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01/20/2007
For the week 1/15-1/19
[Posted 7:00 AM ET]
The Middle East
As Secretary of State Condoleezza Rice crisscrossed the region
this past week, there were both statements of support for the
Bush troop plan in Iraq as well as the administration’s renewed
focus on tackling the Israeli-Palestinian issue. But if you read all
the dispatches, as I tried to do from a myriad of sources, one
would sound optimistic, the next less so. It’s the Middle East,
after all, and things are never as clear as they might initially
seem.
The following editorial from Wednesday’s Arab News perhaps
sums up the diplomatic rollercoaster the U.S. finds itself on.
“If the views expressed by U.S. Secretary of State Condoleezza
Rice in Riyadh yesterday represent a genuine re-engagement
with the Middle East, then the entire world – and not only the
Middle East – should be considerably encouraged. With civil
conflict in Iraq, Sudan and Somalia and also hanging over the
Palestinians and even the Lebanese, plus the continued Israeli
oppression of the Palestinians and occupation of their land and
the threat of Iran and Syria being the next areas of conflict, the
wider Middle East is the world’s most dangerous region.
American commitment to solve just one issue would be a boon.
In fact, although a solution to the Israeli-Palestinian issue would
not immediately translate into peace in Iraq, let alone Somalia,
the problems are all more or less interlinked. Solve one and it
enables a second to be solved which in turn opens the door to a
third and so on.
“That is why it is good to hear Rice saying that the U.S. still
believes in a single united Iraq free from outside interference,
that it plans to strengthen its efforts to find peace between
Palestinians and Israelis and set up a Palestinian state, that it is
listening to what Saudi Arabia is saying on the Middle East, that
this ‘rather challenging time’ could become ‘a time of
opportunity.’ These are the views of every fair-minded Arab.
We are talking the same language. It is good to know that
Washington has not been swayed by siren voices singing that
Iraq should be allowed to break up.
“But to what extent is Rice just another siren, mesmerizing the
Middle East with pleasing songs while dragging it onto the rocks
of fresh conflict because of her own country’s incompetence?
Too many times we have been duped into believing peace
between Palestinians and Israelis is on the horizon, only to have
the flames of hope doused by inaction or fresh provocation.
Only a masochist would be an optimist again, especially when
the news from Iraq is so grim. How can anyone be encouraged
when violence there is at record levels (seen in yesterday’s
murderous car bombs in Baghdad) or when the U.N. reveals, as it
did yesterday, that more than 34,000 civilians were killed in Iraq
in 2006?
“The chasm between these good intentions and bloody violence
has to be bridged. That means action by the U.S. and those
others who have influence in the various conflicts. But it also
requires commitment from those directly involved. As the
Kingdom’s foreign minister, Prince Saud Al-Faisal, said
yesterday, the Iraqis themselves have to be committed if peace is
to happen. Outside parties can make things worse (and have
done so) but they cannot make them better without an Iraqi will
for peace. The same is true for the Palestinians; there will be no
breakthrough with the Israelis if they are not united. It goes for
the Arab world as a whole, too. No one, not the U.S., not the
U.N., not anyone, is going to deliver the peace and justice the
Arab world should have as a right without first being confronted
by a unified Arab voice that demands it. That is the imperative.”
On Wednesday, Saudi Foreign Minister Prince Saud told Rice
“We agree with the American president on the need for a new
strategy in Iraq which has clear agendas that respond to recent
developments and are practical on the ground.” Saud said he
was encouraged by plans to distribute the oil wealth, adding “We
hope that some small changes will be made to the constitution in
order to guarantee the participation of all groups in the political
process,” a reference to their favored Sunni brethren.
Earlier, Egyptian Foreign Minister Ahmed Aboul Gheit, who
normally gives the U.S. a hard time, said “Bush’s strategy is not
merely a military action or operation or a unilateral military
program. It represents a vision with different political, military
and economic aspects.”
So that was positive. But then the Saudi ambassador to the Arab
League said he doubted the U.S. would take “an evenhanded,
non-sectarian path” by targeting both Shia militias and Sunni
insurgents, as Rice had claimed. “The main objective now is
how to achieve national reconciliation,” said Ambassador
Ahmed al-Qatan. “Unfortunately the deteriorating conditions
cannot provide any hope. The situation won’t stabilize soon and
the current curve (of violence) will continue for a long time.”
For his part the emir of Kuwait couldn’t understand why the
Bush administration wouldn’t talk to either Syria or Iran.
Editorial / Washington Post
“Secretary of State Condoleezza Rice’s tour through the Middle
East this week has been designed to exploit the ‘opportunities’ of
what she views as a new divide in the region, ‘between
extremism on the one hand and mainstream states on the other.’
On one side, she told The Post recently, ‘you have Iran,
Hizbullah, Hamas and Syria .On the other you have the so-
called moderate Arab states, I’ll call them mainstream states –
Saudi Arabia, Jordan, Egypt and the Gulf states.’ .
“The new strategy explains a series of reversals of U.S. policy
that otherwise would be baffling. In addition to embracing the
Middle East peacemaker role that it has shunned for six years,
the administration has decided to seek $98 million in funding for
Palestinian security forces – the same forces it rightly
condemned in the past as hopelessly corrupt and compromised
by involvement in terrorism. Those forces haven’t changed, but
since they are nominally loyal to ‘mainstream’ Palestinian
President Mahmoud Abbas and serve as a check on the power of
the ‘extremist’ Hamas, they are on the right side of Ms. Rice’s
new divide.
“So is Egyptian President Hosni Mubarak, a thuggish autocrat
who was on the wrong side of Ms. Rice’s previous Mideast
divide between pro-democracy forces and defenders of the
illiberal status quo. In past visits to Cairo, Ms. Rice sparred with
Mr. Mubarak’s foreign minister over the imprisonment of
democratic opposition leaders such as Ayman Nour and the
failure to fulfill promises of political reform. On Monday, she
opened her Cairo news conference by declaring that ‘the
relationship with Egypt is an important strategic relationship, one
that we value greatly.’ There was no mention of Nour or
democracy .
“The attempt to divide the Middle East into two opposing camps
is nevertheless wrongheaded and dangerous. It ignores the many
differences among the ‘extremists’ – including internal divisions
within Iran – that could be exploited by a subtler policy. The
‘mainstream’ coalition of U.S. allies, all Sunni-led states, must
look threatening to Iraq’s Shiite government, which itself
considers Iran a close ally. That Sunni leaders are publicly
supporting the U.S. escalation in Baghdad is at best a mixed
blessing, since they have made it clear their motive is sectarian:
They hope Shiite militias will be confronted.”
Here are a few thoughts from Iran’s leaders.
Supreme National Security Council Secretary Ali Larijani:
“In their Greater Middle East Initiative, the (United States and
Britain) are concerned that the regional countries may unite and
thus not need an outside power to establish stability and
security.”
Larijani paid a visit to Saudi Arabia, the day before Rice’s visit
to the region, looking to form a twisted partnership for peace that
could exclude the U.S. Saudi Arabia, in turn, then used oil as a
weapon against Iran. As the price tumbled to $50, from a high
last year of $78, the kingdom said there was no need for
emergency steps to prop up the price, a direct slap at Iran which
desperately needs $60 plus oil to meet its budget.
Meanwhile, Iran has completed the installation of 3,000
centrifuges at its Natanz facility, by all accounts, which is a giant
step in the production of nuclear fuel on an industrial scale. The
International Atomic Energy Agency’s Mohamed ElBaradei,
however, said the sanctions currently levied against Iran could
backfire and “lead to an escalation on both sides.”
I don’t agree with ElBaradei, but I do believe in talking to
Iranian leader Ali Akbar Hashemi Rafsanjani, who lost to
President Ahmadinejad in the 2005 presidential race and has
been a critic of Ahmadinejad’s virulent anti-West/anti-Israel
rhetoric.
As I noted last week, the Iranian president is facing increasing
pressure on the home front and opposing voices are finding their
way into the press. A fundamentalist newspaper in Tehran,
which often reflects the views of Supreme Leader Ayatollah Ali
Khamenei, accused Ahmadinejad of using the nuclear issue to
deflect attention from the government’s failing economic
policies.
“Turning the nuclear issue into a propaganda slogan gives the
impression that you, for the sake of covering up flaws in the
government, are exaggerating its importance. This is harmful for
you and your government.”
There has also been a lot of criticism, internally, about the
Holocaust conference that was staged in Tehran last month. The
conservative-dominated parliament went so far as to label it
“inappropriate” and that it had influenced the U.N. Security
Council and its decision to levy sanctions.
So in some respects Iran is in a state of flux and the White House
needs to understand it can exploit this by circumventing
Ahmadinejad. I noted a long time ago, before the invasion of
Iraq, that this was going to be a dirty war, as Donald Rumsfeld
himself once said but then never followed up on the execution.
A dirty war means dirty deals. This is the Middle East, after all,
home of the bazaar. In this case, Iran needs nuclear power
because it is using up, domestically, an increasing share of its
prime revenue source and export, crude oil. Therein lies the
makings of a deal. But at this stage it’s probably too late. As
much as we all would like to see Ahmadinejad replaced,
Rafsanjani is still a hardliner and would almost certainly seek the
bomb too.
In the meantime, Iran has staked its claim on Iraq with deadly
consequences for the U.S. military. Ayatollah Khamenei told an
audience in Tehran on Monday:
“The most insecure places in Iraq are where the U.S. troops are
present.”
Addressing the goal of unifying the Islamic world, Khamenei
said “If this unity is achieved, it will be a support for the Islamic
states, and these states will not be forced to turn to the United
States and Britain out of fear or weakness.”
“In the modern era,” he added, “colonialism made the maximum
use of (Muslims’) ignorance, prejudices, and unsound
understanding to create division, and after the victory of the
[1979] Islamic Revolution, this process was intensified .the
Revolution revived Islamic pride and honor among Muslims, and
today the glory and awakening of the Islamic ummah [holy
community] is more conspicuous due to the failure of the
enemies.”
Much of the above may be about Iran and its growing influence,
but it also pertains to Iraq. Here, like everywhere else in the
region there were once again conflicting signs. On one hand the
government of Prime Minister Nouri al-Maliki has taken some
initial steps to confront the Mahdi Army of Moqtada al-Sadr, a
supporter of Maliki. But you just don’t know how much to
believe. It will be weeks, maybe months, before we know how
serious the effort is. For now, the U.S. military confirmed that
Shia militia members that were recently captured were not then
released the next day they remain in custody. Believe it or not,
that’s a major first step.
What does seem clear is Sadr’s army has begun to melt away,
waiting for the heat to die down. If ever there was an instance to
follow my adage of ‘wait 24 hours’ it’s now.
And while I support President Bush’s troop increase, the Big
Picture, over any time period, remains incredibly bleak. A story
in Newsweek supplied some of the depressing details concerning
Iraq’s young. Half the population today is now under the age of
18 and these kids have known nothing but violence, prime
recruits for the terrorists. 70% of the elementary schoolchildren
don’t attend class regularly.
This week Sunni Vice President Tariq al-Hashemi made note of
the brain drain, following the horrific bombing at the university
in Baghdad that killed over 70 on a day in which 140 died in
various attacks. Why would you return to Iraq if you were
fortunate enough to get out in the first place?
For Bush and his surge in forces, two different polls, USA
Today/Gallup and L.A.Times/Bloomberg, both show 60% of the
American people opposed. I said at year end that in six months
the situation in Iraq could show some improvement but that we
would be too impatient and the calls to come home would only
grow. I’ve seen nothing thus far in ’07 to dissuade me of this
opinion. One look at the congressional debate tells you as much.
But while current attention is rightfully focused on Iraq, and Iran,
Afghanistan can’t be ignored. Many would be surprised to learn,
for example, that the current U.S. force there is the largest ever,
24,000. American generals want $billions for road construction,
seeing this as the best way to help the fledgling Afghan Army
and its increasing battles with the Taliban. I agree with
Senator Hillary Clinton who in a trip to the country this week
said we should be increasing our troop levels to beat back the
renewed Taliban effort. [I of course disagree with her on Iraq.]
Secretary of Defense Gates basically echoed the same theme,
saying we risk backsliding. At worst, gains already made here
must be maintained.
Finally, a few words about Israel. The architect of the disastrous
war with Hizbullah, Israeli Chief of Staff Lt. Gen. Dan Halutz,
resigned after a series of investigations into the conduct of the
war had wrapped up.
“With the echoes of battle having faded, I have decided to act on
my responsibility,” Halutz said in his resignation letter.
Dan Shomron, a retired Israeli general who led the main inquiry,
told the Knesset that the war had been conducted with no clear
objective. “He added that the threat of rockets being fired at
Israel from southern Lebanon remained as it was before the war.”
[London Times] And Israel still hasn’t gained the release of two
captured soldiers that precipitated the whole disaster.
Because Halutz admitted to gross incompetence, in so many
words, pressure is mounting on Israeli Prime Minister Olmert to
resign himself; this as Olmert and Palestinian President Abbas
are slated to renew peace talks, now that Abbas has been propped
up by new U.S. aid. The timing of the internal debate in Israel
couldn’t be worse.
Former President Jimmy Carter, who continues to catch flak over
his new book “Palestine: Peace Not Apartheid” offered the
following in an op-ed for The Washington Post.
“The clear fact is that Israel will never find peace until it is
willing to withdraw from its neighboring occupied territories and
permit the Palestinians to exercise their basic human and political
rights. With land swaps, this ‘green line’ can be modified
through negotiations to let a substantial number of Israeli settlers
remain in their subsidized homes east of the internationally
recognized border. The premise of exchanging Arab territory for
peace has been acceptable for several decades to a majority of
Israelis but not to a minority of the more conservative leaders,
who are unfortunately supported by most of the vocal American
Jewish community.”
Wall Street
Lots of economic news to digest this week. First off, the inflation
figures for December were tame, ex-food and energy that is, as
both the producer and consumer price indices came in at 0.2%,
with the core CPI having risen 2.6% over the course of 2006, up
from 2.2% in 2005. But unless we get much higher, the Federal
Reserve can’t possibly raise rates when most of us know there
simply isn’t any real inflation. Now if you tell me wage growth
continues to accelerate you might have a case, but even here
everyone understands there is little if any real growth for the
average worker. [For those at the top, however, wages appear to
be rising at a cool 654% a year.]
The Fed’s beige book, the view of the economy from a regional
standpoint, continues to show growth in the U.S. at a “modest
pace,” as the 0.4% rise in industrial production later confirmed,
even with “continued softening in housing markets, and high
inventories of new homes.”
Ah yes, housing. This week we learned that December housing
starts rose a strong 4.5%, far better than expected, while building
permits increased 5.5%. So that shoots the bear case to hell,
right?
Not exactly. In case you didn’t notice, December was a
delightful month to not only build a home in many parts of the
country, but also to hold that annual December company picnic,
for crying out loud. No wonder housing starts were up. Even
beavers showed record levels of activity as they forsook
hibernation for another month due to the balmy weather.
More importantly, the homebuilders themselves continue to talk
of earnings far less than once thought just a few months ago as
the likes of Centex, Pulte and Lennar write down more land, just
as we said would be the case over a year ago. And there’s no
doubt that rising incentives are playing an increasing role in
distorting some of the sales figures.
In fact Peter Coy of BusinessWeek had this interesting take in
the January 22 issue. As in you just can’t trust the figures the
real estate folks are giving you.
“When many homes in an area are relisted as new, it skews the
‘average days on market’ statistic, making the market look
healthier than it really is. For sellers, refreshing a listing can also
disguise the fact that the previous listing was at a higher price.
Buyers often regard a price cut as a sign of weakness.
“Whether it’s within the local rules or not, the practice of
relisting houses to give them a new debut is a symptom of an
imbalance in market knowledge. Buyers can sometimes spot
manipulation of the databases, but you have to know what to
look for, and many buyers’ agents don’t.”
The New York Times had a piece on the Washington, D.C.-area
condo market and here, too, the situation is far worse than the
data may indicate. In fact, as the article points out, there is no
accurate data when it comes to condos. What we do know is that
an increasing number of developers are turning their dream
projects into rentals until the market turns.
The bottom line for housing these days is we have a ways to go
before anyone can issue the ‘all clear’ signal. As in at least
another year by my reckoning, and far longer if and when the
economy finally falls apart and employment is impacted. I also
have to continue to pound the table on the key to this debate,
affordability. For lower- and middle-income America, in
particular, this remains a huge issue and a big negative. But next
week we’ll see December data on both new home sales (as
opposed to ‘starts’) and sales on existing ones. I’ll try not to
repeat myself for the umpteenth time but I suspect we’re about to
find that beavers weren’t just building new homes, they were
gobbling up existing abodes as well.
Turning to corporate earnings, it being reporting season, it wasn’t
the best of weeks, particularly for tech. Apple recorded record
revenue as it sold another 21 million iPods in the fourth quarter,
accounting for almost half of the company’s total sales, but its
guidance for the second quarter was below analyst estimates so
the Street slapped it around to the tune of about 10% from its all-
time high.
IBM issued a generally solid report, beating estimates, but
investors focused on moribund hardware sales and its shares lost
$3 on Friday; though to be fair like so many of this week’s tech
victims, they’ve had a good run since the July market lows.
Intel’s report was sloppy all around as net income fell 38% from
a year ago and revenues declined 5%. The market didn’t treat it
well in response as Intel continues to suffer from a pricing war
with its steel cage opponent, AMD.
Motorola said the average selling price on its mobile phones
declined $12 in the 4th quarter; not normally a good thing, as
Martha Stewart might offer. Globally, handset sales are slowing
to a below double-digit rate; another negative for this business
overall. And Motorola announced it would reduce its workforce
by 5%, or 3,500 positions in order to save $400 million. Of
course in the perverse order of Wall Street this is a positive so
MOT’s shares rebounded some.
In the non-tech universe, General Electric reported earnings that
were just in-line and its shares dropped after the news. It didn’t
help that GE restated earnings going back to 2001, but we were
told not to worry .just a little accounting issue concerning the
calculation of derivatives on its books. [It’s amazing what GE
gets away with sometimes.]
What was good? Once again investment banks, including
Merrill Lynch and J.P. Morgan, while Citigroup continues to
flounder under the Prince Spaghetti guy.
Two other bits. Oil traded below $50 briefly, before rallying
back a bit to close around $52. Oil stocks rallied strongly by
week’s end and the shares have been outperforming the price of
crude for some time now. [Encouraging to those of us who
recently put a toe back into the water in this sector.] Aside
from the Saudi Arabia comment in the opening segment above, I
have a few other remarks on energy below but will save some
Big Picture items for next week, which is another way of saying I
need to hash some things out in my mind before putting pen to
paper.
And we’ll finish up on a positive note. A survey for The
Economist shows that global business confidence is at its highest
level in five years as executives cite the dynamism of China,
India and other emerging markets. I would counter that .oops,
I said I’d finish on a positive note.
Street Bytes
--The Dow Jones and S&P 500 were virtually unchanged on the
week, while Nasdaq lost 2.1% thanks to the above noted earnings
disappointments.
--U.S. Treasury Yields
6-mo. 5.16% 2-yr. 4.92% 10-yr. 4.78% 30-yr. 4.86%
Bonds also ended the week unchanged despite all the data
and Fed Chairman Bernanke’s testimony before a Senate
committee, which ended up having zero to do with the economy.
Instead, Bernanke warned Congress that failure to act on
entitlement spending, specifically Social Security and Medicare,
is bound to propel interest rates. “Thus a vicious cycle may
develop in which large deficits lead to rapid growth in debt and
interest payments, which in turn adds to subsequent deficits
(sparking) a fiscal crisis, which could be addressed only by
very sharp spending cuts or tax increases or both.” Of course
Congress won’t do anything until it’s too late.
In the here and now, PIMCO’s Bill Gross has been calling for
falling yields, at one point last summer saying the 10-year
Treasury would not only dip below 4%, but eventually 3% over
the next two years as the economy softened. He may still be
right, but everyone, including Gross and PIMCO is being forced
to readjust their forecasts as the economy remains fairly strong
and the Federal Reserve is showing no signs of cutting rates. So
his choice, and that of countless other managers, is to move an
increasing percentage of the portfolio into mortgage-backed
securities to pick up incremental yield.
“We’re simply in a period of time when there are leads and lags
here, much like the leads and lags of Federal Reserve policy,”
Gross told Bloomberg News.
--In reading the first thoughts of the annual Barron’s roundtable,
what stood out were the concerns over soaring margin debt levels
and the impact of mortgage cash-outs, or, more specifically, the
fact the latter have dried up and the effect this inevitably will
have on consumer spending at some point. [Geezuz when are
us doom and gloomers going to be right on the consumer?]
--President Bush will emphasize “energy independence” in his
State of the Union address this Tuesday, not that he or his
predecessors haven’t done this before. But the new Democratic
Congress provides some hope and room for compromise as the
two parties should find agreement on items such as tougher fuel-
economy standards, finally.
Democrats, though, advocate a doubling of the amount of corn-
based ethanol to be used in gasoline to 15 billion gallons by
2012, from the current level of 7.5 billion gallons. As
Democratic Representative Collin Peterson of Minnesota told
Bloomberg News, “Every member of Congress now has
discovered ethanol.” And this creates its own problems, sports
fans.
I have some farmer friends in the Oklahoma Panhandle, the
Bakers, whom I’ve talked about from time to time. With all the
bad weather in that part of the country the past few weeks I was
growing concerned about their welfare, especially knowing how
isolated their farm is, so I checked up on them.
It turns out the Bakers had survived (at least up to this weekend’s
storm), but in discussing the fate of their dairy farm (they raise
hogs as well) I asked them how business had been, knowing that
they had done very well in 2004 and ‘05.
“Lots of people out here are excited because of ethanol,” said
Eugene. “But the high price killed us last year” as the Bakers
use corn for feed.
And therein lies the dilemma. The price of corn has doubled in
one year because of the unprecedented demand for ethanol.
Some companies, from chicken processors like Tyson Foods, to
soft drink bottlers such as Coca-Cola, are paying a steep price.
[Tyson uses corn for feed and Coke is dealing with the rising
price of corn syrup.]
Tons of farmers, on the other hand, are now cashing in by
switching to corn as their prime crop, but as alluded to above any
livestock business is a loser as corn for feed consumes a major
share of the total crop.
Prasenjit Bhattacharya wrote in the Wall Street Journal, “This
has fueled concerns that corn, a staple food ingredient in many
countries and widely used as feed in the poultry and livestock
sectors, might become out of reach for poorer consumers,
boosting food prices in general.”
“Soaring food prices could cause urban riots in scores of low-
income countries that rely on grain imports, such as Indonesia,
Egypt, Algeria, Nigeria and Mexico,” said Lester Brown,
founder of the Earth Policy Institute.
For its part the U.S. is both the leading corn producer and corn
exporter. Look for the debate over ethanol, its efficacy, the true
impact on the environment and food prices, etc., to heat up six-
fold over the coming year.
--And speaking of prices, California citrus growers face a $1
billion loss as a result of the record freeze in that state when you
add in avocados, strawberries and fresh-cut flowers. The price of
orange juice has already tripled in some spots and as one teacher
told the AP, “We may be drinking our Coronas without limes.” I
also have to note as an aside that this winter’s weather has been
so strange that Malibu has received more snow than New York
City.
--The House voted to rescind various tax breaks for oil drillers
worth $billions, though the Senate may water it down some.
Those looking to slam Big Oil, however, better be careful.
We’re going to be relying on the stuff, whether we like it or not,
for decades to come and at various times in the cycle incentives
will be necessary to produce it or the drillers will just close up
shop, as has happened before.
And as pointed out in a piece by my friends at Strategic Energy
Research, Schlumberger’s CEO Andrew Gould, in commenting
on the company’s strong 4th quarter, said that in looking at SLB’s
own positive outlook, the industry continues to see “accelerating
decline rates, poorer quality reservoirs and an eroding reserve
replacement ratio.” This is a fact of life in today’s energy patch
so enjoy the respites in price such as the one we are seeing today.
In the interest of balanced reporting, though, I do have to note
that Saudi Arabia announced it would expand its crude
production capacity by 40% over the coming two years, though
this doesn’t mean it will necessarily find all the black gold to
begin with, or that it will be the right kind.
--Former Secretary of State James Baker headed up an
independent panel looking into British Petroleum and its safety
problems and the report blasted BP for failing to provide
oversight that could have prevented fatal accidents such as the
Texas City, Texas, blast that killed 15 and injured 170 in 2005.
BP has set aside a staggering $1.6 billion for victims of this
accident.
--The 2007 Index of Economic Freedom is out, as put together
by the Heritage Foundation and the Journal. The annual survey
grades countries on a combination of factors including property
rights protection, tax rates, “business freedom” (impact of
regulation), monetary, fiscal and trade policy.
1. Hong Kong
2. Singapore
3. Australia
4. United States
5. New Zealand
6. United Kingdom
7. Ireland
8. Luxembourg
9. Switzerland
10. Canada
Chile is No. 11 and Japan No. 18, but out of 157 countries listed,
China and Russia are at No. 119 and No. 120, respectively. I
note Chile, a real success story, because by contrast Venezuela is
No. 144. Others at the bottom include Iran at No. 150,
Zimbabwe No. 154, Cuba No. 156 and last, and least, No. 157
NORTH KOREA! Kim Jong-il, take a bow.
--Not for nothing but Toyota sure has had a ton of recalls, the
latest being one for over 500,000 vehicles. The company itself is
scared to death owners may suddenly wake up and the bloom
could be off the rose.
--George Will wrote a piece on Boeing’s success vs. Airbus and
contained therein was a nugget I hadn’t seen before. Federal
Express says that 98% of the weight of international commerce is
shipped by sea, but the 2% moved by air constitutes 40% of the
economic value. The number of cargo aircraft is expected to
explode over the coming years.
--Follow-up to last week when I mentioned mall developer Mills
Corp. and its financial difficulties. This week it agreed to be
acquired by Canadian investment company Brookfield Asset
Management, with Brookfield assuming the $1 billion loan from
Goldman Sachs that I had cited. Without a deal, Mills Corp. was
facing bankruptcy.
--Verizon is continuing to spin off its landline business in
exchange for a focus on providing Internet connections, wireless
and television. It has also been shedding its Latin American
operations, though at a substantial probable loss, witness
Venezuela’s move to nationalize the leading telecom in which
Verizon has a 28% stake. But some of us in the New York City
area have a major problem with omnipresent Verizon. Even
reader Chris C. wrote in this week blasting the company for
advertising “Unlimited Broadband/Wireless” when it is far from
it. [Chris also noted that some new Dell laptops appear to limit
broadband/wireless options to Verizon. Bring back the old Ma
Bell, we say!]
--So a few weeks ago I recommended conservationsalmon.com
as a source for obtaining true wild fish after receiving a note
from a reader. I just have to comment that I thought the salmon
was a little on the tough side initially until I learned to marinate it
better, and cook it less, and that’s done the trick. [I’m a teriyaki
sauce guy, myself.] I know a fair number of you have tried the
company and I hope the experience has been a good one. Us
wild fish proponents need to stick together.
I only bring this up, though, because the Marine Aqualculture
Task Force has unveiled guidelines for a new aquaculture
industry, one that is expected to grow fivefold by 2020.
What it comes down to is offshore fish farmers will be allowed
to lay claim to vast parcels of the sea, with ‘farms’ in colonies of
undersea cages brimming with swimming livestock, anchored in
U.S. waters from three to 200 miles from shore. It’s hoped that
this form of fish farming, which seems a heck of a lot more
appetizing than what we deal with today, will reduce the nation’s
dependence on imports. More than 75% of all seafood eaten in
the U.S. comes from other countries. [Anchorage Daily News]
--New York City Mayor Michael Bloomberg unveiled a $1
billion tax cut, $750 million of it coming in the form of property
tax relief, the first such cut in these rates since 1983. But the 5%
reduction follows an 18.5% hike he levied in 2003 and with
revaluations since then, the impact is tiny when reduced to the
small-home owner. Nonetheless, it sounds impressive and it’s
better than nothing. [More on the political impact of
Bloomberg’s move in ‘random musings.’]
But I just need to clarify something I wrote last week in
discussing New York City’s finances. Thanks to Wall Street, tax
revenues could be as much as $1 billion higher than initially
projected in the current fiscal year, far more than the $250
million I wrote of. Projections keep getting ratcheted up, just as
they have been on the federal level. New York City does,
however, still face severe fiscal problems down the road,
especially during Wall Street’s inevitable slumps, and
Bloomberg emphasized the cut should be viewed as a one-time
event.
--Tough time for those in the media business, particularly the
editorial staffs at Time, People and Sports Illustrated. 172
editors at the three are among close to 300 positions being lopped
off as print struggles to find a successful model in this Internet
era. The New York Post reported that at Time, one insider said
“Everyone is completely demoralized, and there is no work being
done.” I don’t read Time, being a Newsweek guy myself, but
this tells me ‘don’t waste your money on the next issue.’
It’s sad. No doubt these are good people that have helped inform
and entertain for decades. The severance packages I saw also
looked pitiful.
Foreign Affairs
Venezuela: Last weekend President Hugo Chavez said his
government would still allow some private investment in major
oil projects that he otherwise plans to nationalize, though he
added, “He who wants to stay on as our partner, we’ll leave open
the possibility to him. He who doesn’t want to stay on as a
minority partner, hand over the (oil) field and, goodbye.
Goodbye, good luck and thank you very much.” Most
companies continue to invest despite tightening terms that have
included tax and royalty increases.
Iran’s President Ahmadinejad was in the region last weekend,
visiting not just Chavez but also Nicaragua’s new leader Daniel
Ortega and Ecuador’s newly installed President Rafael Correa.
Chavez and Ahmadinejad announced a $2 billion fund to finance
development, and, more appropriately, do all they can to stick it
to the United States.
But in reading various editorials and reports on the
Iran/Venezuela relationship, including from the Wall Street
Journal and New York Times, I still can’t believe most folks
don’t seem to get it. There is zero talk of Iranian agents
infiltrating not just Venezuela but other compliant Latin
American countries as well.
China: I couldn’t help but read the stories on China’s surprise
shoot down of one of its aging weather satellites by a medium-
range ballistic missile and think of all the missile technology the
nation has stolen over the years and the duplicity of some of our
own business leaders such as Loral’s Bernard Schwartz. I
harped on this topic for years (as did former Times’ columnist
William Safire) and was disappointed when political
investigations, such as that overseen by current SEC Chairman
Christopher Cox, ended with a wimper because, I suspect, it was
hitting too close to home for some of them. [For my part I won’t
bring up the Clinton angle. But Safire railed that the missile
secrets thefts were far more serious than any other transgressions
during his administration.]
I also have to add that on 5/27/99 in my “Hott Spotts” column I
wrote of Loral’s and Hughes Electronics’ culpability, with
Loral’s Schwartz the leading donor to the national Democratic
Party at the time. Among other items over the years, I also noted
in WIR on 6/4/05 the following:
“Years ago I was a big fan of (Christopher) Cox but have trouble
forgiving him for his failure to follow through on an
investigation into the sale of missile secrets to China when he
was chairing a committee looking into the matter. Some offered
at the time it was because dirty laundry was about to be aired
concerning Cox himself.”
So last week China performed this daring missile maneuver and
it doesn’t take a rocket scientist to begin to connect the dots, as
some of us warned.
Back in 1985, the U.S. held its last anti-satellite test and then
halted them for fears the debris could harm both civilian and
military satellites orbiting the earth. At the time there was
general agreement among the world’s powers that the
weaponization of space was off limits.
That’s why China’s test is so significant and why everyone from
the United States, Japan, Canada and Australia have expressed
outrage. Back in October, the State Department’s chief arms
control official, Robert Joseph, voiced concerns that other
nations and possibly terrorist groups were “acquiring capabilities
to counter, attack and defeat space systems. No nation, no non-
state actor, should be under the illusion that the United States
will tolerate a denial of our right to the use of space for peaceful
purposes.”
Of course more broadly speaking, China’s successful take down
of a vehicle 537 miles into space raises further troubling
questions. The bottom line is I write constantly of China’s
advances on the military front, and threats directed towards
Taiwan, for a reason.
While China needs to be engaged at all levels, including
economically for obvious reasons, we can never forget the true
nature of the regime. China has a totalitarian system bent on
attaining military power to counteract U.S. influence in the
region, particularly at sea. China is a growing threat period.
The other week I wrote of China’s complaint that the U.S. and
Japan were drawing up plans to respond to a Chinese attack on
Taiwan. A Chinese Foreign Ministry spokesman said then
“China expresses serious concern over this. Taiwan is an
inseparable part of China. Any arrangement or consideration
should respect and abide by the principle of one China.”
[Defense News]
What concerns China these days is not an outright call for
independence by Taiwan, but quasi-political moves and
statements that give Taiwan “de facto independent status.”
China thus sees U.S. and Japan forward planning as a prelude to
military intervention should China act.
But a former U.S. defense official told Defense News that in his
view Washington has no obligation to defend Taiwan.
“It’s dangerous to assume the U.S. would intervene, since it’s a
critical unknowable if the U.S. has the will or capability to
intervene in the event of Chinese use of force. Without any
assurance in writing in the form of a mutual defense treaty, one
could prepare for U.S. intervention, and plan for ad hoc coalition
operations, all of which has been going on since May 1999.
“The Taiwan Relations Act only calls for ‘maintaining the
capability’ to intervene and to consult with Congress,” the
anonymous official said. “It’s not a treaty, and President Bush’s
April 2001 statement to ‘help Taiwan defend herself’ is vague –
‘help’ could mean just providing intelligence, minesweeping,
emergency supplies, etc.”
I’m beginning to think the next occupant of the White House will
have to deal with Taiwan. I disagree with the gentleman noted
above. We are obligated to come to Taiwan’s rescue in most
circumstances, but the bigger issue will be whether or not the
American people will allow it. I suspect not. And who in
particular is left hanging, aside from the Taiwanese? Japan.
Back to China and its current leadership, on Monday Premier
Wen Jiabao said of the six-party talks on North Korea and its
weapons program, “Although (they) have met with difficulties,
as long as each side works hard we can overcome the barriers
and achieve the final target.”
That is truly laughable. Premier Wen, all you have to do is jack
Kim Jong-il up against the wall and read him the riot act as the
North Koreans cannot survive without China’s aid. But thus far
you have refused to do that, this much is clear, and blowing a
satellite out of the stratosphere, without any advance notice to the
likes of Japan, speaks volumes in its own way.
But according to Christopher Hill, the chief U.S. nuclear
negotiator, some progress was made in direct face-to-face talks
between American and North Korean officials this past week in
Berlin. We’ve heard this all before, but perhaps we’ll finally get
some good news on the geopolitical front. The North Korean
crisis is not about the U.S. as much as it is about China’s lack of
cooperation and desire to see Washington sweat.
South Korea/North Korea: The top U.S. general in South Korea,
who also serves as chief of the U.N. Command, warned that
when America hands back wartime command over Seoul’s
forces it could jeopardize stability on the peninsula.
South Korea has requested it be given control of its own forces,
which it turned over to the U.S.-led U.N. Command during the
Korean War, with the transition taking place between 2009 and
2012.
But U.S. Army General B.B. Bell said any change in the alliance
structure could hamper a response to a North Korean attack in
terms of a quick mobilization of forces. Any crisis, says the
general, “can almost instantaneously lead to combat operations.”
You know why I’m bringing this up? As I read a piece in the
South China Morning Post my thoughts immediately turned to
how relatively easy it would be for North Korean agents to
blackmail/bribe the top South Korean general, who thus
compromised purposefully fails to act quickly in the initial
moments after an attack as he’s ferreted out of the country. Or
maybe I’m just trying to hash out a plot for “24.”
Separately, concerning Pyongyang, the Journal’s Melanie
Kirkpatrick wrote of a new U.N. scandal on the heels of Saddam
Hussein’s $100 billion Oil for Food scam; this one being the
United Nations Development Program in North Korea.
American officials have been digging into it and according to
Ambassador Mark Wallace of the U.S. Mission to the U.N., the
UNDP’s program in North Korea “has for years operated in
blatant violation of U.N. rules, served as a steady and large
source of hard currency and other resources for the DPRK
government with minimal or no assurance that UNDP funds and
resources are utilized for legitimate development activities.” The
money involved could be as much as $100 million going directly
into Kim’s coffers, and his nuclear weapons program.
[In essence, the UNDP has been employing workers handpicked
by the North Korean government itself, the latter thus gaining
direct control of the flow of funds.]
Russia: The Kremlin is refusing to cooperate in Scotland Yard’s
investigation of the murder of Alexander Litvinenko. The
Russkies’ top prosecutor is insisting that his agents be allowed to
question critics of President Vladimir Putin living in Britain.
Yuri Chaika added “We don’t rule out that the murder may have
been committed by Russian citizens who live abroad.” Relations
between Britain and Russia continue to deteriorate and while I
don’t mean to be flippant about such a serious topic, it’s times
like these that you can understand why Prime Minister Tony
Blair recently announced Britain would not give up its nuclear
deterrent. It’s a decision that’s not about today but somewhere
down the road when Russia could very easily be ruled by
someone far worse than Putin and the once unthinkable could be
back on the table.
And in case you needed reminding on the true nature of today’s
Russian regime, this week Defense Minister Sergei Ivanov, a
very bad guy as I’ve noted from time to time, admitted Russia
had sold Iran 29 highly-sophisticated anti-aircraft missile
systems, and that Russia would gladly sell Iran more if they
asked, added Ivanov. Of course the United States and other
Western nations had asked Russia not to do this. Instead they
flipped us off.
Turkey: Last year, a Turkish-Armenian editor, Hrant Dink, was
sentenced to six months, later suspended, for insulting Turkey’s
identity following his comments on the Armenian genocide
during World War I. On Friday he was assassinated in Istanbul.
Prime Minister Erdogan said “A bullet has been fired at
democracy and freedom of expression .This was an attack on
our peace and stability.” The killing could further doom Turkey’s
EU bid as the country also faces a contentious presidential
election this spring amidst rising nationalism.
France: It’s heating up the race for president, that is. Two
separate polls came up with the exact same result. In a second
round of voting (the first is in April and will winnow down the
field, assuming no one receives a majority then), Nicolas
Sarkozy is ahead of Socialist Segolene Royal, 52-48. [In the first
round the two are essentially tied with 30%, while far right
candidate Jean-Marie Le Pen is favored by 15% of voters
currently.]
Ms. Royal had to defend herself this week against charges that
she may have been evading France’s wealth tax which kicks in
after household assets reach about $950,000, if my back of the
envelope euro to dollars calculation is correct.
Britain: A top aide to Tony Blair was arrested for her role in the
campaign finance scandal where Blair’s party was ‘loaned’
money in return for seats in the House of Lords. The prime
minister’s last few months in office threaten to be a nightmare as
the investigation is showing no signs of winding down.
Random Musings
--For the latest available data period, the American Cancer
Society said deaths dropped for a second straight year. In 2004,
there were 553,888 deaths from cancer, compared to 556,902 in
2003.
--I got a kick out of a London Times piece on Barack Obama and
his poor relationship with civil rights leaders such as Al Sharpton
and Jesse Jackson; though it now appears Jackson is ready to
endorse Obama. As for Hillary Clinton, she had long hoped to
tap into her husband’s legacy of being the ‘first black president.’
The Times quoted one Democratic strategist who put it best.
“They are basically jealous. They’ve been toiling in the trenches
for decades, and along comes this son of a Kenyan farmer and
suddenly he’s measuring the drapes in the Oval Office.”
--As alluded to above, New York City Mayor Bloomberg
certainly enhanced his bona fides should he decide to launch a
third party candidacy with his sweeping tax cut. As it is,
Bloomberg has a phenomenal 75% overall approval rating
among Big Apple voters, even after another controversial police
shooting. Specifically, 54% approve of his handling of the Sean
Bell case, which Quinnipiac notes contrasts with the 23%
approval Rudy Giuliani received for his own handling of the
Amadou Diallo shooting.
So will Bloomberg run? Should Iraq remain a quagmire, thus
blunting the candidacy of John McCain, it certainly would make
it easier for someone like Bloomberg to really shake things up.
But I didn’t know until reading a piece in the Atlantic Monthly
that there is already a new party, formed by some old
Washington strategists, called “Unity08”, which backers vowed
would be operated on the Internet. Joshua Green writes:
“The creators of Unity08 believe that the answer is to open the
process to the Internet masses, causing a tectonic shift powerful
enough to disrupt the two-party system. They have not,
however, lost faith in that system – merely in its power to correct
itself. ‘The two-party system has worked well for 200 years and
can continue to do so,’ (Doug) Bailey says, ‘but only when
elections are fought over the middle. Our goal is to jolt the two
parties into recognizing this, by drawing them into a fight over
the middle rather than allowing them to keep maximizing the
appeal to their bases at the extremes.’”
Sounds like you could slot in Bloomberg, who is already a
hybrid; half-Republican, half-Democrat.
--Britain is facing an uproar over another of those totally idiotic
reality television shows, this one “Celebrity Big Brother,” where
Bollywood star Shilpa Shetty has been subject to blatantly racist
comments by fellow contestants. I’ve caught many of the clips
on BBC World and no wonder it’s causing such a stink. In fact,
it’s so bad that the man about to take over for Tony Blair,
Gordon Brown, saw a goodwill trip to India hijacked by the
program and protests among Indians.
--Former congressman Bob Ney was sentenced to 30 months in
prison for his role in the Jack Abramoff scandal. Ney told the
judge, “I will continue to take full responsibility, accept the
consequences and battle the demons of addiction that are within
me.” Oh, stop using alcohol as an excuse, you jerk. You’re a
crook. End of story.
--I won’t read it but I’ll buy Dina McGreevey’s book when it
comes out this spring as a little show of support for this woman
who not only had to endure her husband’s disgraceful exit when
governor of New Jersey, but also the publicity tour for his
despicable tell-all book on what it’s like to be “a gay American.”
--Linda Stasi, New York Post, on the appearance of Shawn
Hornbeck and his parents on “Oprah” last Thursday.
“Yesterday, the parents of Shawn Hornbeck did what any parent
whose child had been held captive and suffered hell on earth
would do in this circumstance: They put him on TV to suffer
further pain, shame and humiliation. On ‘Oprah’ yet .
“This, mind you, occurred less than a week after the boy’s
dramatic rescue .
“Shawn looked like he just wanted to die – maybe of shame,
maybe of terror, or maybe just because after being held captive
by a monster, a child knows when he’s being exploited. And
yesterday, he was – in the most legal, sanitized, huggy-feely,
disgraceful way .
“And while no one asked Shawn if he’d been sexually abused by
The Monster, Oprah did, in fact, ask his parents, saying, ‘OK,
I’m going to go there and ask you, what do you think happened?
Do you think he was sexually abused?’
“They indicated that they thought he had been. At least adult
women who’ve been raped get the respect of having their names
concealed in the media.
“My God! This kid is 15! What in hell could his parents be
getting out of this? Do you know any 15-year-old boy who’d
want the allegation that he may have been sexually violated by a
grown male to be broadcast around the world? Do you know any
human for that matter who’d be able to live with that
humiliation?”
--For those of you watching “24”, wouldn’t the world be safer
without cellphones?
--In a recent survey of college students on U.S. civic literacy,
about 20% of those polled thought Rev. Martin Luther King Jr.
was advocating the abolition of slavery in his “I Have a Dream”
speech. Oh brother. We are truly doomed.
--Speaking of which The Doomsday Clock, operated by the
Bulletin of the Atomic Scientists (BAS) for the past 60 years,
was moved two minutes closer to midnight, now 11:55, to reflect
climate change and the nuclear ambitions of North Korea and
Iran. Professor Stephen Hawking addressed the move.
“Since Hiroshima and Nagasaki, no nuclear weapons have been
used in war, though the world has come uncomfortably close to
disaster on more than one occasion. But for good luck, we
would all be dead.
“As we stand at the brink of a second nuclear age and a period of
unprecedented climate change, scientists have a special
responsibility once again to inform the public and advise leaders
about the perils that humanity faces.
“We foresee great peril if governments and society do not take
action now to render nuclear weapons obsolete and prevent
further climate change.
“As scientists, we understand the dangers of nuclear weapons
and their devastating effects, and we are learning how human
activities and technologies are affecting climate systems in ways
that may forever change life on Earth.
“As citizens of the world, we have a duty to alert the public to
the unnecessary risks that we live with every day, and to the
perils we foresee if governments and societies do not take action
now to render nuclear weapons obsolete and to prevent further
climate change.”
The BAS added:
“The dangers posed by climate change are nearly as dire as those
posed by nuclear weapons. The effects may be less dramatic in
the short term than the destruction that could be wrought by
nuclear explosions, but over the next three to four decades
climate change could cause irremediable harm to the habitats
upon which human societies depend for survival.” [Mark
Henderson / London Times]
Now who wants a beer?
---
Pray for the men and women of our armed forces, and their
families.
God bless America.
---
Gold closed at $636
Oil, $51.99
Returns for the week 1/15-1/19
Dow Jones +0.1% [12565]
S&P 500 -0.0% [1430.50 down a fraction of a point]
S&P MidCap -0.5%
Russell 2000 -1.2%
Nasdaq -2.1% [2451]
Returns for the period 1/1/07-1/19/07
Dow Jones +0.8%
S&P 500 +0.9%
S&P MidCap +1.5%
Russell 2000 -0.3%
Nasdaq +1.5%
Bulls 50.5 [big drop]
Bears 22.1 [Source: Chartcraft / Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
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