 /
$100,000 home equity loan dollar bills.
4) The Fed will cut interest rates in order to start the game all
over again.
“Let me state categorically that the above sequence is barely
questionable, almost inevitable, 99% unavoidable, and in modern
parlance – ‘slam dunk.’
“How weak the U.S. economy gets will depend on numerous
factors: oil / natural gas prices, China’s continuing growth
miracle, and of course the level of U.S. interest rates –
themselves a function of the Fed and foreign willingness to buy
our Treasury and corporate bonds. But make no mistake about it,
the froth in the U.S. housing market is about to lose its
effervescence; the bubble is about to become less bubbly. If real
housing prices decline in the U.S. in 2006 or 2007, a recession is
nearly inevitable. If higher yields simply slow the pace of
appreciation to a more rational single digit number, then we
could escape with a 1-2% GDP economy.”
I say recession.
But back to the inflation scare, this week various Federal Reserve
governors spoke out on the topic and while most weren’t as blunt
as Richard Fisher, who said the “inflation virus” can’t be allowed
to “poison the system,” it’s all too clear the Fed is going to keep
raising rates and in so doing help tank the economy.
The Fed was spooked this week by significant increases in the
‘prices paid’ component of both the latest ISM manufacturing
and services industry data. And while these surveys were up,
overall, in terms of economic activity, the one on the service
economy wasn’t up as much as expected and thus a bit of a
downer.
But many of the experts focused on the high level of activity,
particularly in manufacturing and post-Katrina, and averred that
the issue of rising unit labor costs is a real one. They also point
to the fact that a few companies, such as Federal Express, are
beginning to pass on the higher costs for energy and raw
materials.
They couldn’t be more wrong. In the old days, before the global
marketplace got really cranking, companies could pass on costs
of all kinds and the consumer had no recourse. Today, it’s
different. As the economy slows, companies will be rescinding
their price increases, helped along by the fact energy costs in a
slowing environment would also be falling as well as the
dampening effect on prices from competitors overseas.
And speaking of energy, when the history of this cycle is written
it will be abundantly clear that, indeed, $60 was finally the
tipping point. Some of us were way off, saying it could be $40
or $50 but $60 did the trick. Demand is falling as many
throughout the world cut back. But that doesn’t mean you’re
going to catch a break this winter with your fuel bill. We’re still
above $60 on crude and $13 on natural gas, and in the case of the
latter expect it to shoot back up with the first cold snap that grips
the Midwest and Northeast.
Lastly, switching gears but still very much on the topic of the
global economy, we have the issue of avian flu which the White
House has belatedly decided to start planning for. Here’s the
bottom line. If the H5N1 virus doesn’t mutate to the point where
it can be spread from human to human for at least another two
years, we just may dodge a bullet, assuming substantial amounts
of vaccine can be produced. But if it hits beforehand, Katy bar
the door.
Here are a few excerpts from a piece I did on bird flu for my
“Hott Spotts” column, 7/28/05, that address the issue of vaccines.
The comments, unless otherwise noted, are those of Laurie
Garrett, Senior Fellow for Global Health at the Council on
Foreign Relations. Ms. Garrett wrote the definitive piece on this
subject for the July / August 2005 issue of Foreign Affairs.
“The scarcity of flu vaccine, although a serious problem, is
actually of little relevance to most of the world. Even if
pharmaceutical companies managed to produce enough effective
vaccine in time to save some privileged lives in Europe, North
America, Japan, and a few other wealthy nations, more than six
billion people in developing countries would go unvaccinated.
Stockpiles of Tamiflu and other anti-influenza drugs would also
do nothing for those six billion, at least 30 percent of whom –
and possibly half – would likely get infected in such a
pandemic.”
“In the event of a deadly influenza pandemic, it is doubtful that
any of the world’s wealthy nations would be able to meet the
needs of their own citizenry – much less those of other countries
Every year, trusting that the flu will kill only the usual risk
groups, the United States plans for 185 million vaccine doses. If
that guess were wrong – if all Americans were at risk – the
nation would need at least 300 million doses. That is what the
entire world typically produces each year.
“There would thus be a global scramble for vaccine. Some
governments might well block foreign access to supplies
produced on their soil and bar vaccine export. Since little
vaccine is actually made in the United States, this could prove a
problem for America in particular.”
And then you have this scenario.
“In the event of a modern pandemic, the U.S. Department of
Defense, with the lessons of World War I in mind, would
undoubtedly insist that U.S. troops in Iraq and Afghanistan be
given top access to vaccines and anti-flu drugs. About 170,000
U.S. forces are currently stationed in Iraq and Afghanistan, while
200,000 more are permanently based elsewhere overseas. All of
them would potentially be in danger: in late March, for example,
North Korea conceded it was suffering a large-scale H7N1
outbreak [slightly different from H5] – taking place within miles
of some 41,000 U.S. military forces.”
A true pandemic would have a devastating impact on
international relations, let alone the global economy.
“With death tolls rising, vaccines and drugs in short supply, and
the potential for the virus to spread further, governments would
feel obliged to take drastic measures that could inhibit travel,
limit worldwide trade, and alienate their neighbors.”
And this, from Michael Osterholm in the same issue of Foreign
Affairs (as well as “Hott Spotts”).
“The population explosion in China and other Asian countries
has created an incredible mixing vessel for the virus. Consider
this sobering information: the most recent influenza pandemic, of
1968-69, emerged in China, when its population was 790
million; today it is 1.3 billion. In 1968, the number of pigs in
China was 5.2 million; today it is 508 million. The number of
poultry in China in 1968 was 12.3 million; today it is 13 billion.
Changes in other Asian countries are similar. Given these
developments, as well as the exponential growth in foreign travel
over the past 50 years, an influenza pandemic could be more
devastating than ever before.”
Finally, there was an interesting piece in the South China
Morning Post concerning Hong Kong’s own preparations. Dr.
Thomas Tsang Ho-fai of the Centre for Health Protection said
the worst case scenario is 15 percent, or about 1 million people,
could get sick; basing his prediction of an eight-week pandemic
duration on the 1968 Hong Kong flu pandemic. “The number of
people falling ill would peak about four to five weeks after the
first cases appeared, then gradually subside through the eighth
week. A second flu wave could follow in 12 months, he added.”
[Mary Ann Benitez / SCMP]
Tsang said quarantine and isolation would work in the early
phases, but
“Once past a certain stage where the attack rate hits 5-10 percent
[of the population], then there is no way you can quarantine so
many people. It is unmanageable,” he said.
“In those circumstances, basic hygiene – hand-washing, wearing
masks, increasing social distance so that schools will be closed,
public functions will not take place, people will stay at home –
may delay the spread of pandemic flu.
“I would envisage a lot of societal activities will come to a close,
maybe some companies will cease operations altogether.”
Dr. Tsang said that once H5N1 picked up the ability to spread
efficiently between humans, “it will be a totally different ball
game. There may not be any way to stop it completely. So
unlike SARS, where you can bring it to a close, there may not be
a way to interrupt transmission of this novel influenza strain.
Under those circumstances, the main focus would be to reduce
morbidity and mortality, at least try to delay its spread but not
entirely interrupting it.
“By delaying its spread we may be able to buy time for the
vaccine to come along. The vaccine will be the only ultimate
weapon to stop transmission.”
But U.S. expert Dr. Henry Niman warned that vaccines would
only be marginally useful. If, as was discovered this week, the
H5N1 strain was similar to the 1918 H1N1 virus, today’s could
be much worse.
So exercise, if you aren’t already, because you want to build up
your immune system, get plenty of rest (personally, I’m dead
there) and wash your hands about 63,000 times a day, though be
careful with the anti-biotic soap because ..oh, never mind.
Street Bytes
--An ugly, ugly week on the Street as the major averages
suffered through their worst stretch in months, with the Dow
Jones, S&P 500, and Nasdaq all falling 2.6 to 2.9 percent. Many
key technical levels were smashed and it’s a dicey time for
equity investors.
The news actually wasn’t all bad, with chain store sales for the
month of September by the likes of Wal-Mart and Target better
than many expected, while falling fuel prices and heavy
passenger loads bucked up the airlines, but those same declines
in energy prices led to a mini-bloodbath in the market’s leaders
for ’05, the stocks in the oil & gas sector.
No, instead the market was spooked by the aforementioned
inflation fears and a Fed that couldn’t care less Christmas is
around the corner.
--U.S. Treasury Yields
6-mo. 3.99% 2-yr. 4.17% 10-yr. 4.35% 30-yr. 4.57%
Rates were actually little changed on the week as the bond
market handled the hawkish Fed talk and prices paid data far
better than the stock market did. The next Fed meeting is
Nov. 1, at which time the funds rate will hit 4.00%. Good for
those of us with money market accounts and CDs, however.
*The employment report for September, released Friday, was a
sham as the Bureau of Labor Statistics had no clue how to
calculate the impact of Katrina and Rita. The markets
recognized this. Next one should be more realistic.
--The Wall Street Journal had a rather depressing piece titled
“Financial crisis deepens in the Gulf.” As you can imagine,
bankruptcy filings are soaring in Louisiana and Mississippi as a
result of Katrina and Rita. The average payment from FEMA is
$3,100, so think of the plight many find themselves in.
“A family relying on a teacher’s salary or a city employee’s
salary is solidly middle class as long as that money’s coming in,”
said Elizabeth Warren, a Harvard Law School professor. “When
it’s cut off, they’re committed to financial obligations that will
quickly turn them upside down.”
It also doesn’t help that small business loans aren’t “moving into
people’s hands very quickly,” as borrowers are asked to show
proof of insurance, building permits and the like that may have
been destroyed.
--Update on the OSX and XOI energy indexes.
At the close on 9/29/05
OSX .178.64
XOI ..1091
At the close on 10/6/05
OSX .159.42
XOI 975
In just five days, a loss of 9% on each. They did both rally on
Friday, 10/7, to 162.22 and 996, respectively.
--Here are some important highs on the futures contracts, for
those of you playing along at home.
Oil, $70.85 [8/30/05] .$61.84, 10/7
Gasoline, $2.92 [8/31/05] .$1.82, 10/7
Natural gas, $14.80 [9/28/05] .$13.22, 10/7
[But don’t think of the highs before you go to bed. They’re
guaranteed to produce some wicked nightmares.]
--According to the IMF, energy producers are spending just 36%
of their additional oil revenue these days, compared to nearly
90% in the 1970s and more than 60% in the 1980s. This should
be viewed as a good sign since in the past the funds were wasted
on toys for the sheiks, rather than on planning for the future and
aiding their people. The oil-exporting nations are expected to
earn $383 billion from overseas sales of oil and gas in 2005.
[Wall Street Journal]
--More on the peak in real estate. In various pieces I came across
I couldn’t help but notice that at least 40,000 condominium units
are planned for both the Washington, D.C. and Las Vegas
markets, far outstripping expected demand. And in Manhattan,
the average sales price of an apartment (condo / townhouse / co-
op) was off 13% in the third quarter, while the amount of time a
unit is on the market has increased substantially. Inventories are
also rising rapidly in Boston and much of California.
--Hewlett-Packard is slashing up to 3,000 jobs in France, which
has become a huge political issue. Tuesday saw massive public
strikes in Paris (I’m assuming the museums were also closed
any excuse for a day off here, you understand) as President
Jacques Chirac blamed the European Commission for not doing
enough to prevent the layoffs. Well, that’s not necessarily the
EU’s job, monsieur.
--What the EU is involved in, however, is a long-simmering
trade dispute with the United States primarily concerning
subsidies to the airline industry. The World Trade Organization
ruled against a U.S. appeal the other day on tax breaks given to
the likes of Boeing. Washington, in turn, charges the EU with
granting Airbus vast subsidies. But with the WTO decision, the
EU is now threatening $4 billion in sanctions. To be continued.
--Reminder if you feel like declaring for bankruptcy, the new
law making it harder to wipe out your debts goes into effect Oct.
17, but good luck finding an attorney to help you out. They’re
swamped.
--Auto sales for GM and Ford were dreadful in September, down
24 and 19 percent, respectively, due almost solely to their
reliance on SUV sales which are plummeting. On the other
hand, DaimlerChrysler’s were up 4%, while Honda’s rose 12%
and Toyota’s 10%.
Meanwhile, GM spin-off Delphi, the world’s largest auto parts
supplier, is filing for bankruptcy as it seeks to overhaul its
pension and medical benefits plans. But Delphi, which makes
things like air bags, is also requesting that its 50,000 employees
take huge pay cuts. Try from $27 an hour to $10-$12. For its
part, GM still pays many of the benefits for Delphi retirees and
it’s a big reason why GM remains on credit watch, while S&P
lowered Delphi to super “junk” status as in toxic.
And lastly, GM sold off its 20% stake in the manufacturer of
Subaru, thereby throwing in the towel on this one. Toyota will
now pick it up and turn it around, I imagine.
--Merck’s Gardasil drug was said to be 100% effective in short-
term prevention of cervical cancer. But late Friday, shares in
Merck fell to $26 on word a New Jersey judge is disallowing
testimony given by a Merck scientist in the latest Vioxx trial.
It’s devastating for Merck and the judge did not hold back in her
disdain for the drug maker’s attorneys.
--Inflation update: Mark R. was raging all week about his
groceries going up 15-20% and his plumber hiking rates 18%.
But, he does nonetheless believe that deflation is the real story
down the road. Another convert to the ‘flip camp.’
--Back when I was in college, the late 1970s, I don’t recall any of
my friends having a credit card. I know I sure as heck didn’t
(and thank god for that .. “Free beer for everyone tonight!”).
But I saw this blurb in The Atlantic Monthly that startled me. In
their 4th year of studies, the average student today has 5.07 cards.
Goodness gracious. Time for me to change careers and become
a credit counselor.
--Google is offering free wireless for the San Francisco market,
thereby bypassing paid connections. Much is being made of this
in terms of a revolutionary shakeup that threatens the entire
traditional telecom market. I wouldn’t be too fast on the draw,
but it is interesting and terrific publicity for Google.
--Prudential Equity Group fired its technical research
department, including veteran Ralph Acampora (‘Makempora’
in some circles). Other investment houses are slashing costs in
this area, which is unfortunate. I can’t begin to tell you how
many mistakes I’ve made over the years by not first looking at a
chart before buying a particular stock. While technical analysis
is but one tool in the selection process, it’s a terrific one for
confirming decisions otherwise based on the fundamentals.
--Just a reminder. As the Journal pointed out this week in its
annual piece, if you’re thinking of investing in a mutual fund
over the coming weeks, for any taxable account please make sure
you’ve checked with the fund group (or your financial advisor)
to see if it’s scheduled to pay out any substantial capital gains
before year end. It’s kind of stupid to have to pay taxes on, say,
6% of net asset value when you didn’t participate in the run-up.
On the other hand, if you think there is a big year-end rally in
store, don’t let a projected 1% cap gain spook you. [Just for
illustration purposes.] In this instance, you need to weigh the
possible opportunity cost.
--My portfolio: So what if I told you I went from 20% equities
one week, to 30%, and then back to 20% without doing anything
in the portfolio? That’s what happened to yours truly and it was
all about the carbon fiber play of mine. In the span of just a few
days it soared and then plunged like Icarus. Long-term it’s still a
terrific story. Short-term, the market is uncomfortable with its
expansion plans. Alas, it’s also why I refuse to state my
individual holdings, unless it is a country or sector offering.
Anyway, after a few days of premium lager, it’s back to Blatz for
me. But there’s always tomorrow, right sports fans?
Foreign Affairs
Turkey: Per my opening discussion of last week, it came down
to the wire, Monday night, on whether the European Union
would begin the process of membership with Turkey. Britain’s
Foreign Secretary Jack Straw warned beforehand:
“This is a crucial meeting for the future of the European Union.
We’re concerned about a so-called clash of civilizations. We are
concerned about this theological-political divide, which could
open up even further the boundary between so-called Christian-
heritage states and those of Islamic heritage.”
Turkey’s Prime Minister Erdogan weighed in: “Either the EU
will decide to become a world force and a world player, which
would show its political maturity, or it will limit itself to a
Christian club.”
In the end, hold out Austria gave in, having won assurance ally
Croatia would see its own bid proceed, and thus we begin a
process that will take at least 10 years while providing your
editor with ample fodder down the road.
Turkey now has to implement 83,000 pages of regulations and
reforms, broken down into 35 “chapters.” Any EU member can
then veto any of the chapters, ceasing negotiations at that point,
and I maintain Turkey, as much as they deserve it, will not
become a member at the end of the day.
For starters, 80% of Austrians are against EU membership for the
Turks and a final vote can be vetoed by any of the existing 25
members. Plus Germany, France and the Netherlands have all
said they would hold referendums before Turkey is finally
admitted. Consider that Germany’s Angela Merkel and Jacques
Chirac’s possible successor, Nicolas Sarkozy, are vehemently
against Turkey and you get a good idea on where this is all
headed. Throw in an Islamist terror attack or two in the interim
and the die will be cast.
It’s a shame. Since the days of Ataturk, Turkey has been a
secular state and a long-time NATO member. But as I wrote last
week, it’s about racism and what some in Europe also see as an
eventual “race to the bottom” should lowest cost producer
Turkey be admitted. [These same folks conveniently forget
soon-to-be members Romania and Bulgaria.]
Finally, Wall Street Journal Europe editorial page editor
Matthew Kaminski had the following comments on Austria,
Monday, just before it gave in.
“The word ‘chutzpah’ would, normally, have fit the latest
European rebuff of Turkey like a snug pair of leather shorts. But
the rebuff came from Austria and – Germanic roots
notwithstanding – a Yiddish word just doesn’t seem appropriate.
We’ll have to settle for racism, sheer nerve and outright
ignorance to describe this Alpine nation’s ruling class .
“For too long, Austria has gotten a free ride. Thanks in part to
‘The Sound of Music,’ the world came to see the Austrians as
Hitler’s (remember his nationality?) victims. Better to recall
‘The Third Man,’ a film about seedy post-war Vienna. Austria
collaborated without – in contrast to the Germans – repenting for
it. It sat on the sidelines of the Cold War, protected by the U.S.
security umbrella, and waltzed into the EU in 1995, just in time
to revive its then-socialist economy by trading with, and
investing heavily in, the newly freed eastern countries. Those
commercial benefits didn’t stop Vienna from pooh-poohing the
easterners’ EU aspirations. ‘After all,’ went the defense, ‘our
people dislike the Slavs almost as much as the Turks.’”
Israel: Fierce clashes in Gaza this week between the Palestinian
Authority and Hamas as hundreds of gunmen attacked a PA
police station. Then the PA disrupted a legislative assembly
meeting, which riled more than a few folks up. In other words,
it’s chaos as President Mahmoud Abbas struggles to maintain
some semblance of order.
Abbas and Israeli Prime Minister Sharon are slated to meet this
coming Tuesday, but as of this writing it’s now up in the air.
Abbas is going to Washington on Oct. 20 for a conference with
President Bush.
China: Japan made the following offer in the dispute over oil and
gas reserves in the East China Sea. [Japan has accused China of
developing gas fields that fall in its territory. China claims its
exclusive economic zones go out further than Japan says it does.]
“First, all oil and gas reserves that straddle the median line would
be jointly developed. Second, fields that were clearly on one
side of the line or the other would be developed by either China
or Japan alone. Third, Japan has demanded that, while
negotiations on its ‘final solution’ proceed, China should suspend
development of fields close to the line.” [Financial Times]
This seemingly minor matter, geopolitically that is, will speak
volumes about China’s overall intentions in the region when the
two sides gather for talks in Beijing later this month. An
agreement would be a solid positive, but the potential for a
negative surprise is probably greater.
Meanwhile, Beijing was furious at Taiwan President Chen Shui-
bian’s stopover in the UAE, which flew Taiwan’s national flag at
the airport. The foreign ministry office said Chen’s visit was in
violation of the one-China policy.
Germany: It’s been three weeks since Germany’s election and
we’ll have to wait until Sunday or Monday, evidently, before we
know who the new chancellor is here. Neither Angela Merkel’s
conservatives nor Gerhard Schroeder’s SDP have a
parliamentary majority but Merkel has 226 seats to Schroeder’s
222 and, with public opinion now solidly on Merkel’s side, it
would appear a deal has been cut whereby Merkel becomes
Germany’s first female leader. But as I noted before, regardless,
the German people will be the losers because Merkel is going to
have to make far too many concessions on the economic front
that will lead to ‘more of the same’ at a time when Germany
desperately needs true reform.
Indonesia: The week started out with fuel protests as the
government of President Yudhoyono, strapped for cash, raised
the heavily subsidized price of gasoline from 95 cents to $1.71.
But while you may be thinking, that’s still a great deal;
understand that half of the 220 million people here live on $2 a
day. Yudhoyono pleaded for calm, noting “anarchy will only
deter investment.”
Of course the next day terrorists once again struck Bali and here
the government has made a mistake by not banning Jemaah
Islamiyah outright .and if I’m a foreign investor, sadly for the
people of Indonesia, I look elsewhere.
Malaysia: On the fuel front, though, the enlightened government
here could become the first country in Asia to require the
replacement of diesel fuel with biofuel for vehicles and
machinery, in an effort to cut the subsidies as well as boost the
local palm oil industry. [In case you’re wondering why
Malaysia’s people have always fared better than those of its
neighbor.]
*As I go to post the death toll in India, Pakistan and Afghanistan
is rising rapidly following a mammoth earthquake.
Random Musings
--So I’m watching President Bush’s news conference, cringing at
some of his responses, and then afterwards both NBC and the
Wall Street Journal characterized it as “wide-ranging.” Well, I
went back and read the transcript and you tell me if this is wide-
ranging.
Questions on
Harriet Miers 7
Katrina / paying for it / poverty 4
Ethics / Rove / Libby 3
Bird flu 1
Iraq 1
Congress / spending political capital 1
Democrats / Bush’s sliding approval rating 1
Replacement for Greenspan 1
Rafael Palmeiro / perjury in steroids testimony 1
I praised the press for its handling of Katrina, but here they had
the president, available for the first time since May in this kind of
forum, and they couldn’t have botched it more.
One question on Iraq, and on the day when the Shias and Kurds
were bending the election rules? Nothing on North Korea or
Iran? Nothing on the Palestinian – Israeli situation? Nothing on
China’s recent threats, including on the status of Taiwan?
Nothing on China’s growing clout in financing our federal
deficit? Nothing on the creeping totalitarianism in Russia and a
Khodorkovsky appeal Bush had promised to follow up on but
didn’t?
--But let’s talk about the nomination of Harriet Miers to replace
Sandra Day O’Connor on the Supreme Court. I’ve told you in
the past how when it comes to this subject I normally steer clear
because for starters you are already saturation bombed with
coverage. This pick, though, has me steamed.
Be honest. How many of you had ever heard of this woman? I
hadn’t until about two weeks ago. Not that this factor alone
should preclude her from consideration, but we aren’t talking an
appointment to the county board of freeholders, for crying out
loud.
Bottom line, I totally agree with my conservative brethren on this
one.
George Will / Washington Post:
“Senators beginning what ought to be a protracted and exacting
scrutiny of Harriet Miers should be guided by three rules. First,
it is not important that she be confirmed. Second, it might be
very important that she not be. Third, the presumption – perhaps
rebuttable but certainly in need of rebutting – should be that her
nomination is not a defensible exercise of presidential discretion
to which senatorial deference is due.
“It is not important that she be confirmed because there is no
evidence that she is among the leading lights of American
jurisprudence, or that she possesses talents commensurate with
the Supreme Court’s task. The president’s ‘argument’ for her
amounts to: Trust me. There is no reason to
“He has neither the inclination nor the ability to make
sophisticated judgments about competing approaches to
construing the Constitution. Few presidents acquire such
abilities in the course of their pre-presidential careers, and this
president particularly is not disposed to such reflections.
“Furthermore, there is no reason to believe that Miers’s
nomination resulted from the president’s careful consultation
with people capable of such judgments. If 100 such people had
been asked to list 100 individuals who have given evidence of
the reflectiveness and excellence requisite in a justice, Miers’s
name probably would not have appeared in any of the 10,000
places on those lists.”
John Podhoretz / New York Post
Podhoretz wants you to imagine for a moment that the president
of the United States is Jeb, not George W. Bush, and the year is
still 2005.
“Now, with Rehnquist’s passing and Roberts’ ascension,
President Jeb Bush must name a new Supreme Court justice.
“So what are the chances that among the names on this second
short list would be a Texas lawyer named Harriet Miers? What
are the chances that President Jeb Bush would select Harriet
Miers?
“I’d put them at roughly 1 in 1 million.
“This is the reason that the Harriet Miers nomination to the U.S.
Supreme Court is so dismaying. There is only one person on the
planet who would have made this selection – the person whose
personal lawyer Miers was, whose staff secretary she was, as
well as, for less than a year, his chief White House counsel.
“Without the patronage of George W. Bush, Harriet Miers is
nothing more than a fairly obscure lawyer from Texas who
served as president of a relatively minor law firm and served in
state government on a lottery commission for five years.”
Charles Krauthammer / Washington Post
“It is particularly dismaying that this act should have been
perpetrated by the conservative party. For half a century, liberals
have corrupted the courts by turning them into an instrument of
radical social change on questions – school prayer, abortion,
busing, the death penalty – that properly belong to the elected
branches of government. Conservatives have opposed this
arrogation of the legislative role and called for restoration of the
purely interpretive role of the court. To nominate someone
whose adult life reveals no record of even participation in
debates about constitutional interpretation is an insult to the
institution and to that vision of the institution.
“There are 1,084,504 lawyers in the United States. What
distinguishes Harriet Miers from any of them, other than her
connection with the president? To have selected her, when
conservative jurisprudence has J. Harvie Wilkinson, Michael
Luttig, Michael McConnell and at least a dozen others on a
bench deeper than that of the New York Yankees, is
scandalous .
“To serve in Congress, or even as president, there is no
requirement for scholarship and brilliance. For good reason. It
is not needed. It can even be a hindrance, as we learned from our
experience with Woodrow Wilson, the most intellectually
accomplished president of the 20th century and also the worst.
“But constitutional jurisprudence is different. It is, by definition,
an exercise of intellect steeped in scholarship.”
--I’ve been questioning the past few weeks why I’m a
Republican. This current administration has let us down in so
many ways. I mean don’t you get a kick out of the president’s
claims of fiscal responsibility? We’ve had a congressional
majority for five years, a Republican in the White House, and on
so many fronts many of us just want to scream. I want a third
party one with a chance of winning.
--Of course I’m also just waiting for Senator John McCain in
2008. This week he led the charge on a bill limiting
interrogation techniques that U.S. troops use against terrorism
suspects. McCain said we can never forget “we are different and
better than our enemies.” 45 other Republicans joined him in a
90-9 vote, a true slap in the face at Donald Rumsfeld in
particular. Since the first days of Abu Ghraib, I’m on record as
adopting this stance.
The Washington Post’s Sebastian Mallaby on the existing
political process and the senator from Arizona:
“The only appealing political platform is good government. This
is what McCainism is about. The senator has waged lonely
battles not to make government bigger or smaller, but simply to
make it better. Hence his campaign against corrupt campaign
dollars. Hence the pigs on his Web site that link to a case-by-
case denunciation of corrupt pork-barrel spending. Hence his
fury at the Bush administration’s mistreatment of foreign
detainees, which undermines government by destroying its moral
authority.
“The point about McCainism is not that you have to agree with
every one of the senator’s positions. You just have to understand
their spirit. McCain is saying that government cannot be an
effective instrument until it earns back public trust, and, further,
that a patriotic nation needs a government it can believe in. This
is why McCain is willing to alienate his Senate colleagues by
posting their pork projects on his Web site. The fight for decent
government warrants making a few enemies.
“It’s tempting to say that McCainism is hopeless: that the appeal
to patriotic selflessness is futile in a narcissistic culture. But
Americans’ impatience with conventional politics is too obvious
to ignore. More identify themselves as independent than as
supporters of either main party. Millions flock to maverick
reformers from Ross Perot to Jesse Ventura to Arnold
Schwarzenegger, tiring of them once they’ve been around a
while and become part of the system. Only 29 percent of
Americans say they trust government, down from 40 percent in
2000. McCainism – whether practiced by the senator or by some
other charismatic campaigner – will eventually have its
moment.”
--The FBI arrested an analyst who used to work in the offices of
both Vice Presidents Gore and Cheney for passing classified
information to his native Philippines. While some are saying
‘thank god it wasn’t Russia or China,’ this is nonetheless
dangerous as it supposedly involves profiles of key figures in an
already volatile nation with an Islamist terror problem.
--I didn’t realize the announcement on the Nobel Peace Prize
would be on Friday, thinking I could get in a few comments
beforehand concerning Bono’s chances. I was going to write that
anyone looking at the issue seriously couldn’t help but say he
deserves it as much as anyone. No other figure for good stands
out in the past 12 months, with the possible exception of
Ukraine’s President Yushchenko.
Alas, the committee picked the International Atomic Energy
Agency and Mohamed ElBaradei. Let’s look at this as
dispassionately as possible, given my disparaging remarks of
ElBaradei just last week.
The IAEA deserves credit for pushing the whole Iranian nuclear
question to the forefront of discussion. It is the body that insisted
Iran was cheating.
But at the same time Iran was cheating for almost 20 years
before the IAEA or anyone else for that matter started saying
‘this can not stand.’ And then you have issues like A.Q. Khan
and North Korea. Did the IAEA do a great job in either of these?
If the IAEA and ElBaradei manages to help broker a legitimate
agreement on Iran and its burgeoning weapons program in the
future, then you could say they deserve it. But now?
I was actually thinking of this topic in a different light the other
day, because I had put a note aside a while back that on Oct. 9,
John Lennon would have been 65. You always wonder how
different the world would have been had men like Martin Luther
King, the Kennedys, Anwar Sadat, or even John Lennon not been
taken from us so early in life. Forget what side of the political
aisle you’re on. You know mine, after all. But Sadat, for
example, was just 63. One has to believe there would have been
some semblance of lasting peace between Israel and the
Palestinians much sooner if he had not been assassinated. This
was a giant of a man.
And so on a smaller scale you think about Lennon. Or maybe
not such a small scale, for Lennon towered over present-day
Bono when it came to his politics. Imagine what Lennon would
have been saying during these past few years. Many of us
wouldn’t have liked it, since I can’t imagine he’d have been as
politically correct as Bono has been. [And I thank Bono for
that.] But you’d have to believe the current anti-war movement
would have been far more impactful than it is today with John
Lennon out in front. Then again, maybe he would have totally
mellowed. I guess what I most miss over the last 25 years since
his death in Dec. 1980, are the many interviews he would have
done with the likes of Mike Wallace on “60 Minutes.” Ah, that
would have been must see TV .and it would have gotten the
juices flowing.
--But let’s finish up on some lighter notes. Like wouldn’t it be
great, one year after the Red Sox win for the first time since
1918, for the Chicago White Sox to then take home their first
World Series since 1917?
--I saw where scientists are increasingly worried that global
warming is impacting the migration patterns of birds and fish. I
just wish the Canada geese that love to dump on much of the
U.S. would take a detour to some other place. Perhaps Robert
Mugabe’s house.
--And finally, the nation was abuzz following the pictures of the
epic battle between the Burmese python and the alligator in the
Florida Everglades .with both ending up, shall we say, in rather
poor shape. I think if the contest had been held in Vegas, the
judges would have had no other choice but to rule it a split
decision.
But have you seen those commercials for the Shark Steam
Blaster? You’ll recall that last Christmas was a great one for
some of my loved ones as I bought them the Shark Euro-ProX
hand-held vacuum cleaner. Well I’m thinking this Shark Steam
Blaster would be the perfect weapon against both the alligator
and python. Kind of like a Taser for animals.
---
Pray for the men and women of our armed forces.
God bless America.
---
Gold closed at $478 another 17-year high
Oil, $61.84 off $4.40 on the week but 11th close above $60
Returns for the week 10/3-10/7
Dow Jones -2.6% [10292]
S&P 500 -2.7% [1195]
S&P MidCap -3.3%
Russell 2000 -3.5%
Nasdaq -2.9% [2090]
Returns for the period 1/1/05-10/7/05
Dow Jones -4.6%
S&P 500 -1.3%
S&P MidCap +4.5%
Russell 2000 -1.1%
Nasdaq -3.9%
Bulls 49.5
Bears 27.8 [Source: Chartcraft / Investors Intelligence]
Note: Next week’s review will be very brief. I’m heading up to
Prince Edward Island, Canada, to run a half marathon .albeit
very slowly. [I’m too old to run a full one these days.] But
assuming there are no technical issues, I will at least have some
market information for you.
Have a great week. I appreciate your support.
Brian Trumbore
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