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02/04/2006
For the week 1/30-2/3
[Posted 7:00 AM ET]
Iran and Israel
As I go to post, a formal decision has yet to be reached among
the 35 members of the International Atomic Energy Agency’s
governing board on sending Iran’s nuclear program to the UN
Security Council for possible action. Of course it’s all really
quite academic since the Council won’t do anything, anyway,
with Russia and China already on record as rejecting the
levying of UN sanctions against Iran. So Iran’s stall game
continues as its scientists, including hired guns from abroad, one
must assume, diligently work on the weapons-building process.
This week the IAEA’s Mohamed ElBaradei said “We are
reaching a critical phase but it is not a crisis situation it is not
an imminent threat.” This after the IAEA admitted it had
documents showing a “military-nuclear dimension” to Iran’s
program. And the IAEA still has no explanation for enriched
uranium particles found during one of its inspections in 2003,
while the Times of London ran a story that there has been
increased activity at Iran’s embassy in Pyongyang, possibly
because Iran is negotiating with North Korea for plutonium or
enriched uranium. Kim Jong-il once sold 1.7 tons of uranium to
Libya.
Surprisingly, President Bush’s State of the Union address was
broadcast live in Farsi to Iran so the people were able to take
note of the president’s line that Iran was “now held hostage by a
small clerical elite that is isolating and repressing its people.”
Iranians may not like their government, but they want the bomb.
And regarding a potential pre-emptive strike on known nuclear
facilities, Iran’s defense minister declared “Any attack against
Iran’s peaceful nuclear facilities will meet a swift and crushing
response from the armed forces.”
Just a lot of bluster? Probably not. This is not Saddam. This is
Iran with a global terror machine, including proxies such as
Hizbullah and Hamas, as well as a staggering array of missiles.
A military strike may set back the nuclear program a number of
years, but what would be the consequences?
For now, perhaps Iran falls off the front page before ElBaradei’s
March 6 final report, but don’t be hoodwinked into thinking
diplomatic progress is being made behind closed doors. Russia
and China will not cooperate to the extent necessary to shut
down the program. Russia doesn’t want to lose at least $5 billion
in contracts and China obviously needs the oil.
And just a reminder of the kind of leaders we are dealing with in
Iran. Following Bush’s speech, President Ahmadinejad
addressed his people:
“I am telling those fake superpowers that the Iranian nation
became independent 27 years ago and on the nuclear case it will
resist until fully achieving its rights.
“Our nation cannot step back because of the bullying policies of
some countries. Those whose arms are stained up to the elbow
with the blood of other nations are now accusing us of violating
human rights and freedom.”
Thousands of supporters then shouted “Death to America!”
“Death to Israel!”
---
It doesn’t get much better in discussing Israel’s new neighbor,
Hamas. The Quartet: EU, U.S., Russia and the UN are trying to
be patient and won’t immediately demand renunciation of
violence, but Hamas’s actions over the next few weeks are as
important as its words. Israel, on the other hand, has begun
holding back on some taxes and fees normally due the
Palestinians.
Meanwhile, recriminations are flying in both Israel and the
United States, as in how could leaders and intelligence agencies
misread the Palestinian street? It’s too late now. We are faced
with a new regime whose 1988 charter was explicit in its hatred
of Israel, let alone apocalyptic. Hamas leader Khaled Meshal
reiterated this week that they would not “submit to pressure to
recognize Israel” nor would it disarm. Of even more concern is
the call for a Palestinian army with Hamas at the core.
Richard Cohen / Washington Post:
“The leaders of Hamas brim with the word of God and the
certainty of their cause. From here on they will lie about their
ultimate aim and smilingly assure us that what they have always
said they no longer mean. Their intention is clean government,
efficient garbage service, good schools and level soccer fields –
and also to con Europe and America into continuing to send
money to the Palestinians. All over the world, people will
believe them and urge the United States and Israel to do the
same. Take my word for this. Anyone can see the future. It’s
all in the past.”
Wall Street
Alan Greenspan slapped down his last 25 basis point (1/4%) rate
hike as he rode off into the sunset and $500,000 a day consulting
fees.
“Alan, what do you think I should do with this website?”
“Given your inevitably incomplete knowledge and the sometimes
asymmetric costs or benefits of particular alternatives, the
paradigm in which you have settled is the most likely future
path.”
“Huh?......oh ..here’s your check.”
The Federal Reserve said the economy was “solid” and that
longer-term inflation expectations remain “contained.” But it
added certain strains in resources, i.e., commodities and labor,
represent a potential issue and that further tightening “may be
needed.”
So that got everyone all lathered up, as usual, with some
interpreting it to mean new Chairman Ben Bernanke may be
permitted to stop raising rates, while others read the wording to
mean Bernanke could have a few hikes of his own up his sleeve.
Regardless, those of us with heavy cash positions continue to be
rewarded with rising money market rates.
As for the economy and this week’s data, both stocks and bonds
were spooked a bit by readings that reflected rising labor costs,
let alone the fact productivity in the 4th quarter fell, which can
also augur rising wages and perhaps necessitate the need for
further Fed tightening. On the bright side chain store sales for
January were better than expected (Wal-Mart up 4.7%; Target,
5.2%), owing to our Caribbean-like weather, and auto sales
rebounded some, though this was heavily skewed by fleet sales.
But of ongoing concern, aside from energy costs and ever present
deficits, is the disastrous personal savings picture. In December,
personal income rose 0.4%, but consumption rose 0.9% and for
all of 2005 the savings rate was a negative 0.5%; the worst such
performance since 1933.
There’s another issue we need to tackle head on this week, as
much as it will unnerve some of you, and that’s the president’s
comments on energy in the State of the Union. For the week,
crude slipped a bit on the misguided belief a diplomatic
resolution to the Iran crisis is possible, while for its part, OPEC,
despite the cries from Iran and Venezuela, agreed to hold
production at existing levels when a few weeks ago there was
talk of cutting it. The Saudis offered that $50 to $60 oil is
“satisfactory to all.” [Remember when $22 to $28 was?]
That said, President Bush blundered big time. But first, here is
the opening paragraph from an op-ed on Friday in the Wall Street
Journal by Peter Huber that sets the stage.
“Most instant pundits missed the cagey phrasing of the two
sound bites that made headlines the next morning. ‘America is
addicted to oil, which is often imported from unstable parts of
the world,’ President Bush declared .But new technologies, he
went on, will allow us to ‘replace more than 75% of our oil
imports from the Middle East by 2025.’ The president did not
say that oil supplies most of our energy, nor that most of our oil
comes from bad places. Nor did he propose any gush of new
federal spending on pie-in-the-sky ‘alternative’ fuels.”
With all due respect, Mr. Huber, the president most definitely
inferred that most of our oil comes from bad places, even though,
yes, that isn’t necessarily the case. The U.S. receives 20% of its
imports from the Middle East and 30% from Canada / Mexico,
for example.
But when Bush made his comments, the camera panned to Saudi
ambassador Prince Turki. He had a look of dismay on his face
and for good reason. Later he told a reporter if reducing
American dependence on foreign oil applied to other suppliers.
“Is that a declaration that the U.S. is going to work to be
independent of Canadian oil, Mexican oil and Venezuelan oil?”
he asked, adding, “I see no threat from America from receiving
its oil from the Middle East.” [New York Times]
I know what some of you are thinking. Why defend the Saudis,
especially after 9/11? There is no doubt that historically Saudi
Arabia has played a duplicitous game, but I urge you to take two
minutes to read my “Hott Spotts” column and a recent speech by
Saudi King Abdullah, one that President Bush should have
referred to in the State of the Union, but of course he hadn’t seen
it. Abdullah blasted extremism unlike any other Arab leader
before him.
Bush’s remark was ill-timed, as well as further comments
pressing democratic reform in the region. Immediately, a leader
of the Saudi Shura Council, the top consultative body in the
kingdom, said “Saudi Arabia is the country that has been most
responsive to demands for reform in the region, but reform,
under the leadership of King Abdullah, is not linked to calls from
the United States.” Others on the council told the Daily Star of
Lebanon that Bush is not the “sole agent for reform” in the
world.
We live in a complex world. Every American, when sitting at
their neighborhood tavern, laments that we rely as much as we
do on oil from the Middle East, but it’s also a ticklish time on the
diplomatic front, as in the flap over the cartoons that poke fun at
the Muslim faith. No doubt you saw this in the administration’s
immediate, and pitiful, backpedaling on Wednesday and
Thursday.
Finally, the Bush presidency is in its 6th year and only now does
there appear to be a sense of urgency that we must get our house
in order before it’s too late. For starters, as Chevron’s David
O’Reilly recently remarked, “the era of easy oil is over.” All
those rigs you hear about being put online aren’t really finding
anything that’s a dirty little secret between you and me, but
good for shareholders of the drillers.
Yes, we have finally entered this great transition phase. It only
took 30 years to see the light. It will, of course, be led by the
free market and guess who’s now scrambling to build hybrid
automobiles? Detroit. That message is being received, loud and
clear.
In the meantime, we need a stable oil supply and Saudi Arabia is
the only nation in the world with any spare capacity, even if it is
of a grade that isn’t always usable. Extremist elements in the
kingdom can take down the monarchy at a moment’s notice, or
blast its oil complex. We don’t live in a perfect world, but it
would have been better if President Bush had praised King
Abdullah for his positive remarks, rather than take a shot at his
country.
Street Bytes
--One week up, the next week down. That’s been the pattern
recently and this one was a downer with the Dow Jones losing
1% to 10793, the S&P 500 1.5%, and Nasdaq 1.8% to 2262.
Earnings have been basically in line, not great, and if you take
out energy, earnings for the 4th quarter are up less than 10%, year
over year. Still solid, but continuing a pattern of deceleration.
And you had one high-profile miss in Google, which by week’s
end was down to $381, off its recent high of $475 set just three
weeks ago. More in a bit.
--U.S. Treasury Yields
6-mo. 4.62% 2-yr. 4.57% 10-yr. 4.53% 30-yr. 4.63%
The jobs report for January was solid, up 193,000, and previous
months continue to be revised upward. But labor costs are
nagging the bond market some and the 10-year spiked to 4.60%
before settling back down, while the spread between the 2- and
10-year is widening and inverted. This is not an issue, as yet,
but what is clear to yours truly is that the Fed is close to
overdoing it, if it hasn’t already. As many of us have been
saying for some time now, the real test is when those in
adjustable rate or no-interest mortgages begin to see much higher
payments as their paper resets. This is the major concern of
PIMCO’s Bill Gross and he still maintains the second half will
see growth in the 2% range. I say it will be worse. And should
rates spike higher over the coming weeks, that only brings us
closer to the tipping point, which may also coincide with
renewed concerns over Iran by April.
--January auto sales rebounded, with Ford up 2%, General
Motors up 6% and DaimlerChrysler’s rising 5%. But as I
mentioned earlier, fleet sales to rental car companies generally
accounted for 30-40% of the overall total. Meanwhile, Toyota’s
sales rose 14% and Honda’s were up 16%, the latter thanks to
booming sales of the fuel-efficient Civic, up 56%! The Big 3’s
market share is down to 55.7%, while Asia is up to 37.5% in the
U.S.
[As an aside, the new issue of Business Week has a story that for
all the hand-wringing about Detroit and job losses in the U.S.
auto industry, foreign carmakers continue to expand here. And
as I’ve written, I don’t feel in the least bit guilty that I’ve
purchased three straight Honda Accords because they were all
built in Marysville, Ohio.]
--I was watching CBS’ “Sunday Morning” on Jan. 22 and caught
a commentary by Ben Stein on the oil industry. Knowing Exxon
was set to release earnings this past week, I held off on passing
along Stein’s thoughts until this time. Exxon earned a world
record $10.7 billion profit for the quarter on revenue of $99.7
billion.
“It is earnings season, when big companies report their last
quarter’s earnings to the public. Wall Street predictions are that
the big oil companies are going to report larger than usual profits
this quarter, as they did last quarter, and thus we can predict
something else. In editorials and on Capitol Hill, there will be
cries to have new taxes on the oil companies. Oil company
executives will be lambasted in hearings and the witch hunt will
be on.
“I don’t get it. Why are we angry at the oil companies? Is it
because of high gas and heating oil prices? But wait: The oil
companies don’t set the world price of oil. That’s set in trading
rooms in banking houses in New York and London and Hong
Kong by young guys who make zillions each year. There is
absolutely no evidence that the oil companies are colluding to fix
prices at artificially high levels. Those prices are set, again, by
traders with Ferraris, not by John D. Rockefeller, who has been
dead for many years.
“Yes, the price rose a lot after Katrina, but that’s because
producing and refining capacity fell off drastically after the storm
damage and thus the traders, sensing shortage, drove up the
price. The oil companies benefited from this rise in price, but
there have been plenty of times when the price has plummeted
and the oil companies have taken it on the chin. The oil
companies do help set the price at the pump and they set it based
on the world price – which, again, they do not set – to replace the
oil they use up. That is a standard way of setting prices and not
at all a conspiracy. When the world price of oil falls, pump
prices fall too and they have fallen dramatically since Katrina.
“Are the oil companies making obscene profits? No, as a general
rule they have profits far lower than bankers or pharmaceutical
companies, and even below the average of large companies. And
anyway, profit is not a dirty word. This is a free market country
that is supposed to like profits
“And what about this: when I buy gasoline that has to be brought
from Nigeria or Libya or Indonesia at great risk, refined, had
huge taxes on it, and then brought to my gas station, it costs less
per ounce than a lot of the bottled waters at my local grocery
store. Why doesn’t anyone mention that?
“How about oil executive pay? Is it criminally high? Well, it’s
a lot more than mine. But it’s a joke compared with Wall Street
pay and Hollywood pay, and what the heck does any movie star
do that’s even remotely as valuable as powering this whole
nation and keeping the wheels of the nation moving?
“I have the sneaking suspicion that this hatred of the oil
companies is largely for the reason that teenagers hate their
parents: because they are so dependent on them, they respond
with anger. But Senators are not supposed to be teenagers and
neither are newspapers.
“Let’s get smart. The oil companies are not our moms and dads.
They’re in business to make money. But they do it fair and
square, and without them, we would be in very bad shape. Let’s
keep an eye on them, but let’s be darned grateful they work as
well as they do.”
--Rebecca M. wondered why I hadn’t commented last week on
BB&T’s decision on the eminent domain front. Just an oversight
on my part, so for the archives
Winston-Salem, NC-based bank BB&T Chairman and Chief
Executive Officer John Allison announced his bank would no
longer make loans to developers that plan to build on land seized
under eminent domain for the purpose of putting up projects such
as shopping malls. Last June, the U.S. Supreme Court, in the
controversial Kelo v. the City of New London, CT, case, ruled
that private developers can do just that.
“The idea that a citizen’s property can be taken by the
government solely for private use is extremely misguided (and)
in fact it’s just plain wrong,” said Allison.
I agree with BB&T’s decision, though obviously in the case of
an airport or a major road, the issue is not as clear cut. At least
that’s my opinion.
--And now another word about click fraud. I’ve written of it
extensively, in this space on 2/26/05, for example, and 4/9/05
when I cited a Wall Street Journal piece that highlighted the
issue, but now everyone is catching on to this potential problem,
per my discussion of last week and some comments made by
billionaire Mark Cuban.
Following are the thoughts of Barron’s Thomas G. Donlan,
1/30/06:
“There’s a very old saying that half of every advertising dollar is
wasted – the challenge to the executive is to figure out which
half. Once ads are printed on pages or sent into the broadcast
and cable waves, the advertiser has no good way of knowing
what happened or what they achieved. How many eyeballs were
fastened on that ad? How many of the eyeballs were attached to
minds possibly interested in buying the product?...
“That’s how old media worked in the old economy. Now, with
new media, a new-economy advertiser can find out how well his
ads work. It’s called click-through, and it’s dynamite. The
question is, whom does it blow up, the advertiser or the
advertising medium?
“When an advertiser buys access to a privileged position in
consumers’ Google searches on particular subjects, or buys ads
that Google places on independent Websites, the advertiser pays
Google every time someone clicks on his ad and is linked to his
Website .
“But who’s clicking? Are they legitimate customers? Over the
past few years, advertisers and Internet media companies have
been dealing with a rising tide of click fraud .Hire a click farm
in which people are paid a little to click on ads all day – buying
nothing, of course. This is a task that also can be automated, and
there are many variations, but all such frauds are designed to
raise costs for the advertiser and degrade the effectiveness of his
ads.
“Google and similar outfits say they have the problem controlled
with traffic analysis and refunds of fees generated by spurious
clicks. But they don’t reveal details, or report how much click
defenses cost them.”
You’ve heard my own firsthand experiences. Click fraud is
rampant. It’s just going to take more time before advertisers
catch on to it en masse.
But let’s go back to last week’s issue of Google and its move to
place itself under Chinese government control. John Lancaster
of the Times of London had a few thoughts, including on some
of Google’s other practices such as publishing and the plan to
scan all the books in the world.
“Besides, isn’t the company policy ‘Don’t be evil’? But to
publishers there is something outrageously hypocritical about the
contrast between Google’s ferocious protection of its own
intellectual property rights and its contempt for everyone else’s.
What’s to stop Google giving free online access to the books
once they are scanned? At the moment Google says it has no
intention of providing access to this content; but why should
anybody believe it? This is why Google’s activities in China
have the potential to be such a disaster for the company. So far
everyone who has invested in Google has made out like the
proverbial bandit; but one day the share price will drop and
people who have bought shares will find they have lost money.
It is then that Google’s leaders will come under pressure to find
some uses for that goldmine of personal data .
“Google has an extraordinary amount of information about its
users. It logs all the searches made on it and stores this
information indefinitely. Because every computer has a unique
IP (Internet protocol) address, every visit to every Website can
be traced back to the computer making it – a fact which is well
known in geek circles but remarkably under-publicized outside
them. [Shi Tao, the Chinese journalist, was given 10 years in jail
last April for ‘leaking state secrets’ after Yahoo! in Hong Kong
handed over information linking his IP address and his e-mail to
the Chinese authorities.] Users of Google’s Gmail service, who
are already having their e-mails scanned to place targeted ads,
have given the company their identity, a full record of all their
searches and copies of all their e-mails, stored indefinitely.
Users of Google’s Toolbar are inadvertently giving the company
a list of not just all their searches but also of every single
Website they visit. And, as (one) lawsuit makes clear, all this
information is potentially vulnerable to subpoena.”
[Saturday’s New York Times has another story along these
lines.]
To be continued.
--Speaking of Thomas Donlan, the great Barron’s columnist, I
noted back in May 2000 a comment of his that was as good as
any in defining the Bubble era.
“This is the kind of party where the guests, if deprived of the
host’s refreshment, whip out their pocket flasks and gather round
the piano to sing another round of ‘Brother, can you spare a
dime?’ They are rude and undisciplined, and they won’t go
home.”
--A New York Times article said eBay has been downplaying a
massive problem on its site, counterfeit products, and for obvious
reasons. Tiffany has conducted an investigation and 3 of 4 items
claiming to be Tiffany products were fakes. Tiffany is now
suing eBay and the result could be damaging to eBay’s future
growth, to say the least. The complaint across the board is that
the company facilitates the practice and doesn’t investigate
unless a particular complaint comes from a party holding a
trademark or copyright.
--Japanese beef importers are sitting on 2,300 tons of the stuff
from the U.S., costing them $17 million and all because of the
dumb mistake the New York exporter made when he included
spinal parts in a shipment of veal; this after Japan had finally
begun allowing new shipments of American beef after a mad
cow scare. A poll in Japan revealed 62% of Japanese now won’t
eat U.S. beef products.
--Speaking of meat, Chile exported its first shipment to the
United States the other day following liberalization of trade
policies between the two. Actually, it was 38 tons of pork and 12
tons of beef. So look for it on the label.
--Kraft Foods is laying off an additional 8,000. More folks these
days are either eating out or going the take-out route.
--Gazprom and Ukraine have evidently reached a stable
agreement on the delivery of natural gas, following the turmoil
over New Year’s. But if I were Ukraine I wouldn’t rest easy.
More below.
--Great piece of research by Carter Worth, chief market
technician at Oppenheimer, that Barron’s Michael Santoli passed
along to his readers.
Some have talked about the price / earnings compression in the
market the past few years as some large cap companies, for
example, have seen their share prices go nowhere while the
earnings continue to rise (thus compressing the p/e).
Oppenheimer’s research really spells this out. For example, the
S&P 500 and interest rates are almost exactly where they were
seven years ago, even as earnings have risen by about 65%.
S&P 500 1273 (2/1/99) 1273 (1/26/06)
S&P 500 EPS* $44.49 (2/1/99) $74.02 (1/26/06)
10-yr. Treasury Yield 4.74% (2/1/99) 4.52% (1/26/06)
*Trailing 12 months.
As Santoli notes, “This puts the lie to the idea that rates and
earnings drive stock prices in any predictable formulaic way.”
I myself focus as much as I do on ‘hot spots’ for the reason that
I’ve always felt ‘sentiment’ was a key driver. Not the sole one
as noted in my opening Wall Street comments above... but an
important one nonetheless.
--I’ve been a big fan of Continental Airlines, going back to the
arrival of Gordon Bethune and the turnaround he engineered.
Bethune has retired but the moral compass he used appears to be
in place. The airline just announced its executives gave up
their bonuses and options grants in light of the cuts they asked of
other employees over the past year.
--Business Week listed the top annual pensions among S&P 500
CEOs and at the top of the list is Pfizer’s Hank McKinnell, who
upon retirement will receive $6.5 million a year. That’s his
pension, folks.
--I won’t be commenting much on the Enron trial of Ken Lay
and Jeffrey Skilling. But at least at the start, it appears the
government has learned some lessons and is attempting to keep it
simple for the jury as the first witness goes to the heart of the
matter, the manipulation of earnings and flat out lies that Skilling
and Lay (and others such as Fastow) told both the Street and the
public.
--I liked this comment from an old friend in Omaha, NE, Ken S.,
who at age 68 is learning to be a semi-truck driver. In the past
Ken has taken many a motorcycle trip with his sons across the
country and Canada.
Anyway, Ken is now looking for employment and if you fall in
the bullish camp on the economy, he has received six job offers
already from trucking companies in the Midwest. One out of
Omaha said they have 500 trucks “against the fence,” meaning
they had 500 trucks ready to go if they could find drivers. And
they’re adding 1,500 more trucks next year. Another outfit out
of Ft. Dodge, Iowa, runs 2,500 flatbed trucks and told Ken they
turn down 1,500 to 2,000 loads a week because they, too, don’t
have enough drivers. Safe travels, friend.
--Josh P. has passed along some great observations on the San
Diego, CA, real estate market. Certainly the era of double-digit
appreciation gains is over as much of the state begins to slow.
But just as in the national figure that showed new home sales up
for the month of December (existing fell), Josh notes that in San
Diego:
“It seems that new home builders know the end is near and are
focused on moving inventory. There have been a number of
gimmicks that the builders have been using including financing
credits, landscaping credits (I’ve seen as high as $40,000) and
even new cars. Yep, buy a condo and get a new VW bug.
Building permits in San Diego were also down 12.2%.”
A while back I wrote of Josh’s observations on his own
immediate neighborhood, three houses then being on the market.
One came off 15% from the ‘ask’ price before being sold and the
other two have now been on the block for seven months.
--Update: I received my replacement Dell PC in short order
following the hardware issue with the first one and all is well. I
was impressed I received a call from the warranty department
right away.
Separately, Dell is hiring an additional 5,000 workers in India,
bringing its workforce there to 15,000. Yes, another call center
or two.
--Fascinating little battle going on between Princeton University
and Merrill Lynch. Merrill wants to rename its proprietary
mutual funds Princeton Portfolio Research & Management.
Merrill has a large campus in Princeton (actually, neighboring
Plainsboro, NJ), which is where the money management division
is based and one which I used to visit frequently myself during
my time in the fund industry.
But Princeton University isn’t pleased. A spokeswoman told the
Journal, “For Merrill to trade on the university’s reputation is a
matter of concern.”
Merrill counters, “Princeton is the area where we are located, our
clients already associate us with this area and it is a logical fit
from a brand standpoint.”
I’d call it a draw.
--As you know, we aren’t real fans of Oracle CEO Larry Ellison
around here and I got a kick out of an article in the Journal by
David Hamilton concerning a shareholder lawsuit Ellison is party
to. Recently revealed court documents show that Ellison has a
ton of debt, though with a net worth of around $16 billion he’s
not in any real danger. [Drat.]
“In mid-2000, for instance,” writes Hamilton, “documents
originally prepared by Mr. Ellison’s personal financial adviser,
Philip Simon, show that the Oracle co-founder owed a total of
more than $1 billion to five different banks, just $328 million shy
of tapping out his line of credit. At the time, Mr. Simon
anticipated additional spending by Mr. Ellison of more than $700
million over the next three years, including $20 million a year for
‘lifestyle,’ $194 million for a new yacht and $80 million for Mr.
Ellison’s America’s Cup yacht-racing team.”
--Former Citigroup senior vice chairman Victor Menezes agreed
to pay $2.68 million to settle insider trading charges brought by
the SEC in a case going back to March 2002. Menezes allegedly
sold $30 million of Citigroup shares two weeks before the bank
announced surprise losses of $858 million in Argentina.
Menezes, head of the emerging markets division at the time, was
well aware of the coming report.
--A top executive at AIG, along with three former or current
bigwigs at General Re have been indicted for securities fraud.
The General Re indictments were handed down against the
former CEO and CFO, as well as the assistant general counsel.
Said a U.S. attorney, “The scheme was designed to mislead
analysts and the investing public” in covering up declines in the
claims reserves, a key particular in this industry. We await the
indictment of former AIG founder Maurice Greenberg.
--Research by the Center for Academic Integrity shows that in a
survey of 50,000 students at 69 colleges and universities, 26% of
business majors admitted to serious cheating on exams, and 54%
admitted to cheating on written assignments. Journalism majors,
at 27%, were actually the worst cheaters. The most honest were
science majors. [Helena Oh / Business Week]
--This is tacky, but heck, I found it in the New York Post’s Page
Six column.
“Which CNBC star is sleeping on the couch these days? The
blustery buffoon’s wife didn’t take too kindly to him when she
caught him in flagrante with a comely personal assistant.”
--My portfolio: I’d like to thank the president for mentioning
wind power in his State of the Union address. Us holders of
stocks involved in this arena, such as my carbon fiber play (used
in the making of turbine blades) were grateful.
But I told you the president wouldn’t mention manure.
“We will also fund additional research in cutting-edge methods
of producing ethanol, not just from corn but from wood chips
and stalks of switch grass.”
I’m sure cow chips work just as well.
Foreign Affairs
Iraq: There is little to say these days. The government still hasn’t
been formed, every time you think the violence is toning down a
bit there is a new series of attacks, and while Newsweek reports
our military is in talks with leaders of the insurgency in an
attempt to drive a wedge between them and al Qaeda, who’s to
say any intelligence gained by the insurgents in these discussions
won’t come back to haunt the U.S.?
Afghanistan: As I wrote a while back, the Dutch are having
second thoughts on their participation in the NATO force and
without their ongoing support, it will be virtually impossible to
expand the mission beyond Kabul; which must be done or the
renewed insurgency by the Taliban will take hold. This is
NATO’s ultimate test and it’s on the verge of failure.
Russia: The Kremlin reacted angrily to Georgia’s charges
accusing Russia of sabotaging the gas and electricity
transmission lines the other week. Georgian President Mikhail
Saakashvili said he wasn’t saying he had proof, “but that he was
most concerned about the way Russia responded once the gas
was cut.”
“Mr. Saakashvili said Georgian officials immediately called
Russian Prime Minister Mikhail Fradkov after the explosions and
that Mr. Fradkov told them he would call back in one to two days
once the situation became clearer. ‘He never called,’ Mr.
Saakashvili said. Calls to Gazprom also went unreturned, he
said. Only after he began giving interviews to CNN and the
BBC did Moscow begin to respond, he added.” [Wall Street
Journal]
Russian President Vladimir Putin pointed out in his annual news
conference that it was Russian workers who were trying to fix
the natural gas pipeline in freezing temperatures. Then he added:
“We only saw them spitting at us,” referring to Saakashvili’s
government. “Georgian citizens should know that such a policy
toward Russia will not help improve the conditions of ordinary
people.” [Moscow Times]
That’s our friend Vladimir, sports fans.
Putin’s comment was part of his annual, wide-ranging press
conference, attended by some 560 reporters this time. It’s
designed to highlight what a terrific democrat he is. In it we
learned some of the following.
Putin denies he will run Gazprom after his term expires in 2008.
He defended Russia’s participation in the G-8. “ No one wants
the G-8 to become a gathering of fat cats.”
On the four British citizens accused of spying, “Let them stay
here and keep their places at the intelligence station. It is
pleasant for us to understand that we control these people.”
Regarding Hamas, “(It should) refrain from extremist
declarations, acknowledge Israel’s right to exist and put its
contacts with the international community in order.” But Putin
also said, “Russia has never declared Hamas a terrorist
organization, but it doesn’t mean we support and accept
everything Hamas has done and all the statements it has made.”
Alarmingly, but no surprise to readers of this space, Putin
boasted that Russia has new missiles capable of penetrating any
missile defense system.
“Russia has tested missile systems that no one in the world has.
These missile systems don’t represent a response to a missile
defense system, but they are immune to that. They are
hypersonic and capable of changing their flight path.”
The fact he felt compelled to highlight this is what is so
troubling.
But there has been an equally troubling case in Russia
concerning a hazing incident over New Year’s that involved a
conscript. Demonstrations against Defense Minister Sergei
Ivanov have been growing (albeit in still small numbers).
According to the Moscow Times, “Private Andrei Sychyov, 19,
was tied to a chair by drunken soldiers and beaten on his legs for
at least three hours .When Sychyov finally received medical
treatment four days later, gangrene had spread up his legs,
forcing doctors to amputate them and his genitals.”
Ivanov, when first confronted on the incident, said the hazing
was “nothing serious.” Supposedly he didn’t even know of the
case for 25 days.
This is today’s Russia. Not at all dissimilar in some ways to the
1900s. Except there are more black Mercedes.
North Korea: President Bush lumped Kim Jong-il’s regime in
with Burma and Zimbabwe in a throwaway line during the “State
of the Union.” Nothing more. Meanwhile, South Korea’s
National Intelligence Agency told lawmakers the North is no
longer making counterfeit money, and hasn’t since 1998, despite
Washington’s claims to the contrary. This is symptomatic of the
problems between the U.S. and South Korea the past year as the
six-party talks on North Korea’s nuclear weapons program go
nowhere. South Korean President Roh has warned the Bush
administration not to take too tough a stand against Kim.
Personally, I have to believe North Korea is doing virtually
everything the White House is saying it is. And then some.
China: According to the New York-based Committee to Protect
Journalists, for the 7th-consecutive year China leads the world in
number of journalists imprisoned; 32 in 2005 including 15
Internet writers. [South China Morning Post] China is scared to
death of honest reporting of any unrest in the country and Paris-
based Reporters Without Borders ranks it 159th on a list of 167
countries in its own global press freedom index.
Separately, U.S. Joint Chiefs of Staff Chairman Gen. Peter Pace,
in South Korea, said the risk of war between the United States
and China has been diminished significantly. I like Gen. Pace,
he seems like a good man, but of course he’s wrong; witness
Beijing’s rapid military buildup, the missiles arrayed against
Taiwan, and a thirst for energy that threatens the stability of the
entire region. Better for Pace not to have commented at all. Or
if asked such a question, go, “Quick, look out the window .see
that bird?”
Europe vs. Islam: I guess no one should be really surprised with
the cartoon flap that has erupted over the past few weeks. It all
began when a newspaper in Denmark published some drawings
that Islamic leaders said were blasphemous, such as one
depicting a bearded Prophet Muhammad with a bomb in his
turban. Palestinian gunmen threatened a European Union office
in Gaza and protests across the Muslim world and in major
European cities threaten to spiral out of control; even as many
European news outlets are now publishing the cartoons as an
expression of freedom of the press.
From Daniel McGrory and Dan Sabbagh / Times of London:
“The editor of a Jordanian newspaper that suggested Muslim
anger was unreasonable was sacked by his publisher. Al-Shihan
had run the cartoons, arguing: ‘What brings more prejudice
against Islam, these caricatures or pictures of a hostage taker
slashing the throat of his victim?’ Across the region, including
Baghdad and Basra, Muslim leaders called for protest after
Friday prayers .
“Senior BBC executives said last night that they would not be
‘bullied or censored’ into dropping the images, which were only
shown as glimpses to illustrate the story .
“The BBC decided to show the images after the managing editor
of the French newspaper France Soir was sacked for printing all
12 drawings in Wednesday’s edition.”
Syria and Saudi Arabia recalled their ambassadors to Denmark.
Lebanon: From an interview in the Daily Star, Druze leader
Walid Jumblatt:
“Today, after the invasion of Iraq, Iran – the Islamic republic or
the Persian Muslim – is more powerful. It has formed a political
alliance rather than a Shiite alliance. Political allies stretch from
Iran to Syria to Lebanon – and Lebanon is the weakest link
“Syria and Iran want to fight Israel only from Lebanon. Why
only in Lebanon? [Hizbullah]”
The Palestinian refugee camps in Lebanon are filled with
weapons.
“There are trucks crossing the border from Syria, loaded with
weapons and guerrillas every night. They are sending us what is
called the ‘Palestinian Liberation Army.’
“They have fortified the Naameh bases and the weapons in the
camps are at the ready. The amount of weapons and ammunition
in Lebanon now is huge.”
When asked why the security situation in Lebanon remains so
chaotic, Jumblatt said: “How can we implement security when
you doubt the loyalty of people in the government and in the
security apparatus?...
“We can say that the army’s security is better, but how can I tell
the officers in the Surete Generale will protect the borders.”
Many of the leaders in the military were placed there by
Hizbullah or Syria. And of course Hizbullah sits on the border of
Israel with 7,000 missiles. There is zero talk of disarming the
group.
Random Musings
--An NBC News / Wall Street Journal poll prior to the State of
the Union showed President Bush with a 39% overall job
approval rating miserable. But by a 51-46 margin, Americans
are OK with wiretaps without a court order.
As for the speech itself, I wish when the president was stressing
math and science education for our young people he would just
say “stop playing those video games.” Collect baseball cards.
Or play sports instead.
But I have to bring up a touchy subject here when it comes to
Bush’s remarks on healthcare initiatives.
“A hopeful society acts boldly to fight diseases like HIV/AIDS,
which can be prevented, and treated, and defeated. More than a
million Americans live with HIV .”
Nothing on any other diseases that claim far more lives and
aren’t always preventable. It would have been a great time to at
least acknowledge the strides being made in the battles against
cancer, diabetes and heart disease, for example. But that
wouldn’t be as politically expedient, would it?
--Conservatives such as George Will and Pat Buchanan are
turning on the president at light speed, similar to the reaction
following his nomination of Harriet Miers for the Supreme
Court; only this time it’s far more lasting. For starters it’s about
“overreaching” on foreign policy.
--Speaking of the Supreme Court, Samuel Alito received just
four Democratic votes in the Senate vs. 22 for John Roberts. No
matter. The seating of both Alito and Roberts is a huge victory
for the president and his supporters.
--John Boehner is the new house majority leader. As Derrick
Coleman used to say, “Whoopty-damn-do.”
--There has to be a special place in hell for the Colombian
nationals who have been using Labrador puppies as drug couriers
by stitching heroin into their stomachs. The death penalty would
also be appropriate.
--Somewhat encouraging news from Turkey on the bird flu front.
Some 17 people with the H5N1 strain have been treated
successfully.
--Britain suffered its 100th casualty in the Iraq theatre.
--We note the passing of Coretta Scott King.
--Among the major warm spots this January was Chicago, which
averaged 14 degrees above normal. Residents celebrated by
spewing forth more greenhouse gases in order to ensure future
temperate winters.
--An unknown visitor to a museum owned by Cambridge
University lived a nightmare the other day. He tripped on his
shoelaces and stumbled down a marble staircase, but in doing so
he also destroyed three priceless Chinese vases dating from the
late 17th century that had stood on a windowsill for at least 40
years.
Museum visitor Steve Baxter was quoted as saying: “We
watched the man fall as if in slow motion. He landed in the
middle of the vases and they splintered into a million pieces.
“He was still sitting there, stunned, when staff appeared.
Everyone stood around in silence, as if in shock. Then the man
started talking. He kept pointing to his shoelace and saying,
‘There it is; that’s the culprit.’”
The museum director, Duncan Robinson, said:
“It was a most unfortunate and regrettable accident, but we are
glad that the visitor involved was able to leave the museum
unharmed.”
No you aren’t.
[The Daily Telegraph / South China Morning Post]
--Follow-up to my little story from last week on getting to see a
Tasmanian Devil a few years back. The vicious creatures the
size of a beagle have been dying off at a rapid pace, from
140,000 in the 1990s to 80,000 today due to devil facial tumor
disease, an illness that creates grotesque tumors on the animals’
snouts that then leads to starvation.
At first scientists thought it was a virus, but now they believe it’s
cancer, contracted when one devil attacks another which is
common behavior. [I saw devils fighting at a game preserve and
it was a sight, albeit an ugly one, to behold.] But at least now
there is a possible solution, a vaccine; the search for which could
be useful in general cancer research as well.
Think of it; a single sick devil started the whole ball rolling in the
mid-90s.
--But we finish this week with some good news on the animal
front. I was reading the Santiago Times and saw that Chile’s
blue whale population is growing. These are the ones that can
reach 100-feet in length and weigh as much as 25 elephants. A
pod of 200 is now thought to be in the waters off Chile and its
islands when the population there had been estimated to be as
low as 10 to 40. Oh, but imagine what it was like before
whaling. In the 20th century, 330,000 to 360,000 were killed in
the Antarctic alone and for this reason the blue whale remains
very much endangered.
---
Pray for the men and women of our armed forces.
God bless America.
---
Gold closed at $571
Oil, $65.37
Returns for the week 1/30-2/3
Dow Jones -1.0% [10793]
S&P 500 -1.5% [1264]
S&P MidCap -0.4%
Russell 2000 -1.1%
Nasdaq -1.8% [2262]
Returns for the period 1/1/06-2/3/06
Dow Jones +0.7%
S&P 500 +1.3%
S&P MidCap +4.7%
Russell 2000 +7.6%
Nasdaq +2.6%
Bulls 52.6
Bears 25.8 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
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